<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, 1999.
---------------
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.
[ ] Yes [X] No
As of May 24, 1999, the registrant had 100 shares of its common
stock, no par value, $.01 stated value, outstanding.
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<PAGE> 2
WCI STEEL, INC. AND SUBSIDIARIES
INDEX
--------------------------------
Page No.
--------
PART I FINANCIAL INFORMATION
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Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
April 30, 1999 and October 31, 1998. 3
Condensed Consolidated Statements of Operations for the
three and six months ended April 30, 1999 and 1998. 4
Condensed Consolidated Statements of Cash Flows for the
six months ended April 30, 1999 and 1998. 5
Notes to Condensed Consolidated Financial Statements. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II OTHER INFORMATION
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Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
Exhibit Index 17
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
WCI STEEL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
April 30, October 31,
1999 1998
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.........................$ 78,231 $ 62,195
Accounts receivable, less allowances.............. 53,721 48,724
Inventories....................................... 71,932 87,140
Deferred income taxes............................. - 8,610
Prepaid expenses.................................. 277 1,144
-------- --------
Total current assets......................... 204,161 207,813
Property, plant and equipment, net.................. 213,041 217,624
Other assets, net................................... 30,849 34,849
-------- --------
Total assets............................$ 448,051 $ 460,286
======== ========
LIABILITIES and SHAREHOLDER'S EQUITY (DEFICIT)
Current liabilities
Current portion of long-term debt.................$ 119 $ 116
Accounts payable.................................. 52,929 46,620
Accrued liabilities............................... 54,971 53,237
-------- --------
Total current liabilities.................... 108,019 99,973
Long-term debt, excluding current portion........... 301,442 301,502
Deferred income taxes............................... - 13,368
Postretirement health care benefits................. 96,081 92,738
Pension benefits.................................... 17,641 23,524
Other liabilities................................... 12,509 14,054
-------- --------
Total liabilities....................... 535,692 545,159
-------- --------
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 $.01 per
share, 40 million shares authorized, 100 shares
issued and outstanding.......................... - -
Accumulated deficit............................... (87,641) (84,873)
-------- --------
Total shareholder's equity (deficit).... (87,641) (84,873)
Commitments and contingencies....................... - -
<PAGE> 4
Total liabilities and -------- --------
shareholder's equity (deficit)..........$ 448,051 $ 460,286
======== ========
<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,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net sales........................ $ 139,115 $ 177,860 $ 249,392 $ 344,452
Operating costs and expenses
Cost of products sold........... 121,852 149,204 223,716 291,052
Depreciation and amortization... 5,831 6,404 11,633 12,817
Selling, general and
administrative expenses........ 3,517 4,480 6,741 8,532
------- ------- ------- -------
131,200 160,088 242,090 312,401
------- ------- ------- -------
Operating income................. 7,915 17,772 7,302 32,051
------- ------- ------- -------
Other income (expense)
Interest expense................ (8,006) (8,008) (16,016) (16,022)
Interest and other income, net.. 706 417 1,388 716
------- ------- ------- -------
(7,300) (7,591) (14,628) (15,306)
------- ------- ------- -------
Income (loss) before income taxes 615 10,181 (7,326) 16,745
Income tax (benefit) expense..... - 3,665 (4,558) 6,028
------- ------- ------- -------
Net income (loss)................ $ 615 $ 6,516 $ (2,768) $ 10,717
======= ======= ======= =======
<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,
1999 1998
<S> <C> <C>
Cash flows from operating activities
Net income (loss).................................$ (2,768) $ 10,717
Adjustments to reconcile net income (loss) to net
cash provided by operating activities
Depreciation and amortization................ 10,168 11,352
Amortization of deferred maintenance costs... 1,465 1,465
Amortization of financing costs.............. 656 665
Postretirement health care benefits.......... 3,343 3,176
Pension benefits............................. (1,643) 2,344
Deferred income taxes........................ (4,758) 1,413
Other........................................ 54 (447)
Cash provided (used) by changes in certain assets
and liabilities
Accounts receivable........................ (4,997) 2,753
Inventories................................ 15,208 20,711
Accounts payable........................... 6,309 381
Accrued liabilities........................ (628) 1,106
Other assets and liabilities, net.......... (677) (371)
------- -------
Net cash provided by operating activities. 21,732 55,265
------- -------
Cash flows from investing activities
Additions to property, plant and equipment........ (5,639) (9,645)
Gross proceeds from the sale of assets............ - 110
------- -------
Net cash used by investing activities..... (5,639) (9,535)
------- -------
Cash flows from financing activities
Dividends paid.................................... - (5,300)
Principal payments on long-term debt.............. (57) (1,263)
------- -------
Net cash used by financing activities..... (57) (6,563)
------- -------
Net increase in cash and cash equivalents.............. 16,036 39,167
Cash and cash equivalents at beginning of period....... 62,195 18,989
------- -------
Cash and cash equivalents at end of period.............$ 78,231 $ 58,156
======= =======
Supplemental disclosure of cash flow information
Cash paid for interest............................$ 15,360 $ 15,384
Cash paid for income taxes........................ 769 715
<FN>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
</FN>
</TABLE>
<PAGE> 6
WCI STEEL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and six months ended April 30, 1999 and 1998
( 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 six months ended April
30, 1999 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, 1998.
