<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 July 31, 1998.
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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 July 31, 1998, the registrant had 100 shares of its common
stock, no par value, $.01 stated value, outstanding.
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<PAGE> 2
WCI STEEL, INC. AND SUBSIDIARIES
INDEX
--------------------------------
Page No.
--------
PART I FINANCIAL INFORMATION
- -------------------------------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
July 31, 1998 and October 31, 1997. 3
Condensed Consolidated Statements of Operations for the
three months and nine months ended July 31, 1998 and 1997. 4
Condensed Consolidated Statements of Cash Flows for the
nine months ended July 31, 1998 and 1997. 5
Notes to Condensed Consolidated Financial Statements. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II OTHER INFORMATION
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Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
Exhibit Index 15
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
WCI STEEL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
July 31, October 31,
1998 1997
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.........................$ 57,332 $ 18,989
Accounts receivable, less allowances.............. 63,041 65,202
Inventories....................................... 90,351 106,293
Recoverable income taxes.......................... - 4,273
Deferred income taxes............................. 8,472 8,188
Prepaid expenses.................................. 619 1,640
-------- --------
Total current assets......................... 219,815 204,585
Property, plant and equipment, net.................. 220,317 224,620
Intangible pension asset............................ 18,124 20,982
Other assets, net................................... 16,035 20,564
-------- --------
Total assets............................$ 474,291 $ 470,751
======== ========
LIABILITIES and SHAREHOLDER'S EQUITY (DEFICIT)
Current liabilities
Current portion of long-term debt.................$ 115 $ 1,319
Accounts payable.................................. 64,888 64,123
Accrued liabilities............................... 46,355 51,504
Income taxes...................................... 3,223 1,737
-------- --------
Total current liabilities.................... 114,581 118,683
Long-term debt, excluding current portion........... 301,532 301,618
Deferred income taxes............................... 11,134 7,497
Postretirement health benefits...................... 90,734 85,755
Pension benefits, excluding current portion......... 27,093 31,489
Other liabilities................................... 14,168 16,575
-------- --------
Total liabilities....................... 559,242 561,617
-------- --------
Shareholder's equity (deficit)
Preferred stock, par value $1,000 per share, 5,000
shares authorized, none issued. ................ - -
Common stock, no par value, stated value $.01 per
share, 40,000,000 shares authorized, 100 shares
issued and outstanding.......................... - -
Accumulated deficit............................... (84,951) (90,866)
-------- --------
<PAGE> 4
Total shareholder's equity (deficit).... (84,951) (90,866)
Commitments and contingencies....................... - -
Total liabilities and -------- --------
shareholder's equity (deficit)........$ 474,291 $ 470,751
======== ========
<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 Nine months
ended July 31, ended July 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net sales........................ $ 174,947 $ 165,917 $ 519,399 $ 499,458
Operating costs and expenses
Cost of products sold.......... 144,947 134,358 435,999 407,258
Depreciation and amortization.. 6,436 5,653 19,253 16,779
Selling, general and
administrative expenses...... 4,614 5,006 13,146 24,309
------- ------- ------- -------
155,997 145,017 468,398 448,346
------- ------- ------- -------
Operating income................. 18,950 20,900 51,001 51,112
------- ------- ------- -------
Other income (expense)
Interest expense............... (8,007) (8,055) (24,029) (23,648)
Interest and other income, net. 775 301 1,491 1,089
------- ------- ------- -------
(7,232) (7,754) (22,538) (22,559)
------- ------- ------- -------
Income before extraordinary loss
and income taxes............... 11,718 13,146 28,463 28,553
Income tax expense............... 4,570 4,996 10,598 10,913
------- ------- ------- -------
Income before extraordinary
loss........................... 7,148 8,150 17,865 17,640
Extraordinary loss on early
retirement of debt, net
of income tax.................. - - - (19,606)
------- ------- ------- -------
Net income (loss)................ $ 7,148 $ 8,150 $ 17,865 $ (1,966)
======= ======= ======= =======
<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) Nine months
ended July 31,
1998 1997
<S> <C> <C>
