<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1997.
---------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 333-18019
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WCI STEEL, INC.
(Exact name of registrant as specified in its charter)
Ohio 34-1585405
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1040 Pine Ave., S.E., Warren, Ohio 44483-6528
(Address of principal executive offices) (Zip Code)
(330) 841-8314
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
[X] Yes [ ] No
As of April 30, 1997, the registrant had 100 shares of its common
stock, no par value, $.01 stated value, outstanding.
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<PAGE> 2
WCI STEEL, INC. AND SUBSIDIARIES
INDEX
--------------------------------
Page No.
--------
PART I FINANCIAL INFORMATION
- -------------------------------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
April 30, 1997 and October 31, 1996. 3
Condensed Consolidated Statements of Operations for the
three months and six months ended April 30, 1997 and 1996. 4
Condensed Consolidated Statements of Cash Flows for the
six months ended April 30, 1997 and 1996. 5
Notes to Condensed Consolidated Financial Statements. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
Exhibit Index 16
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
WCI STEEL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
April 30, October 31,
1997 1996
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.........................$ 21,364 $ 90,395
Short-term investments............................ - 49,146
Accounts receivable, less allowances.............. 66,885 65,869
Inventories....................................... 92,332 96,675
Recoverable income taxes.......................... 2,029 -
Deferred income taxes............................. 10,843 10,637
Prepaid expenses.................................. 474 1,244
-------- --------
Total current assets......................... 193,927 313,966
Property, plant and equipment, net.................. 220,638 205,121
Intangible pension asset............................ 25,627 27,505
Other assets, net................................... 22,533 20,861
-------- --------
Total assets............................$ 462,725 $ 567,453
======== ========
LIABILITIES and SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities
Current portion of long-term debt.................$ 2,502 $ 2,448
Accounts payable.................................. 61,307 79,138
Accrued liabilities............................... 52,672 40,697
Income taxes...................................... - 10,049
-------- --------
Total current liabilities.................... 116,481 132,332
Long-term debt, excluding current portion........... 301,673 209,058
Deferred income taxes............................... 4,053 4,365
Postretirement health benefits...................... 84,129 81,795
Pension benefits.................................... 35,133 34,011
Other liabilities................................... 20,097 26,012
-------- --------
Total liabilities....................... 561,566 487,573
-------- --------
Shareholders' equity (deficit)
Preferred stock, par value $1,000 per share, 5,000
shares authorized, none issued. ................ - -
Common stock, no par value, stated value $.01 per
share, 40,000,000 shares authorized, 100 and
36,623,700 shares issued at April 30, 1997
and October 31, 1996, respectively.............. - 366
Treasury stock at cost, 222,300 shares at
October 31, 1996................................ - (1,200)
Additional paid-in capital........................ - 570
Retained earnings (deficit)....................... (98,841) 80,144
<PAGE> 4
-------- --------
Total shareholders' equity (deficit).... (98,841) 79,880
Commitments and contingencies....................... - -
Total liabilities and -------- --------
shareholders' equity....................$ 462,725 $ 567,453
======== ========
<FN>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
</FN>
</TABLE>
<TABLE>
<CAPTION>
WCI STEEL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
(Unaudited)
Three months Six months
ended April 30, ended April 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales........................ $ 172,634 $ 166,959 $ 333,541 $ 315,452
Operating costs and expenses
Cost of products sold........... 141,291 140,698 272,900 266,202
Depreciation and amortization... 5,582 5,641 11,126 11,310
Selling, general and
administrative expenses........ 5,287 5,716 19,303 10,199
------- ------- ------- -------
152,160 152,055 303,329 287,711
------- ------- ------- -------
Operating income................. 20,474 14,904 30,212 27,741
------- ------- ------- -------
Other income (expense)
Interest expense................ (8,068) (6,247) (15,593) (12,510)
Interest and other income, net.. 137 1,666 788 3,071
------- ------- ------- -------
(7,931) (4,581) (14,805) (9,439)
------- ------- ------- -------
Income before extraordinary loss
and income taxes................ 12,543 10,323 15,407 18,302
Income tax expense............... (4,766) (4,129) (5,917) (7,320)
------- ------- ------- -------
Income before extraordinary
loss............................ 7,777 6,194 9,490 10,982
Extraordinary loss on early
retirement of debt, net
of income tax................... - - (19,606) -
------- ------- ------- -------
Net income (loss)................ $ 7,777 $ 6,194 $ (10,116)$ 10,982
======= ======= ======= =======
<FN>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
</FN>
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
WCI STEEL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited) Six months
ended April 30,
1997 1996
<S> <C> <C>
Cash flows from operating activities
Net (loss) income.................................$(10,116) $ 10,982
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization................ 9,661 9,845
Amortization of deferred blast furnace
maintenance costs.......................... 1,465 1,465
Amortization of financing costs.............. 743 1,091
Postretirement health benefits............... 2,334 2,513
Pension benefits............................. 3,000 3,450
Deferred income taxes........................ (518) 1,790
Extraordinary loss on early retirement of
debt....................................... 32,786
Other........................................ 394 (158)
Cash provided (used) by changes in certain assets
and liabilities
Accounts receivable........................ (1,016) (31,475)
Inventories................................ 4,343 19,684
Prepaid expenses and other assets.......... 794 772
Accounts payable........................... (17,831) 25,555
Accrued liabilities........................ 11,975 (983)
Income taxes payable and recoverable, net.. (12,078) 5,113
Other liabilities.......................... (5,915) 241
------ -------
Net cash provided by operating
activities.............................. 20,021 49,885
------ -------
Cash flows from investing activities
Additions to property, plant and equipment, net... (25,241) (11,767)
Short-term investments, net....................... 49,146 4,349
Gross proceeds from the sale of assets............ - 497
------ -------
Net cash (used) provided by investing
activities.............................. 23,905 (6,921)
------ -------
Cash flows from financing activities
Net proceeds from issuance of Senior Secured
Notes........................................... 290,275 -
Repurchase of Senior Notes........................(233,085) -
Repurchase of common stock........................ (56,936) -
Dividends paid....................................(112,000) (1,828)
Principal payments on other long-term debt........ (1,211) (1,164)
-------- -------
Net cash used by financing activities.....(112,957) (2,992)
-------- -------
<PAGE> 6
Net (decrease) increase in cash and cash equivalents... (69,031) 39,972
Cash and cash equivalents at beginning of period....... 90,395 94,266
------- -------
Cash and cash equivalents at end of period.............$ 21,364 $134,238
======= =======
Supplemental disclosure of cash flow information
Cash paid for interest............................$ 5,649 $ 11,487
Cash paid for income taxes........................ 5,335 428
<FN>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
</FN>
</TABLE>
WCI STEEL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
( Unaudited )
Three and six months ended April 30, 1997 and 1996
NOTE 1 : BASIS OF PRESENTATION
WCI Steel, Inc. (Company or WCI) is a wholly-owned subsidiary of The Renco
Group, Inc. (Renco or Parent). The financial information included herein is
unaudited; however, such information reflects all adjustments (consisting
solely of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair statement of results for the interim
periods. The results of operations for the three and six months ended April
30, 1997 are not necessarily indicative of the results to be expected for the
full year.
These interim consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company's Form 10-K for the fiscal year ended October 31, 1996.