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, 1999 and October 31, 1998 was as follows:
<TABLE>
<CAPTION>
April 30, October 31,
1999 1998
(Unaudited)
----------- -----------
(Dollars in thousands)
<S> <C> <C>
Raw materials.........................$ 22,406 $ 36,259
Finished and semi-finished product.... 56,712 58,332
Supplies.............................. 101 86
-------- --------
79,219 94,677
Less LIFO reserve..................... 7,287 7,537
-------- --------
$ 71,932 $ 87,140
======== ========
</TABLE>
NOTE 3 : ENVIRONMENTAL MATTERS and OTHER CONTINGENCIES
In common with much of the steel industry, the Company's facilities are
located on sites that have been used for heavy industrial purposes for
decades. The Company 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. The Company 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 the Company may be subject to more
stringent environmental laws and regulations in the future. Compliance with
<PAGE> 7
more stringent environmental laws and regulations could have a material
adverse effect on the Company's financial condition and results of
operations.
The Company has been named a defendant in three civil actions instituted by
the Department of Justice, on behalf of the Environmental Protection Agency
(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 Pollutant Discharge
Elimination System permit 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 under the National Emission
Standard for Hazardous Air Pollutants for Asbestos and also violations of the
particulate standard and the opacity limits at the Company's facilities in
Warren, Ohio. Proposed consent decrees have been lodged with the court
embodying settlements reached between the Company and the EPA in these civil
actions. The proposed consent decrees were subject to public comment for a
period of 30 days (concluding May 22, 1999) prior to action by the court.
The agreements provide for $1.74 million in cash penalties and for injunctive
relief and supplemental environmental projects estimated to cost between $1.7
million and $2.2 million that will be expended over two years. The largest
of the projects to be undertaken as part of the settlement involves sediment
removal from the Mahoning River at an estimated cost of $750,000 but not to
exceed $1 million. The third action, instituted on May 11, 1998, under the
Resource Conservation and Recovery Act (RCRA), alleges violations of RCRA,
the Ohio Administrative Code (OAC) and the Company's hazardous waste
management permit related to the Company's management of alleged 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 and in noncompliance with RCRA. This 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) and also an
injunction requiring closure of the surface impoundments under RCRA. The
Company believes that it has defenses to liability and that imposition of the
statutory maximum penalty for the alleged violations is unlikely, in any
event, based upon past judicial penalties imposed under RCRA. A trial in the
RCRA action has been scheduled for June 1999. If a substantial penalty
similar to the statutory maximum penalty were imposed, it would have a
material adverse effect on the operating results and financial condition of
the Company.
As a condition of a previous RCRA operating permit, the Company is 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), the initial phase of 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 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
<PAGE> 8
incurred and there can be no assurance that any such corrective action
program 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
(ERISA), the National Labor Relations Act (NLRA) 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 filed
an appeal regarding the court's decision to dismiss which was heard in June
1998. In March 1999, the appellate court upheld the dismissal of the claims
under ERISA and common law, but reversed the dismissal of the NLRA claim and
remanded to the district court for further proceedings.
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
business. 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.
NOTE 4 : INCOME TAXES
On January 15, 1999, Renco filed an election with the consent of its
shareholders with the Internal Revenue Service to change its taxable status
from that of a subchapter C corporation to that of a subchapter S
corporation, effective November 1, 1998. At the same time, Renco elected for
the Company to be treated as a qualified subchapter S subsidiary (QSSS).
Most states in which the Company operates will follow similar tax treatment.
QSSS status requires the ultimate shareholders to include their pro rata
share of the Company's income or loss in their individual tax returns. The
Company will continue to provide for state and local income taxes for the
taxing jurisdictions which do not recognize QSSS status, however, management
believes this is not material to the Company. As a result of this change in
tax status, the Company recognized an income tax benefit of $4,558,000 during
the three months ended January 31, 1999, which includes the elimination of
net deferred tax liabilities recorded as of October 31, 1998.
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Three Months Ended April 30, 1999 Compared to
Three Months Ended April 30, 1998
Net sales for the three months ended April 30, 1999 were $139.1 million on
319,560 tons shipped, representing a 21.8% decrease in net sales and a 17.7%
decrease in tons shipped compared to the three months ended April 30, 1998.