Cash flows from operating activities
Net income (loss).................................$ 17,865 $ (1,966)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities
Depreciation and amortization................ 17,055 14,581
Amortization of deferred maintenance costs... 2,198 2,198
Amortization of financing costs.............. 993 1,093
Postretirement health benefits............... 4,979 3,134
Pension benefits............................. 2,021 4,257
Deferred income taxes........................ 3,353 (443)
Extraordinary loss on early retirement of
debt....................................... - 32,786
Other........................................ (382) 323
Cash provided (used) by changes in certain assets
and liabilities
Accounts receivable........................ 2,636 5,064
Inventories................................ 15,942 (5,164)
Prepaid expenses and other assets.......... 2,359 1,008
Accounts payable........................... 765 (16,060)
Accrued liabilities........................ (8,708) 4,113
Income taxes payable and recoverable, net.. 5,759 (8,031)
Other liabilities.......................... (2,407) (8,025)
------- -------
Net cash provided by operating
activities.............................. 64,428 28,868
------ -------
Cash flows from investing activities
Additions to property, plant and equipment, net... (12,955) (33,498)
Short-term investments, net....................... - 49,146
Gross proceeds from the sale of assets............ 110 135
------ -------
Net cash (used) provided by investing
activities.............................. (12,845) 15,783
------ -------
Cash flows from financing activities
Net proceeds from issuance of Senior Secured
Notes........................................... - 290,103
Repurchase of Senior Notes........................ - (233,085)
Repurchase of common stock........................ - (56,936)
Dividends paid.................................... (11,950) (118,000)
Principal payments on other long-term debt........ (1,290) (2,151)
-------- -------
Net cash used by financing activities..... (13,240) (120,069)
-------- -------
Net increase (decrease) in cash and cash equivalents... 38,343 (75,418)
Cash and cash equivalents at beginning of period....... 18,989 90,395
------- -------
Cash and cash equivalents at end of period.............$ 57,332 $ 14,977
======= =======
<PAGE> 6
Supplemental disclosure of cash flow information
Cash paid for interest............................$ 30,555 $ 21,216
Cash paid for income taxes........................ 1,486 6,207
<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
Three and nine months ended July 31, 1998 and 1997
( Unaudited )
NOTE 1 : BASIS OF PRESENTATION
WCI Steel, Inc. (Company or WCI) is a wholly-owned subsidiary of Renco Steel
Holdings, Inc. (Renco Steel) and an indirect wholly-owned subsidiary of The
Renco Group, Inc. (Renco). 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 nine months ended July
31, 1998 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, 1997.
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 July
31, 1998 and October 31, 1997 was as follows:
<TABLE>
<CAPTION>
July 31, October 31,
1998 1997
(Unaudited)
----------- -----------
(Dollars in thousands)
<S> <C> <C>
Raw materials.........................$ 29,713 $ 33,725
Finished and semi-finished product.... 68,935 82,216
Supplies.............................. 87 561
-------- --------
98,735 116,502
Less LIFO reserve..................... 8,384 10,209
-------- --------
$ 90,351 $ 106,293
======== ========
</TABLE>
<PAGE> 7
NOTE 3 : LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
July 31, October 31,
1998 1997
(Unaudited)
---------- ----------
(Dollars in thousands)
<S> <C> <C>
Senior Secured Notes with interest at 10%
payable semi-annually, due 2004..............$ 300,000 $ 300,000
Revolving Credit Facility with interest
at prime plus 0.5% (9.00% at July 31, 1998)
payable monthly.............................. - -
Other.......................................... 1,647 2,937
------- -------
301,647 302,937
Less current portion of long-term debt......... 115 1,319
------- -------
$ 301,532 $ 301,618
======= =======
</TABLE>
The $300 million 10% Senior Secured Notes (Senior Secured Notes) are secured
by a second priority lien on substantially all of the existing property,
plant and equipment of the Company which will become a first priority lien if
all of the 10.5% Senior Notes due 2002 (Senior Notes) are extinguished ($.3
million currently outstanding). 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 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 $100 million revolving credit facility (Revolving Credit
Facility) 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, as defined) earned for periods subsequent to
October 31, 1996 when taken as a single accounting period. Under these
agreements $1.3 million was available for dividends and other transactions
with affiliates at July 31, 1998.