NOTE 2 : INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined by
the last-in, first-out (LIFO) method. The composition of inventories at
April 30, 1997 and October 31, 1996 was as follows:
<TABLE>
<CAPTION>
April 30, October 31,
1997 1996
----------- -----------
(Unaudited)
(Dollars in thousands)
<S> <C> <C>
Raw materials.........................$ 29,002 $ 40,828
Finished and semi-finished product.... 70,588 62,340
Supplies.............................. 528 393
-------- --------
100,118 103,561
Less LIFO reserve..................... 7,786 6,886
-------- --------
$ 92,332 $ 96,675
======== ========
</TABLE>
<PAGE> 7
NOTE 3 : LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
April 30, October 31,
1997 1996
---------- ----------
(Unaudited)
(Dollars in thousands)
<S> <C> <C>
Senior Secured Notes with interest at 10%
payable semi-annually, due 2004...............$ 300,000 $ -
Senior Notes with interest at 10.5%
payable semi-annually, due 2002............... 280 206,400
Revolving Credit Facility (Revolver) with
interest at prime plus 0.5% (9.00% at
April 30, 1997) payable monthly............... - -
Other.......................................... 3,895 5,106
------- -------
304,175 211,506
Less current portion of long-term debt......... 2,502 2,448
------- -------
$ 301,673 $ 209,058
======= =======
</TABLE>
On November 27, 1996, WCI Steel Holdings, Inc., a wholly-owned subsidiary
of Renco, completed a tender offer in which it purchased substantially all
the outstanding shares of common stock of the Company not held by Renco
(Equity Tender Offer). Following the completion of the Equity Tender Offer,
WCI Steel Holdings, Inc. was merged with and into the Company with the
Company surviving as a wholly-owned subsidiary of Renco. The total
consideration paid for the common stock tendered and the common stock
reacquired as a result of the merger of WCI Steel Holdings, Inc. with and
into the Company was approximately $56,936,000, including related expenses.
On the same date, the Company completed the sale of $300,000,000 10% senior
secured notes (Senior Secured Notes) due 2004. The proceeds from the Senior
Secured Notes, with existing cash balances of the Company, were used to
complete the Equity Tender Offer, a tender offer in which the Company
acquired $206,120,000 of the $206,400,000 aggregate principal amount of the
then outstanding 10.5% Senior Notes at a rate of $1,125 per $1,000 principal
amount outstanding plus accrued interest, pay a $108,000,000 dividend to
Renco, make contractual compensation payments to certain executives of the
Company and pay related transaction costs. The debt transactions, Equity
Tender Offer, dividend payment and compensation payments are collectively
referred to as the "Transactions". As a result of the Transactions, the
Company recognized an extraordinary loss of $19,606,000, net of income tax
benefits of $13,180,000, and compensation expenses of approximately
$8,577,000 in the first quarter of fiscal 1997.
The Senior Secured Notes are secured by a second priority lien on
substantially all of the existing property, plant and equipment of the
Company which will become a first priority lien if all of the 10.5% Senior
Notes are extinguished. A Voluntary Employee Beneficiaries Association trust
fund, established to hold Company contributions to fund postretirement health
care and life insurance obligations for the benefit of hourly employees, also
<PAGE> 8
holds a second priority lien on the security for the Senior Secured Notes,
which lien will remain a second priority lien even if the lien in favor of
the Senior Secured Notes becomes a first priority lien.
The Company's Revolver and Senior Secured Notes contain certain financial
and other covenants, including maintenance of specified levels of net worth
as defined, working capital, and debt service and limitations on capital
expenditures. Additional covenants limit the incurrence of additional
indebtedness, payments affecting subsidiaries, transactions with affiliates,
sale/leaseback transactions, impairment of security interest, consolidations,
mergers and transfer of the Company's assets. The Company is permitted to
declare and pay dividends, and make other transactions with affiliates
provided no condition of default exists or will exist as a result of the
transactions or dividends, and the accumulated amount of such transactions is
no greater than fifty percent (50%) of the consolidated net income as defined
(less 100% of any consolidated net loss) earned for periods subsequent to
October 31, 1996 when taken as a single accounting period. Under these
agreements $3,311,000 was available for dividends and other transactions with
affiliates at April 30, 1997.
NOTE 4 : ENVIRONMENTAL MATTERS and OTHER CONTINGENCIES
In common with much of the steel industry, WCI's facilities are located on
sites that have been used for heavy industrial purposes for decades.
Accordingly, WCI is and will continue to be subject to numerous federal,
state and local environmental laws and regulations governing, among other
things, air emissions, waste water discharge and solid and hazardous waste
disposal. WCI has made and intends to continue to make the necessary
expenditures for environmental remediation and compliance with environmental
laws and regulations. Environmental laws and regulations have changed
rapidly in recent years, and WCI may be subject to more stringent
environmental laws and regulations in the future. Compliance with more
stringent environmental laws and regulations could have a material adverse
effect on WCI's financial condition and results of operations.
On June 29, 1995, the Department of Justice, on behalf of the Environmental
Protection Agency (EPA), instituted a civil action against WCI under the
Clean Water Act in the United States District Court for the Northern District
of Ohio. The action alleges numerous violations of the Company's National
Pollution Discharge Elimination System permit alleged to have occurred during
the years 1989 through 1996, inclusive. On March 29, 1996, the Department of
Justice on behalf of the EPA, instituted another civil action against the
Company in the same court under the Clean Air Act alleging violations by the
Company of the work practice, inspection and notice requirements for
demolition and renovation of the National Emission Standard for Hazardous Air
Pollutants for Asbestos and also violations of the particulate standard and
the opacity limits applicable to the Company's facilities in Warren, Ohio.
Each action seeks a civil penalty not to exceed the statutory maximum of
$25,000 per day per violation and also seeks an injunction against continuing
violations. The Company believes that imposition of the statutory maximum
penalty for the alleged violations is unlikely based upon past judicial
penalties imposed under the Clean Water Act and the Clean Air Act, and that
it has defenses to liability. By letter dated November 1, 1996, EPA's Region
V Water Division Director requested information pursuant to the Clean Water
Act from the Company relating to the Warren facility, including information
as to the effect of a prohibition against federal procurement of the
Company's products on the Company's business. The Company has not been
notified that the EPA will seek a federal procurement prohibition based on
<PAGE> 9
alleged permit violations. However, there can be no assurance that a federal
procurement prohibition will not be imposed. The Company is negotiating
with the EPA toward a settlement of these matters. If the Company is unable
to reach a negotiated settlement, and if a substantial penalty similar to the
statutory maximum penalty or federal procurement prohibition were imposed, it
could have a material adverse effect on the operating results or financial
condition of the Company, the extent of which the Company is unable to
estimate at this time.
The Company has obtained a Resource Conservation and Recovery Act (RCRA)
storage permit for waste pickle liquor at its' Warren facility acid
regeneration plant. As a provision of the permit, the Company will be
required to undertake a corrective action program with respect to historical
material handling practices at the Warren facility. The Company has
developed and submitted a workplan for the first investigation step of the
corrective action program, the RCRA Facility Investigation (RFI), to the EPA.
In April 1997 the Company received notice from the EPA that it had approved
the RFI, which is expected to be completed in approximately 18 months. The
workplan identifies thirteen historical solid waste management units which
are the subject of the RFI. The final scope of the corrective action
required to remediate or reclaim any contamination that may be present at or
emanating from the Warren facility is dependent upon the completion and
findings of the RFI and the development and approval of a corrective action
program. Accordingly, the Company is unable at this time to estimate the
final cost of the corrective action program or the period over which such
costs may be incurred and there can be no assurance that it would not have a
material adverse effect on the operating results or financial condition of
the Company.
On January 23, 1996, two retired employees instituted an action against the
Company in the United States District Court for the Northern District of Ohio
alleging in substance that certain distributions made by the Company to
employees and benefit plans violated certain agreements, the Employee
Retirement Income Security Act, the National Labor Relations Act and common
law. The plaintiffs seek declaratory and injunctive relief and damages.
Plaintiffs have brought this action as a class action; however, the court has
not ruled as to whether this action is properly maintainable as a class
action. The Company denies the plaintiffs' allegations of liability and has
filed for dismissal of the action. The court has not yet ruled on the
Company's motion.
On April 5, 1996, an employee instituted an action for damages against the
Company in the Court of Common Pleas, Trumbull County, Ohio alleging that,
under Ohio common law, her privacy rights were violated and that she has been
subjected to sexual harassment. In July 1996, the plaintiff moved for an
order permitting her to amend her complaint to add new party plaintiffs
alleging a claim under only the privacy rights cause of action. On April 28,
1997 the plaintiff filed for summary judgement. The Company denies
plaintiff's allegations of liability and has opposed the plaintiff's motions
to amend the complaint and for summary judgement. The court has yet to rule
on either of the plaintiff's motions. In addition, the court has allowed
until September 2, 1997 for discovery and set a trial date in February 1998.
A liability has been established for an amount, which the Company believes is
adequate, based on information currently available, to cover the costs to
resolve the above described matters, including remediation, if any, except
for any costs of corrective action that may result from the RFI for which no
estimate can currently be made. The outcome of the above described matters
<PAGE> 10
could have a material adverse effect on the future operating results of the
Company in a particular quarterly or annual period, however, the Company
believes that the effect of such matters will not have a material adverse
effect on the Company's consolidated financial position. In addition to the
above matters, the Company is contingently liable with respect to lawsuits
and other claims incidental to the ordinary course of its operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Three Months Ended April 30, 1997 Compared to
Three Months Ended April 30, 1996
Net sales for the three months ended April 30, 1997 were $172.6 million on
340,333 tons shipped, representing an 3.4% increase in net sales and a 4.1%
decrease in tons shipped compared to the three months ended April 30, 1996.
Shipping volume was slightly lower in the 1997 period due to the continuing
upgrade of the Company's hot strip mill and consequent downtime. Net sales
per ton shipped increased 7.6% to $507 compared to $471 for the 1996 quarter.
This increase is primarily the result of changes in product mix with
shipments of custom carbon, alloy and electrical steels accounting for 69.9%
in 1997 and 57.2% in 1996, and increases in selling prices. The improved
custom product mix in 1997 reflects continued strong demand for the Company's
custom products and a prolonged work stoppage of a competitor. Shipments in
the second quarter of 1996 included 12,433 tons of lower value added
semi-finished steel due to the lingering effects of a work stoppage at the
Company in late 1995.
Gross margin (net sales less cost of goods sold) was $31.3 million for the
three months ended April 30, 1997 compared to $26.3 million for the three
months ended April 30, 1996. The increase in gross margin reflects
improvement in the custom product mix and increases in selling prices offset
somewhat by lower volume in 1997.
Operating income was $20.5 million, $60 per ton, for the three months ended
April 30, 1997 compared to $14.9 million, $42 per ton, for the three month
period ended April 30, 1996. The improved operating results for 1997 reflect
the higher gross margin discussed above.
Interest expense increased to $8.1 million in the 1997 quarter compared to
$6.3 million in 1996 as a result of the issuance of $300 million 10% Senior
Secured Notes and the retirement of $206.1 million principal amount of 10.5%
Senior Notes on November 27, 1996. Interest income decreased to $0.1 million
in 1997 compared to $1.4 million in 1996 as a result of lower cash, cash
equivalent and short-term investments in the 1997 period due to the
Transactions.
As a result of the items discussed above, income before extraordinary items
was $7.8 million in the 1997 quarter compared to $6.2 million in 1996.
Six Months Ended April 30, 1997 Compared to
Six Months Ended April 30, 1996
Net sales for the six months ended April 30, 1997 were $333.5 million on
664,347 tons shipped, representing an 5.7% increase in net sales and a 3.8%
decrease in tons shipped compared to the six months ended April 30, 1996.
<PAGE> 11
Shipping volume was slightly lower in the 1997 period due to the continuing
upgrade of the Company's hot strip mill and consequent downtime. Net sales
per ton shipped increased 9.8% to $502 compared to $457 for the 1996 period.
This increase is primarily the result of changes in product mix with
shipments of custom carbon, alloy and electrical steels accounting for 68.0%
in 1997 and 51.0% in 1996 and to a lesser extent, increases in selling
prices. In addition, shipments in 1996 included 45,822 tons of lower value
added semi-finished steel due to the effects of a work stoppage which was
concluded on October 24, 1995.
Gross margin (net sales less cost of goods sold) was $60.6 million for the
six months ended April 30, 1997 compared to $49.3 million for the six months
ended April 30, 1996. The increase in gross margin reflects improvement in
the custom product mix and increases in selling prices offset somewhat by
lower volume in 1997.
Operating income was $30.2 million for the six months ended April 30, 1997
compared to $27.7 million for the six month period ended April 30, 1996. The
operating results for 1997 reflect the increase in gross margin discussed
above offset by $8.6 million of compensation expenses related to the
Transactions. Excluding the expenses incurred as a result of the
Transactions, operating income was $38.8 million during 1997 or $58 per ton
shipped compared to $40 per ton shipped in the 1996 period. Operating income
in the 1996 period was adversely affected by the labor contract dispute in
the fourth quarter of 1995.
Interest expense increased to $15.6 million in 1997 compared to $12.5 million
in 1996 as a result of the issuance of $300 million 10% Senior Secured Notes
and the retirement of $206.1 million principal amount of 10.5% Senior Notes
on November 27, 1996. Interest income decreased to $0.8 million in 1997
compared to $2.7 million in 1996 as a result of lower cash, cash equivalent
and short-term investments in the 1997 period due to the Transactions.
As a result of the items discussed above, income before extraordinary items
was $9.5 million in 1997 compared to $11.0 million in 1996. During the six
months ended April 30, 1997, the Company recognized an extraordinary loss of
$19.6 million, net of income taxes, on the early retirement of $206.1 million
principal amount of Senior Notes. As a result, the Company had a net loss of
$10.1 million for the six months ended April 30, 1997.
Liquidity and Capital Resources
WCI's liquidity requirements result from capital investments, working capital
requirements, postretirement healthcare and pension funding, interest expense
and, to a lesser extent, principal payments on its indebtedness. The
Company's primary sources of liquidity as of April 30, 1997 consisted of
$21.4 million of cash and cash equivalents and available borrowing under the
WCI Revolving Credit Facility.
The WCI Revolving Credit Facility has a maximum borrowing limit of $100
million, is secured by eligible inventories and receivables, as defined
therein, and expires on December 29, 1999. As of April 30, 1997, WCI had no
borrowings outstanding under the WCI Revolving Credit Facility, with a
borrowing limit of $100 million less any outstanding letters of credit ($5.5
million as of April 30, 1997).
<PAGE> 12
Cash provided by operating activities was $20.0 million for the six months
ended April 30, 1997 compared to $49.9 million for the 1996 period. The
decrease in operating cash flow in 1997 compared to 1996 resulted primarily
from the working capital benefit experienced in 1996 following the resolution
of a work stoppage in late 1995 and higher in process steel inventory in 1997
as a result of the continuing hot strip mill upgrade. The hot strip mill
upgrade is scheduled to be completed late in the third fiscal quarter and
accordingly, management expects third quarter shipments to be slightly lower
than the second quarter of 1997.
Capital expenditures were $25.2 million and $11.8 million for the six months
ended April 30, 1997 and 1996, respectively, and are estimated to be $40
million to $45 million for all of fiscal 1997, including planned expenditures
for the upgrade of the Company's hot strip mill. Management has funded the
capital expenditures in 1997 and 1996 through cash balances and cash provided
by operating activities. At April 30, 1997, the Company had commitments for
capital expenditures of approximately $11.8 million related primarily to the
hot strip mill upgrade.
As discussed in Note 3 to the Condensed Consolidated Financial Statements,
during the first quarter of 1997 the Company completed the sale of $300
million 10% Senior Secured Notes due 2004. The proceeds from the Senior
Secured Notes, with existing cash balances of the Company, were used to
complete the Equity Tender Offer for $56.9 million, including expenses,
complete a tender offer in which the Company acquired $206.1 million of the
$206.4 million aggregate principal amount of the then outstanding 10.5%
Senior Notes at a rate of $1,125 per $1,000 principal amount outstanding plus
accrued interest, pay a $108 million dividend to Renco, make contractual
compensation payments to certain executives of the Company and pay related
transaction costs. The Company's liquidity was significantly reduced and its
debt service requirements significantly increased as a result of these
transactions. The Company has the right to defease the remaining $280,000
principal amount of Senior Notes by depositing with the trustee money and/or
U.S. government obligations sufficient to make payments with respect to the
Senior Notes. Management anticipates that cash flow from operations and
availability under the WCI Revolving Credit Facility will be sufficient to
finance the Company's liquidity needs for the foreseeable future.