Renco Steel is a holding company formed by Renco in January 1998 which owns
all the outstanding shares of capital stock of the Company. In February 1998
Renco Steel issued $120 million principal amount 10.875% Senior Secured Notes
due 2005. These notes are secured by a pledge of all the outstanding capital
<PAGE> 8
stock of the Company. Renco Steel intends to meet its debt service
obligations from its cash balances and earnings thereon and through
distributions from the Company, including payments pursuant to a tax sharing
agreement and dividends as permitted under the Company's outstanding
indebtedness as described above.
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.
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
believes that it 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. During 1998, the
Environmental Protection Agency (EPA) adopted new standards regulating
particulate matter and ozone emissions. Data relating to these standards is
to be collected and analyzed with implementation scheduled for 2004. Like
much of the steel, utilities and other industries, the Company's current
operations are not expected to comply with these standards if implemented as
currently adopted. The Company cannot currently assess the impact of these
standards on its results of operations or financial condition. Compliance
with more stringent environmental laws and regulations could have a material
adverse effect on WCI's financial condition and results of operations.
The Company is defendant in three civil actions instituted by the Department
of Justice, on behalf of the EPA, in the United States District Court for the
Northern District of Ohio. The first action, instituted on June 29, 1995,
under the Clean Water Act, alleges numerous violations of the Company's
National Pollution Discharge Elimination System alleged to have occurred
during the years 1989 through 1996. The second action, instituted on March
29, 1996, under the Clean Air Act, alleges 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. The third
action, instituted on May 11, 1998, under the Resource Conservation and
Recovery Act of 1976, as amended (RCRA), alleges violations of RCRA, the Ohio
Administrative Code (OAC) and the Company's hazardous waste management permit
issued pursuant to RCRA and OAC related to the Company's management of
hazardous waste in surface impoundments at the Warren, Ohio facility. The
action alleges that from September 1988 to the present the Company operated
hazardous waste management units at the Warren facility without the proper
permits pursuant to RCRA. Each action seeks a civil penalty of not more than
the statutory maximum of $25,000 per day per violation ($27,500 per day per
violation for violations since January 30, 1997 in the case of the RCRA
action) and also an injunction against continuing violations. The Company
believes that imposition of the statutory maximum penalties for the alleged
violations is unlikely based upon past judicial penalties imposed under the
Acts and that it has defenses to liability. The Company is negotiating
consent decrees with the EPA to settle the Clean Water Act and Clean Air Act
actions. A trial for the RCRA action has been scheduled for June 1999.
<PAGE> 9
If the Company is unable to reach a negotiated settlement of these actions,
and if a substantial penalty similar to the statutory maximum penalty were
imposed, it could have a material adverse effect on the operating results or
financial condition of the Company.
As a condition of a previous operating 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 is currently
undertaking the first investigation step of the corrective action program,
the RCRA Facility Investigation (RFI), which is expected to be completed in
1999. The RFI workplan identifies thirteen historical solid waste management
units which are the subject of the RFI, including areas of the facility which
are the subject of the RCRA civil action filed on May 11, 1998 described
above. 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 and the United Steelworkers of America (USWA) 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. On July 31, 1997, the court
granted the Company's motion to dismiss this action and entered judgement in
favor of the Company and the USWA. The Plaintiffs have filed an appeal
regarding the court's decision to dismiss.
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. On April 28, 1997 the plaintiff filed for
summary judgement which the court denied. The Company denies plaintiff's
allegations of liability. The court has scheduled a trial date for August
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
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.
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Three Months Ended July 31, 1998 Compared to
Three Months Ended July 31, 1997
Net sales for the three months ended July 31, 1998 were $174.9 million on
367,782 tons shipped, representing a 5.4% increase in net sales and a 13.7%
increase in tons shipped compared to the three months ended July 31, 1997.
Shipping volume increased in 1998 due to the shipment of 23,458 tons of lower
value added semi-finished steel and an increase in shipments of commodity
steel products. In addition, the shipping volume during the 1997 quarter was
adversely affected by equipment outages during the completion of an upgrade
to the Company's hot strip mill. Excluding semi-finished steel, net sales
per ton shipped decreased 4.7% to $490 compared to $514 for the 1997 quarter.