The WCI Revolving Credit Facility and Senior Secured Notes contain numerous
covenants and prohibitions that limit the financial activities of the
Company, including requirements that the Company satisfy certain financial
ratios and limitations on the incurrence of additional indebtedness. The
ability of the Company to meet its debt service requirements and to comply
with such covenants will be dependent upon future operating performance and
financial results of the Company, which will be subject to financial,
economic, political, competitive and other factors affecting the Company,
many of which are beyond its control.
The Company declared and paid a dividend of $4 million during the second
quarter of 1997.
Forward-Looking Statements
This report includes forward-looking statements which involve known and
unknown risks, uncertainties and other important factors that could cause the
actual results, performance or achievements of the Company to differ
<PAGE> 13
materially from any future results, performance or achievements expressed or
implied by such forward-looking statements. Such risks, uncertainties and
other important factors include, among others: general economic and business
conditions; industry capacity; industry trends; competition; currency
fluctuations; the loss of any significant customers; availability of
qualified personnel; and major equipment failures.
<PAGE> 14
PART II - OTHER INFORMATION
WCI STEEL, INC.
ITEM 6. EXHIBITS and REPORTS ON FORM 8-K
(a) Exhibits:
A list of the exhibits required to be filed as part of this
Report on Form 10-Q is set forth in the "Exhibit Index" which
immediately precedes such exhibits, and is incorporated herein
by reference.
(b) Reports on Form 8-K:
No report on Form 8-K was filed during the quarter ended
April 30, 1997.
<PAGE> 15
WCI STEEL, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WCI STEEL, INC.
(registrant)
Date: May 14, 1997 /S/ BRET W. WISE
-----------------------------
Bret W. Wise
Vice President and
Chief Financial Officer
(principal accounting officer)
<PAGE> 16
WCI STEEL, INC.
EXHIBIT INDEX
Exhibit Number Description
10.2.9 Amended and Restated Net Worth
Appreciation Agreement dated March 10,
1997 between the Registrant and Edward
R. Caine
10.2.10 Amended and Restated Net Worth
Appreciation Agreement dated March 10,
1997 between the Registrant and Bret W.
Wise
10.2.11 Amended and Restated Net Worth
Appreciation Agreement dated March 10,
1997 between the Registrant and Patrick
T. Kenney
10.2.12 Amended and Restated Net Worth
Appreciation Agreement dated March 10,
1997 between the Registrant and Patrick
G. Tatom
27. Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEETS AT April 30, 1997 (UNAUDITED) AND THE
CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE SIX MONTH PERIOD ENDED
April 30, 1997 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> APR-30-1997
<CASH> 21,364
<SECURITIES> 0
<RECEIVABLES> 68,485
<ALLOWANCES> 1,600
<INVENTORY> 92,332
<CURRENT-ASSETS> 193,927
<PP&E> 335,859
<DEPRECIATION> 115,221
<TOTAL-ASSETS> 462,725
<CURRENT-LIABILITIES> 116,481
<BONDS> 301,673
0
0
<COMMON> 0
<OTHER-SE> (98,841)
<TOTAL-LIABILITY-AND-EQUITY> 462,725
<SALES> 333,541
<TOTAL-REVENUES> 333,541
<CGS> 272,900
<TOTAL-COSTS> 272,900
<OTHER-EXPENSES> 30,429
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,593
<INCOME-PRETAX> 15,407
<INCOME-TAX> 5,917
<INCOME-CONTINUING> (10,116)
<DISCONTINUED> 0
<EXTRAORDINARY> (19,606)
<CHANGES> 0
<NET-INCOME> (10,116)
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
EXHIBIT 10.2.9 WCI Steel, Inc.
1040 Pine Avenue, SE
Warren, OH 44483-6528
As of March 10, 1997
Mr. Edward R. Caine
230 Club Drive
Aurora, OH 44202
Re: Net Worth Appreciation Participation Agreement
Dear Mr. Caine:
In connection with your employment by WCI Steel, Inc.
("Company"), you have received a Net Worth Appreciation
Participation Agreement ("Agreement"). In connection with the
Company's going private and refinancing transaction
("Transaction"), you have received a certain payment under your
Agreement which resulted in your Account, as defined in the
Agreement, having a negative balance. In consideration for the
Company's willingness to eliminate the negative balance in your
Account, you and the Company have agreed to amend and restate the
Agreement as follows:
1) On April 1, 1999 provided that you continue to be
continuously employed by the Company from the date hereof through
that date, you shall receive a credit of three percent (3%), and
on each of April 1, 2000 and April 1, 2001, you shall receive an
additional credit of one percent (1%), provided that you are
continuously employed by the Company to such date, for a maximum
credit, if you remain employed by the Company continuously
through April 1, 2001 of five percent (5%) ("Maximum Credit").
You shall not receive credit for any partial year of employment,
unless your employment terminates due to death or total
disability. If your death or disability occurs before April 1,
1999, you shall be vested in a credit of three percent (3%) and
if your death or disability occurs on or after April 1, 1999, you
shall be deemed to be vested in that percentage earned through
the text succeeding April 1st. (up to said Maximum Credit of
five percent).
2) Cumulative Net Income Participation Benefit - There is
hereby established for your benefit an unfunded, unsecured,
deferred compensation account (the"Account") to which there shall
be credited an amount equal to the product of a) the total
percentage credited to you under paragraph 1 (a maximum of five
percent) multiplied by (b) the Cumulative Net Income (as
defined). The Cumulative Net Income is the amount, if any, of
the cumulative consolidated net income of the Company available
to its Common Stock, from December 1, 1996 through the
Measurement Date (as defined). In connection with this
Agreement, you agree to provide 30 days prior written notice of
your intention to voluntarily terminate your employment or
retire. In the event you voluntarily leave the Company's employ,
the Measurement Date for purposes of measuring compensation under
this Agreement shall be the end of the Company's fiscal quarter
in which the 30-day notice period ends. In the event your
employment is terminated involuntarily by the Company, the
Measurement Date of the termination of your employment shall be
the end of the fiscal quarter immediately preceding the
termination of your employment. In computing Cumulative Net
Income, no deduction, net of tax benefit, shall be taken for
benefits payable under this Agreement or similar Net Worth
Appreciation Participation Agreements. There shall be deducted
from Cumulative Net Income for each period any amount paid as
dividends on the Common Stock of the Company during such period.
If there is no positive Cumulative Net Income, no deferred
compensation shall be due you under this Agreement. The
determination of the independent public accountants for the
Company as to the Cumulative Net Income, made in accordance with
generally accepted accounting principles, consistently applied,
shall be conclusive. If your employment shall be terminated for
Cause (as defined) at any time, you shall not receive any future
payments under this Agreement. For purposes of this provision,
termination shall be deemed to be for "Cause" only if the grounds
therefor are one or more of the following: (a) material conduct
contrary to the best interests of WCI, (b) continuing refusal or
inability to perform the duties of your position (other than for
reasons of disability), or (c) illegal conduct having a material
impact on WCI.
3) Dividend Participation - If while you are employed by the
Company, the Company shall pay any cash dividend on its Common
Stock, or pay management fees to The Renco Group, Inc. ("Renco"),
or other affiliates of Renco in excess of one million, two
hundred thousand dollars per year, then the Company shall make a
cash payment to you equal to the total amount of the cash
dividend and excess management fees multiplied by your Maximum
Credit.
4) Payment of Deferred Compensation Balances - Payment to you
of deferred compensation balances earned under this Agreement
shall be made in forty (40) equal quarterly installments, without
interest, commencing three (3) months after the Trigger Date (as
defined) and at three (3) month intervals thereafter. The
Trigger Date shall be the earlier of your sixty second birthday,
or the completion of twenty continuous years of employment with
the Company. If you remain employed by the Company after the
commencement of payments under the Agreement, and continue to
have earnings or losses under the Agreement, the amount of the
quarterly payment due you shall be recomputed on an annual basis
in the first fiscal quarter of each fiscal year to reflect the
balance of your Account at the end of the previous fiscal year
divided by 40 (i.e., a rolling ten year payment schedule). In the
event of your permanent disability, rendering you unable to
engage in your customary employment, payments measured and paid
as described above, if it has not already
commenced, will commence. The period during which the payments
will be made is herein called the "Payment Period". In the event
of your death, your estate or beneficiaries shall receive a
payment, within 90 days of your death, equal to the present value
of the balance of your Account as determined under Section 2
above computed using a) 40 equal quarterly installments if
payments to you have not begun or the remaining Payment Period if
payments have previously started and b) the discount rate used
for computing the present value of
annuitized benefits under the provision of the Internal Revenue
Code of 1986 and the regulation thereunder as the same may be
amended from time to time.
5) Sale of Company's Stock or Assets - If, while you shall be
employed by the Company, Renco sells an interest in the Company
or if the Company sells substantially all of its assets, to a
person who is not an affiliate of Ira Leon Rennert, then, upon
the closing of such sale, your Maximum Credit shall be deemed to
be vested, and you shall be entitled to receive a payment equal
to your Maximum Credit (5%) of the Net Proceeds (as defined) of
the sale available for the Company's Common Stock, in kind, on
the same terms and conditions as the Company or its shareholders
is being paid. Net Proceeds, for purposes hereof, shall mean the
amount of the proceeds of the sale after deducting all expenses
of the sale, all applicable taxes owed by the Company, all
liabilities retained by the seller and all amounts to which
holders of preferred stock are entitled. Upon the sale of all or
substantially all of the Company's Assets or Common Stock, and
except for such payment, neither you nor this Company shall have
any further rights or liabilities hereunder.
6) Condition Precedent - During the Payment Period, you shall
comply with the following provisions as a condition precedent to
your right to receive payments:
(a) For the purposes hereof, all confidential information
about the business and affairs of the Company (including, without
limitation, business plans, product design and specifications,
financial, engineering, and marketing information and information
about costs, manufacturing methods, names of suppliers and
customers) constitute "Company Confidential Information". You
further acknowledge that for some period, you have been a senior
officer or manager of the Company. You further acknowledge that
you have in the past had, and will continue to have, access to
and knowledge of Company Confidential Information, and that
improper use or revelation of same by you during or after the
termination of your employment by the Company could cause serious
injury to the business of the Company. Accordingly, you agree
that you will forever keep secret and inviolate all Company
Confidential Information which shall have come or shall hereafter
come into your possession, and that you will not use the same for
your own private benefit, or directly or indirectly for the
benefit of others, and that you will not disclose such Company
Confidential Information to any other person.
(b) You agree that, as long as you are entitled to any
part of the payment, you will not, directly or indirectly,
whether as employee, consultant, proprietor, partner, controlling
shareholder or other capacity engage in the production,
marketing, sale or financing activities of any entity involved in
the production or sale of flat rolled steel products that
competes with the Company. Should you engage in any activity
proscribed by the preceding sentence then the Company's
obligation to you to make the payment (or any unpaid part
thereof) shall automatically and permanently cease, and you shall
be deemed to have irrevocably released your right to same.
7) Notice - Any notices to be sent pursuant hereto shall be
sent by hand, certified or registered mail or overnight service
to you, at the address indicated below and to the Company, The
Renco Group, Inc., 30 Rockefeller Plaza, New York, New York
10112, to the attention of Ira Leon Rennert, or to any other
address which any of us may designate by notice in writing.
8) General - Your rights under this Agreement may not be
assigned, transferred, pledged or hypothecated without the prior
approval of the Company, except that, upon your death, your
interest in the Account will vest in your estate or heirs and
that during your lifetime, you may assign your interest to a
revocable or irrevocable trust for the primary benefit of your
spouse or any lineal descendant of your or your spouse's
grandparents. This Amendment sets forth the entire understanding
of you and the Company concerning this subject matter, supersedes
all other terms contained in the Agreement, which other terms are
hereby agreed to be void and of no effect. Any further
additions, deletions or modifications of the Agreement shall only
be made in writing signed by you and the Company.
Please confirm that the foregoing correctly sets forth our full
agreement with respect to your Net Worth Appreciation
Participation Agreement by signing and returning the enclosed
copy of this letter.
Very truly yours,
/S/ IRA LEON RENNERT
Ira Leon Rennert
Chairman of the Board
Confirmed and Agreed to:
/S/ EDWARD R. CAINE
Edward R. Caine
230 Club Drive
Aurora, OH 44202
EXHIBIT 10.2.10 WCI Steel, Inc.
1040 Pine Avenue, SE
Warren, OH 44483-6528
As of March 10, 1997
Mr. Bret W. Wise
5714 Williamsburg Circle
Hudson, OH 44236
Re: Net Worth Appreciation Participation Agreement
Dear Mr. Wise:
In connection with your employment by WCI Steel, Inc.
("Company"), you have received a Net Worth Appreciation
Participation Agreement ("Agreement"). In connection with the
Company's going private and refinancing transaction
("Transaction"), you have received a certain payment under your
Agreement which resulted in your Account, as defined in the
Agreement, having a negative balance. In consideration for the
Company's willingness to eliminate the negative balance in your
Account, you and the Company have agreed to amend and restate the
Agreement as follows:
1) On September 1, 1997 provided that you continue to be
continuously employed by the Company from the date hereof through
that date, you shall receive a credit of one and one fifth
percent (1 1/5%), and on each of September 1, 1998 and September
1, 1999, you shall receive an additional credit of two fifths of
one percent (2/5%), provided that you are continuously employed
by the Company to such date, for a maximum credit, if you remain
employed by the Company continuously through September 1, 1999 of
two percent (2%) ("Maximum Credit"). You shall not receive
credit for any partial year of employment, unless your employment
terminates due to death or total disability, in which case you
shall be deemed to be vested in that percentage earned through
the next succeeding September 1st. (up to said Maximum Credit of
two percent).
2) Cumulative Net Income Participation Benefit - There is
hereby established for your benefit an unfunded, unsecured,
deferred compensation account (the"Account") to which there shall
be credited an amount equal to the product of a) the total
percentage credited to you under paragraph 1 (a maximum of two
percent) multiplied by (b) the Cumulative Net Income (as
defined). The Cumulative Net Income is the amount, if any, of
the cumulative consolidated net income of the Company available
to its Common Stock, from December 1, 1996 through the
Measurement Date (as defined). In connection with this
Agreement, you agree to provide 30 days prior written notice of
your intention to voluntarily terminate your employment or
retire. In the event you voluntarily leave the Company's employ,
the Measurement Date for purposes of measuring compensation under
this Agreement shall be the end of the Company's fiscal quarter
in which the 30-day notice period ends. In the event your
employment is terminated involuntarily by the Company, the
Measurement Date of the termination of your employment shall be
the end of the fiscal quarter immediately preceding the
termination of your employment. In computing Cumulative Net
Income, no deduction, net of tax benefit, shall be taken for
benefits payable under this Agreement or similar Net Worth
Appreciation Participation Agreements. There shall be deducted
from Cumulative Net Income for each period any amount paid as
dividends on the Common Stock of the Company during such period.