This decrease is the result of lower selling prices and, to a lesser extent,
changes in product mix. Excluding semi-finished steel, custom carbon, alloy
and electrical steels accounted for 66.5% of shipments in 1998 compared to
71.0% in 1997. During the third quarter of 1998, the domestic steel industry
experienced increased import activity and reduced demand due to a strike at
General Motors Corporation. These events resulted in a lower order rate for
the industry, including WCI, and, as a result, WCI's order backlog contracted
by over 20% during the quarter. These market conditions may result in lower
shipments or reduced prices, or both, in the fourth quarter of 1998.
Gross margin (net sales less cost of goods sold) was $30.0 million for the
three months ended July 31, 1998 compared to $31.6 million for the three
months ended July 31, 1997. The decrease in gross margin reflects the lower
selling prices and change in product mix discussed above offset by higher
volume and lower production costs in 1998.
Operating income was $19.0 million, $52 per ton, for the three months ended
July 31, 1998 compared to $20.9 million, $65 per ton, for the three months
ended July 31, 1997. The lower operating income for 1998 reflects the lower
gross margin discussed above and higher depreciation expense relating to the
hot strip mill upgrade substantially completed in late 1997.
As a result of the items discussed above, net income was $7.1 million in the
1998 quarter compared to $8.2 million in 1997.
Nine Months Ended July 31, 1998 Compared to
Nine Months Ended July 31, 1997
Net sales for the nine months ended July 31, 1998 were $519.4 million on
1,104,206 tons shipped, representing a 4.0% increase in net sales and a 11.8%
increase in tons shipped compared to the nine months ended July 31, 1997.
Shipping volume increased in 1998 due to the shipment of 69,714 tons of lower
value added semi-finished steel during the 1998 period and an increase in
shipments of commodity steel products. Excluding semi-finished steel, net
sales per ton shipped decreased 4.3% to $484 compared to $506 for the 1997
period. This decrease is primarily the result of lower selling prices and,
to a lesser extent, changes in product mix. Excluding semi-finished steel,
custom carbon, alloy and electrical steels accounted for 65.1% of shipments
in 1998 compared to 69.1% in 1997.
<PAGE> 11
Gross margin (net sales less cost of goods sold) was $83.4 million for the
nine months ended July 31, 1998 compared to $92.2 million for the nine months
ended July 31, 1997. The decrease in gross margin reflects the lower selling
prices discussed above offset somewhat by higher volume and lower production
costs in 1998.
Operating income was $51.0 million for the nine months ended July 31, 1998
compared to $51.1 million for the nine months ended July 31, 1997. The
operating results for 1997 include $8.6 million of compensation expenses
related to the debt refinancing and equity redemption transactions effected
in November 1997. Excluding the expenses incurred as a result of these
transactions, operating income was $59.7 million during the 1997 period or
$60 per ton shipped compared to $46 per ton shipped in the 1998 period. The
decrease in operating income in 1998 (excluding the previously mentioned
compensation charges in 1997) reflects the lower gross margin discussed above
and higher depreciation expense as a result of the hot strip mill upgrade
substantially completed in late 1997 offset by a decrease in selling, general
and administrative expenses in 1998 as a result of lower variable
compensation, legal and bad debt expenses.
As a result of the items discussed above, income before extraordinary items
was $17.9 million in 1998 compared to $17.6 million in 1997. During the nine
months ended July 31, 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
$2.0 million for the nine months ended July 31, 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. WCI has met
these requirements in each fiscal year since 1992 from cash balances and cash
provided by operating activities. The Company s primary sources of liquidity
as of July 31, 1998 consisted of $57.3 million of cash and cash equivalents
and available borrowing under the Revolving Credit Facility. The Revolving
Credit Facility has a maximum borrowing limit of $100 million, is secured by
the Company's inventories and receivables and expires on December 29, 1999.
As of July 31, 1998, WCI had no borrowings outstanding under the Revolving
Credit Facility, with a borrowing limit of $100 million less any outstanding
letters of credit ($5.6 million as of July 31, 1998).
Cash provided by operating activities was $64.4 million for the nine months
ended July 31, 1998 compared to $28.9 million for the 1997 period. The
increase in operating cash flow in 1998 compared to 1997 resulted primarily
from working capital changes including a planned reduction in steel inventory
of $13.3 million. The Company sponsors a defined benefit pension plan to
which it contributed $1.5 million during 1998 to-date and expects to
contribute approximately $1.5 million per quarter through 1999 which will
satisfy the minimum funding requirements of ERISA for those periods.