If there is no positive Cumulative Net Income, no deferred
compensation shall be due you under this Agreement. The
determination of the independent public accountants for the
Company as to the Cumulative Net Income, made in accordance with
generally accepted accounting principles, consistently applied,
shall be conclusive. If your employment shall be terminated for
Cause (as defined) at any time, you shall not receive any future
payment under this Agreement. For purposes of this provision,
termination shall be deemed to be for "Cause" only if the grounds
therefor are one or more of the following: (a) material conduct
contrary to the best interests of WCI, (b) continuing refusal or
inability to perform the duties of your position (other than for
reasons of disability), or (c) illegal conduct having a material
impact on WCI.
3) Dividend Participation - If while you are employed by the
Company, the Company shall pay any cash dividend on its Common
Stock, or pay management fees to The Renco Group, Inc. ("Renco"),
or other affiliates of Renco in excess of one million, two
hundred thousand dollars per year, then the Company shall make a
cash payment to you equal to the total amount of the cash
dividend and excess management fees multiplied by your Maximum
Credit.
4) Payment of Deferred Compensation Balances - Payment to you
of deferred compensation balances earned under this Agreement
shall be made in forty (40) equal quarterly installments, without
interest, commencing three (3) months after the Trigger Date (as
defined) and at three (3) month intervals thereafter. The
Trigger Date shall be the earlier of your sixty second birthday,
or the completion of twenty continuous years of employment with
the Company. If you remain employed by the Company after the
commencement of payments under the Agreement, and continue to
have earnings or losses under the Agreement, the amount of the
quarterly payment due you shall be recomputed on an annual basis
in the first fiscal quarter of each fiscal year to reflect the
balance of your Account at the end of the previous fiscal year
divided by 40 (i.e., a rolling ten year payment schedule). In
the event of your permanent disability, rendering you unable to
engage in your customary employment, payments measured and paid
as described above, if it has not already commenced, will
commence. The period during which the payments will be made is
herein called the "Payment Period". In the event of your death,
your estate or beneficiaries shall receive a payment, within 90
days of your death, equal to the present value of the balance of
your Account as determined under Section 2 above computed using
a) 40 equal quarterly installments if payments to you have not
begun or the remaining Payment Period if payments have previously
started and b) the discount rate used for computing the present
value of annuitized benefits under the provision of the Internal
Revenue Code of 1986 and the regulation thereunder as the same
may be amended from time to time.
5) Sale of Company's Stock or Assets - If, while you shall be
employed by the Company, Renco sells an interest in the Company
or if the Company sells substantially all of its assets, to a
person who is not an affiliate of Ira Leon Rennert, then, upon
the closing of such sale, your Maximum Credit shall be deemed to
be vested, and you shall be entitled to receive a payment equal
to your Maximum Credit (2%) of the Net Proceeds (as defined) of
the sale available for the Company's Common Stock, in kind, on
the same terms and conditions as the Company or its shareholders
is being paid. Net Proceeds, for purposes hereof, shall mean the
amount of the proceeds of the sale after deducting all expenses
of the sale, all applicable taxes owed by the Company, all
liabilities retained by the seller and all amounts to which
holders of preferred stock are entitled. Upon the sale of all or
substantially all of the Company's Assets or Common Stock, and
except for such payment, neither you nor this Company shall have
any further rights or liabilities hereunder.
6) Condition Precedent - During the Payment Period, you shall
comply with the following provisions as a condition precedent to
your right to receive payments:
(a) For the purposes hereof, all confidential information
about the business and affairs of the Company (including, without
limitation, business plans, product design and specifications,
financial, engineering, and marketing information and information
about costs, manufacturing methods, names of suppliers and
customers) constitute "Company Confidential Information". You
further acknowledge that for some period, you have been a senior
officer or manager of the Company. You further acknowledge that
you have in the past had, and will continue to have, access to
and knowledge of Company Confidential Information, and that
improper use or revelation of same by you during or after the
termination of your employment by the Company could cause serious
injury to the business of the Company. Accordingly, you agree
that you will forever keep secret and inviolate all Company
Confidential Information which shall have come or shall hereafter
come into your possession, and that you will not use the same for
your own private benefit, or directly or indirectly for the
benefit of others, and that you will not disclose such Company
Confidential Information to any other person.
(b) You agree that, as long as you are entitled to any
part of the payment, you will not, directly or indirectly,
whether as employee, consultant, proprietor, partner, controlling
shareholder or other capacity engage in the production,
marketing, sale or financing activities of any entity involved in
the production or sale of flat rolled steel products that
competes with the Company. Should you engage in any activity
proscribed by the preceding sentence then the Company's
obligation to you to make the payment (or any unpaid part
thereof) shall automatically and permanently cease, and you shall
be deemed to have irrevocably released your right to same.
7) Notice - Any notices to be sent pursuant hereto shall be
sent by hand, certified or registered mail or overnight service
to you, at the address indicated below and to the Company, The
Renco Group, Inc., 30 Rockefeller Plaza, New York, New York
10112, to the attention of Ira Leon Rennert, or to any other
address which any of us may designate by notice in writing.
8) General - Your rights under this Agreement may not be
assigned, transferred, pledged or hypothecated without the prior
approval of the Company, except that, upon your death, your
interest in the Account will vest in your estate or heirs and
that during your lifetime, you may assign your interest to a
revocable or irrevocable trust for the primary benefit of your
spouse or any lineal descendant of your or your spouse's
grandparents. This Amendment sets forth the entire understanding
of you and the Company concerning this subject matter, supersedes
all other terms contained in the Agreement, which other terms are
hereby agreed to be void and of no effect. Any further
additions, deletions or modifications of the Agreement shall only
be made in writing signed by you and the Company.
Please confirm that the foregoing correctly sets forth our full
agreement with respect to your Net Worth Appreciation
Participation Agreement by signing and returning the enclosed
copy of this letter.
Very truly yours,
/S/ IRA LEON RENNERT
Ira Leon Rennert
Chairman of the Board
Confirmed and Agreed to:
/S/ BRET W. WISE
Bret W. Wise
5714 Williamsburg Circle
Hudson, OH 44236
EXHIBIT 10.2.11 WCI Steel, Inc.
1040 Pine Avenue, SE
Warren, OH 44483-6528
As of March 10, 1997
Mr. Patrick T. Kenney
8002 Fox Hound Run
Warren, OH 44484
Re: Net Worth Appreciation Participation Agreement
Dear Mr. Kenney:
In connection with your employment by WCI Steel, Inc.
("Company"), you have received a Net Worth Appreciation
Participation Agreement ("Agreement"). In connection with the
Company's going private and refinancing transaction
("Transaction"), you have received a certain payment under your
Agreement. In connection with the Transaction, you and the
Company have agreed to amend and restate the Agreement as
follows:
1) At the effective date of this Agreement, you have received
a credit of one and one quarter percent (1 1/4%). On October 31,
1997 provided that you continue to be continuously employed by
the Company from the date hereof through that date, you shall
receive an additional credit of forty five one hundredths of one
percent (.45%), and on each of October 31, 1998 and October 31,
1999, you shall receive an additional credit of fifteen one
hundredths of one percent (.15%), provided that you are
continuously employed by the Company to such date, for a maximum
credit, if you remain employed by the Company continuously
through October 31, 1999 of two percent (2%) ("Maximum Credit").
You shall not receive credit for any partial year of employment,
unless your employment terminates due to death or total
disability, in which case you shall be deemed to be vested in
that percentage earned through the next succeeding October 31st.
(up to said Maximum Credit of two percent).
2) Cumulative Net Income Participation Benefit - There is
hereby established for your benefit an unfunded, unsecured,
deferred compensation account (the"Account") to which there shall
be credited an amount equal to $765,678 (representing deferred
compensation earned as of November 30, 1996 under previously
existing agreements) plus the product of a) the total percentage
credited to you under paragraph 1 (a maximum of two percent)
multiplied by (b) the Cumulative Net Income (as defined). The
Cumulative Net Income is the amount, if any, of the cumulative
consolidated net income of the Company available to its Common
Stock, from December 1, 1996 through the Measurement Date (as
defined). In connection with this Agreement, you agree to
provide 30 days prior written notice of your intention to
voluntarily terminate your employment or retire. In the event
you voluntarily leave the Company's employ, the Measurement Date
for purposes of measuring compensation under this Agreement shall
be the end of the Company's fiscal quarter in which the 30-day
notice period ends. In the event your employment is terminated
involuntarily by the Company, the Measurement Date of the
termination of your employment shall be the end of the fiscal
quarter immediately preceding the termination of your employment.
In computing Cumulative Net Income, no deduction, net of tax
benefit, shall be taken for benefits payable under this Agreement
or similar Net Worth Appreciation Participation Agreements.
There shall be deducted from Cumulative Net Income for each
period any amount paid as dividends on the Common Stock of the
Company during such period. If the amount earned as computed in
this paragraph is not greater than zero, then no deferred
compensation shall be due you under this Agreement. The
determination of the independent public accountants for the
Company as to the Cumulative Net Income, made in accordance with
generally accepted accounting principles, consistently applied,
shall be conclusive. If your employment shall be terminated for
Cause (as defined) at any time, you shall not receive any future
payments under this Agreement. For purposes of this provision,
termination shall be deemed to be for "Cause" only if the grounds
therefor are one or more of the following: (a) material conduct
contrary to the best interests of WCI, (b) continuing refusal or
inability to perform the duties of your position (other than for
reasons of disability), or (c) illegal conduct having a material
impact on WCI.
3) Dividend Participation - If while you are employed by the
Company, the Company shall pay any cash dividend on its Common
Stock, or pay management fees to The Renco Group, Inc. ("Renco"),
or other affiliates of Renco in excess of one million, two
hundred thousand dollars per year, then the Company shall make a
cash payment to you equal to the total amount of the cash
dividend and excess management fees multiplied by your Maximum
Credit.
4) Payment of Deferred Compensation Balances - Payment to you
of deferred compensation balances earned under this Agreement
shall be made in forty (40) equal quarterly installments, without
interest, commencing three (3) months after the Trigger Date (as
defined) and at three (3) month intervals thereafter. The
Trigger Date shall be the earlier of your sixty second birthday,
or the completion of twenty continuous years of employment with
the Company. If you remain employed by the Company after the
commencement of payments under the Agreement, and continue to
have earnings or losses under the Agreement, the amount of the
quarterly payment due you shall be recomputed on an annual basis
in the first fiscal quarter of each fiscal year to reflect the
balance of your Account at the end of the previous fiscal year
divided by 40 (i.e., a rolling ten year payment schedule). In
the event of your permanent disability, rendering you unable to
engage in your customary employment, payments measured and paid
as described above, if it has not already commenced, will
commence. The period during which the payments will be made is
herein called the "Payment Period". In the event of your death,
your estate or beneficiaries shall receive a payment, within 90
days of your death, equal to the present value of the balance of
your Account as determined under Section 2 above computed using
a) 40 equal quarterly installments if payments to you have not
begun or the remaining Payment Period if payments have previously
started and b) the discount rate used for computing the present
value of annuitized benefits under the provision of the Internal
Revenue Code of 1986 and the regulation thereunder as the same
may be amended from time to time.
5) Sale of Company's Stock or Assets - If, while you shall be
employed by the Company, Renco sells an interest in the Company
or if the Company sells substantially all of its assets, to a
person who is not an affiliate of Ira Leon Rennert, then, upon
the closing of such sale, your Maximum Credit shall be deemed to
be vested, and you shall be entitled to receive a payment equal
to your Maximum Credit (2%) of the Net Proceeds (as defined) of
the sale available for the Company's Common Stock, in kind, on
the same terms and conditions as the Company or its shareholders
is being paid. Net Proceeds, for purposes hereof, shall mean the
amount of the proceeds of the sale after deducting all expenses
of the sale, all applicable taxes owed by the Company, all
liabilities retained by the seller and all amounts to which
holders of preferred stock are entitled. Upon the sale of all or
substantially all of the Company's Assets or Common Stock, and
except for such payment, neither you nor this Company shall have
any further rights or liabilities hereunder.
6) Condition Precedent - During the Payment Period, you shall
comply with the following provisions as a condition precedent to
your right to receive payments:
(a) For the purposes hereof, all confidential information
about the business and affairs of the Company (including, without
limitation, business plans, product design and specifications,
financial, engineering, and marketing information and information
about costs, manufacturing methods, names of suppliers and
customers) constitute "Company Confidential Information". You
further acknowledge that for some period, you have been a senior
officer or manager of the Company. You further acknowledge that
you have in the past had, and will continue to have, access to
and knowledge of Company Confidential Information, and that
improper use or revelation of same by you during or after the
termination of your employment by the Company could cause serious
injury to the business of the Company. Accordingly, you agree
that you will forever keep secret and inviolate all Company
Confidential Information which shall have come or shall hereafter
come into your possession, and that you will not use the same for
your own private benefit, or directly or indirectly for the
benefit of others, and that you will not disclose such Company
Confidential Information to any other person.
(b) You agree that, as long as you are entitled to any
part of the payment, you will not, directly or indirectly,
whether as employee, consultant, proprietor, partner, controlling
shareholder or other capacity engage in the production,
marketing, sale or financing activities of any entity involved in
the production or sale of flat rolled steel products that
competes with the Company. Should you engage in any activity
proscribed by the preceding sentence then the Company's
obligation to you to make the payment (or any unpaid part
thereof) shall automatically and permanently cease, and you shall
be deemed to have irrevocably released your right to same.
7) Notice - Any notices to be sent pursuant hereto shall be
sent by hand, certified or registered mail or overnight service
to you, at the address indicated below and to the Company, The
Renco Group, Inc., 30 Rockefeller Plaza, New York, New York
10112, to the attention of Ira Leon Rennert, or to any other
address which any of us may designate by notice in writing.
8) General - Your rights under this Agreement may not be
assigned, transferred, pledged or hypothecated without the prior
approval of the Company, except that, upon your death, your
interest in the Account will vest in your estate or heirs and
that during your lifetime, you may assign your interest to a
revocable or irrevocable trust for the primary benefit of your
spouse or any lineal descendant of your or your spouse's
grandparents. This Amendment sets forth the entire understanding
of you and the Company concerning this subject matter, supersedes
all other terms contained in the Agreement, which other terms are
hereby agreed to be void and of no effect. Any further
additions, deletions or modifications of the Agreement shall only
be made in writing signed by you and the Company.
Please confirm that the foregoing correctly sets forth our full
agreement with respect to your Net Worth Appreciation
Participation Agreement by signing and returning the enclosed
copy of this letter.
Very truly yours,
/S/ IRA LEON RENNERT
Ira Leon Rennert
Chairman of the Board
Confirmed and Agreed to:
/S/ PATRICK T. KENNEY
Patrick T. Kenney
8002 Fox Hound Run
Warren, OH 44484
EXHIBIT 10.2.12 WCI Steel, Inc.
1040 Pine Avenue, SE
Warren, OH 44483-6528
As of March 10, 1997
Mr. Patrick G. Tatom
77 Waterford Drive
Chagrin Falls, OH 44022
Re: Net Worth Appreciation Participation Agreement
Dear Mr. Tatom:
In connection with your employment by WCI Steel, Inc.