Capital expenditures were $13.0 million and $33.5 million for the nine months
ended July 31, 1998 and 1997, respectively. Capital expenditures in 1997
included expenditures for the Company's hot strip mill upgrade which was
substantially completed in late 1997. Management has funded capital
expenditures in 1998 and 1997 through cash balances and cash provided by
<PAGE> 12
operating activities. At July 31, 1998, the Company had commitments for
capital expenditures of approximately $3.1 million.
The 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.
During the quarter ended July 31, 1998, the Company paid dividends of $6.7
million and expects that further dividends will be declared and paid in the
future, up to the amount permitted under the Senior Secured Notes indenture.
Year 2000 Business Matters
Many information and process control systems used in the current business
environment were designed to use only two digits in the date field and thus
may not function properly in the year 2000. Over the past several years, the
Company has been assessing and modifying its business systems to be year 2000
compliant and has completed approximately 90% of the required program
changes. The Company is in the initial phase of testing individual
applications which have been modified for year 2000. The Company expects to
complete system-wide testing and final remediation by July 1999. The Company
does not expect year 2000 issues related to its business systems to have any
material effect on the Company's costs or to cause any significant disruption
in operations. The Company is completing initial test procedures to assess
its process control environment for year 2000 compliance which is expected to
be completed by September 1998. The Company intends to make the necessary
modifications to prevent disruption to its operations. Because the initial
assessment is not yet complete, the Company is unable at this time to
estimate the cost or potential effect on its operations of achieving year
2000 compliance in its process control environment.
Forward-Looking Statements
This report includes "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 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
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; increasing industry capacity and levels of imports of steel or
steel products; industry trends, including product pricing; competition;
currency fluctuations; the loss of any significant customers; availability of
qualified personnel; major equipment failures; changes in, or the failure or
inability to comply with, government regulation, including, without
limitation, environmental regulations; and the outcome of pending
environmental and other legal matters. These forward-looking statements
speak only as of the date of this report. The Company expressly disclaims
any obligation or undertaking to disseminate any updates or revisions to any
forward-looking statement contained herein to reflect any change in the
Company's expectations with regard thereto or any change in events,
conditions or circumstances on which any such statement is based.
<PAGE> 13
PART II - OTHER INFORMATION
WCI STEEL, INC.
ITEM 1. LEGAL PROCEEDINGS
United States v. WCI Steel, Inc.
Reference is made to the description of the action filed against
the Company on May 11, 1998 contained in the Company's Quarterly
Report on Form 10-Q for the quarter ended April 30, 1998 and as
described in Note 4 to the condensed consolidated financial
statements.
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:
On May 19, 1998, the Company filed Form 8-K to report the
civil action filed against the Company under RCRA on May 11,
1998. This matter is described in Note 4 to the condensed
consolidated financial statements.
<PAGE> 14
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 hereunto duly authorized.
WCI STEEL, INC.
(registrant)
Date: August 25, 1998 /S/ BRET W. WISE
-----------------------------
Bret W. Wise
Vice President and
Chief Financial Officer
(principal financial and
accounting officer)
/S/ JOHN P. JACUNSKI
-----------------------------
John P. Jacunski
Controller
<PAGE> 15
WCI STEEL, INC.
EXHIBIT INDEX
Exhibit Number Description
27. Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEETS AT July 31, 1998 (UNAUDITED) AND THE
CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE NINE MONTH PERIOD ENDED
July 31, 1998 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> JUL-31-1998
<CASH> 57,332
<SECURITIES> 0
<RECEIVABLES> 64,193
<ALLOWANCES> 1,152
<INVENTORY> 90,351
<CURRENT-ASSETS> 219,815
<PP&E> 357,140
<DEPRECIATION> 136,823
<TOTAL-ASSETS> 474,291
<CURRENT-LIABILITIES> 114,581
<BONDS> 301,532
0
0
<COMMON> 0
<OTHER-SE> (84,951)
<TOTAL-LIABILITY-AND-EQUITY> 474,291
<SALES> 519,399
<TOTAL-REVENUES> 519,399
<CGS> 435,999
<TOTAL-COSTS> 435,999
<OTHER-EXPENSES> 32,799
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,029
<INCOME-PRETAX> 28,463
<INCOME-TAX> 10,598
<INCOME-CONTINUING> 17,865
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,865
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