("Company"), you have received a Net Worth Appreciation
Participation Agreement ("Agreement"). In connection with the
Company's going private and refinancing transaction
("Transaction"), you have received a certain payment under your
Agreement which resulted in your Account, as defined in the
Agreement, having a negative balance. In consideration for the
Company's willingness to eliminate the negative balance in your
Account, you and the Company have agreed to amend and restate the
Agreement as follows:
1) On May 1, 1997 provided that you continue to be
continuously employed by the Company from the date hereof through
that date, you shall receive a credit of one and one fifth
percent (1 1/5%), and on each of May 1, 1998 and May 1, 1999, you
shall receive an additional credit of two fifths of one percent
(2/5%), provided that you are continuously employed by the
Company to such date, for a maximum credit, if you remain
employed by the Company continuously through May 1, 1999 of two
percent (2%) ("Maximum Credit"). You shall not receive credit
for any partial year of employment, unless your employment
terminates due to death or total disability, in which case you
shall be deemed to be vested in that percentage earned through
the next succeeding May 1st. (up to said Maximum Credit of two
percent).
2) Cumulative Net Income Participation Benefit - There is
hereby established for your benefit an unfunded, unsecured,
deferred compensation account (the"Account") to which there shall
be credited an amount equal to the product of a) the total
percentage credited to you under paragraph 1 (a maximum of two
percent) multiplied by (b) the Cumulative Net Income (as
defined). The Cumulative Net Income is the amount, if any, of
the cumulative consolidated net income of the Company available
to its Common Stock, from December 1, 1996 through the
Measurement Date (as defined). In connection with this
Agreement, you agree to provide 30 days prior written notice of
your intention to voluntarily terminate your employment or
retire. In the event you voluntarily leave the Company's employ,
the Measurement Date for purposes of measuring compensation under
this Agreement shall be the end of the Company's fiscal quarter
in which the 30-day notice period ends. In the event your
employment is terminated involuntarily by the Company, the
Measurement Date of the termination of your employment shall be
the end of the fiscal quarter immediately preceding the
termination of your employment. In computing Cumulative Net
Income, no deduction, net of tax benefit, shall be taken for
benefits payable under this Agreement or similar Net Worth
Appreciation Participation Agreements. There shall be deducted
from Cumulative Net Income for each period any amount paid as
dividends on the Common Stock of the Company during such period.
If there is no positive Cumulative Net Income, no deferred
compensation shall be due you under this Agreement. The
determination of the independent public accountants for the
Company as to the Cumulative Net Income, made in accordance with
generally accepted accounting principles, consistently applied,
shall be conclusive. If your employment shall be terminated for
Cause (as defined) at any time, you shall not receive any future
payments under this Agreement. For purposes of this provision,
termination shall be deemed to be for "Cause" only if the grounds
therefor are one or more of the following: (a) material
conduct contrary to the best interests of WCI, (b) continuing
refusal or inability to perform the duties of your position
(other than for reasons of disability), or (c) illegal conduct
having a material impact on WCI.
3) Dividend Participation - If while you are employed by
the Company, the Company shall pay any cash dividend on its
Common Stock, or pay management fees to The Renco Group, Inc.
("Renco"), or other affiliates of Renco in excess of one million,
two hundred thousand dollars per year, then the Company shall
make a cash payment to you equal to the total amount of the cash
dividend and excess management fees multiplied by your Maximum
Credit.
4) Payment of Deferred Compensation Balances - Payment to you
of deferred compensation balances earned under this Agreement
shall be made in forty (40) equal quarterly installments, without
interest, commencing three (3) months after the Trigger Date (as
defined) and at three (3) month intervals thereafter. The
Trigger Date shall be the earlier of your sixty second birthday,
or the completion of twenty continuous years of employment with
the Company. If you remain employed by the Company after the
commencement of payments under the Agreement, and continue to
have earnings or losses under the Agreement, the amount of the
quarterly payment due you shall be recomputed on an annual basis
in the first fiscal quarter of each fiscal year to reflect the
balance of your Account at the end of the previous fiscal year
divided by 40 (i.e., a rolling ten year payment schedule). In
the event of your permanent disability, rendering you unable to
engage in your customary employment, payments measured and paid
as described above, if it has not already commenced, will
commence. The period during which the payments will be made is
herein called the "Payment Period". In the event of your death,
your estate or beneficiaries shall receive a payment, within 90
days of your death, equal to the present value of the balance of
your Account as determined under Section 2 above computed using
a) 40 equal quarterly installments if payments to you have not
begun or the remaining Payment Period if payments have previously
started and b) the discount rate used for computing the present
value of annuitized benefits under the provision of the Internal
Revenue Code of 1986 and the regulation thereunder as the same
may be amended from time to time.
5) Sale of Company's Stock or Assets - If, while you shall be
employed by the Company, Renco sells an interest in the Company
or if the Company sells substantially all of its assets, to a
person who is not an affiliate of Ira Leon Rennert, then, upon
the closing of such sale, your Maximum Credit shall be deemed to
be vested, and you shall be entitled to receive a payment equal
to your Maximum Credit (2%) of the Net Proceeds (as defined) of
the sale available for the Company's Common Stock, in kind, on
the same terms and conditions as the Company or its shareholders
is being paid. Net Proceeds, for purposes hereof, shall mean the
amount of the proceeds of the sale after deducting all expenses
of the sale, all applicable taxes owed by the Company, all
liabilities retained by the seller and all amounts to which
holders of preferred stock are entitled. Upon the sale of all or
substantially all of the Company's Assets or Common Stock, and
except for such payment, neither you nor this Company shall have
any further rights or liabilities hereunder.
6) Condition Precedent - During the Payment Period, you
shall comply with the following provisions as a condition
precedent to your right to receive payments:
(a) For the purposes hereof, all confidential
information about the business and affairs of the Company
(including, without limitation, business plans, product design
and specifications, financial, engineering, and marketing
information and information about costs, manufacturing methods,
names of suppliers and customers) constitute "Company
Confidential Information". You further acknowledge that for some
period, you have been a senior officer or manager of the Company.
You further acknowledge that you have in the past had, and will
continue to have, access to and knowledge of Company Confidential
Information, and that improper use or revelation of same by you
during or after the termination of your employment by the Company
could cause serious injury to the business of the Company.
Accordingly, you agree that you will forever keep secret and
inviolate all Company Confidential Information which shall have
come or shall hereafter come into your possession, and that you
will not use the same for your own private benefit, or directly
or indirectly for the benefit of others, and that you will not
disclose such Company Confidential Information to any other
person.
(b) You agree that, as long as you are entitled to any
part of the payment, you will not, directly or indirectly,
whether as employee, consultant, proprietor, partner, controlling
shareholder or other capacity engage in the production,
marketing, sale or financing activities of any entity involved in
the production or sale of flat rolled steel products that
competes with the Company. Should you engage in any activity
proscribed by the preceding sentence then the Company's
obligation to you to make the payment (or any unpaid part
thereof) shall automatically and permanently cease, and you shall
be deemed to have irrevocably released your right to same.
7) Notice - Any notices to be sent pursuant hereto shall be
sent by hand, certified or registered mail or overnight service
to you, at the address indicated below and to the Company, The
Renco Group, Inc., 30 Rockefeller Plaza, New York, New York
10112, to the attention of Ira Leon Rennert, or to any other
address which any of us may designate by notice in writing.
8) General - Your rights under this Agreement may not be
assigned, transferred, pledged or hypothecated without the prior
approval of the Company, except that, upon your death, your
interest in the Account will vest in your estate or heirs and
that during your lifetime, you may assign your interest to a
revocable or irrevocable trust for the primary benefit of your
spouse or any lineal descendant of your or your spouse's
grandparents. This Amendment sets forth the entire understanding
of you and the Company concerning this subject matter, supersedes
all other terms contained in the Agreement, which other terms are
hereby agreed to be void and of no effect. Any further
additions, deletions or modifications of the Agreement shall only
be made in writing signed by you and the Company.
Please confirm that the foregoing correctly sets forth our full
agreement with respect to your Net Worth Appreciation
Participation Agreement by signing and returning the enclosed
copy of this letter.
Very truly yours,
/S/ IRA LEON RENNERT
Ira Leon Rennert
Chairman of the Board
Confirmed and Agreed to:
/S/ PATRICK G. TATOM
Patrick G. Tatom
77 Waterford Drive
Chagrin Falls, OH 44022