During the 1998 period, the Company shipped 36,862 tons of lower value added
semi-finished steel. Excluding semi-finished steel, net sales per ton
shipped decreased 8.8% to $435 in the 1999 quarter compared to $477 in 1998.
Excluding semi-finished steel, shipments of custom carbon, alloy and
electrical steels accounted for 66.9% of total shipments during the 1999
quarter compared to 64.8% in the comparable period of 1998. The decreases in
net sales per ton shipped and the lower shipping volume reflect an
unprecedented surge in steel imports that occurred during the second half of
1998. The Company's shipments returned to more normal levels late in the
second fiscal quarter as import levels fell beginning in early 1999. The
Company's order backlog increased to 252,000 tons at April 30, 1999 compared
to 155,000 tons at October 31, 1998 and 199,000 tons at January 31, 1999.
Gross margin (net sales less cost of products sold) was $17.3 million for the
three months ended April 30, 1999 compared to $28.7 million for the three
months ended April 30, 1998. The decrease in gross margin in 1999 is
primarily attributable to the lower selling prices and volume discussed above
partially offset by lower raw material costs, operating costs and variable
compensation expense.
Operating income was $7.9 million, $25 per ton, for the three months ended
April 30, 1999 compared to $17.8 million, $46 per ton, for the three months
ended April 30, 1998. The operating results for 1999 reflect the lower gross
margin discussed above partially offset by decreases in depreciation expense
and selling, general and administrative expenses primarily as a result of
lower variable compensation expense.
As a result of the items discussed above, income before taxes was $0.6
million in 1999 compared to $10.2 million in 1998. Effective November 1,
1998, the Company was designated as a qualified subchapter S subsidiary by
Renco. Accordingly, the Company is generally not subject to income taxes.
Six Months Ended April 30, 1999 Compared to
Six Months Ended April 30, 1998
Net sales for the six months ended April 30, 1999 were $249.4 million on
560,642 tons shipped, representing a 27.6% decrease in net sales and a 23.9%
decrease in tons shipped compared to the six months ended April 30, 1998.
The Company shipped 46,256 tons of lower value added semi-finished steel
during the 1998 period. Excluding semi-finished steel, net sales per ton
shipped decreased 7.5% to $445 compared to $481 for the 1998 period. This
decrease is the result of an unprecedented surge in imports during the second
half of 1998. Excluding semi-finished steel, shipments of custom carbon,
alloy and electrical steels accounted for 66.9% in 1999 and 64.4% in 1998.
<PAGE> 10
Gross margin (net sales less cost of goods sold) was $25.7 million for the
six months ended April 30, 1999 compared to $53.4 million for the six months
ended April 30, 1998. The decrease in gross margin reflects the lower
selling prices and volume discussed above and the effect of higher costs in
the first quarter of 1999 caused by production levels being significantly
below capacity. Production returned to more normal levels late in the first
quarter of 1999 and the Company enjoyed lower raw material and production
costs throughout the second quarter of 1999 compared to the second quarter of
1998. In addition, the decrease in gross margin resulted in lower variable
compensation expense in 1999 compared to 1998.
Operating income was $7.3 million, $13 per ton shipped, for the six months
ended April 30, 1999 compared to $32.1 million, $44 per ton shipped, for the
six months ended April 30, 1998. The decrease in operating income in 1999
reflects the lower gross margin discussed above offset by lower depreciation
expense and a decrease in selling, general and administrative expenses in
1999 as a result of lower variable compensation expense.
As a result of the items discussed above, the Company incurred a loss before
taxes of $7.3 million in 1999 compared to income before taxes of $16.7
million in 1998. Effective November 1, 1998, the Company was designated as a
qualified subchapter S subsidiary by Renco. Accordingly, the Company is
generally not subject to income taxes and recognized an income tax benefit of
$4.6 million during the three months ended January 31, 1999, representing the
elimination of net deferred tax liabilities recorded as of October 31, 1998.
Liquidity and Capital Resources
WCI s liquidity requirements result from capital investments, working capital
requirements, postretirement health care and pension funding, and interest
expense.
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 April 30, 1999 consisted of cash and cash
equivalents of $78.2 million and available borrowing under its $100 million
revolving credit facility (Revolving Credit Facility). The 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, 1999, WCI had no borrowings outstanding
under the Revolving Credit Facility, with a borrowing limit of $84.9 million
based on eligible inventories and receivables, net of $6.5 million in
outstanding letters of credit. Management believes that it has sufficient
liquidity to support its operations for the foreseeable future.
Cash provided by operating activities was $21.7 million for the six months
ended April 30, 1999 compared to $55.3 million for the 1998 period. The lower
operating cash flow in 1999 compared to 1998 resulted from a decrease in
income before taxes as described above and from changes in working capital.
Capital expenditures were $5.6 million and $9.6 million during the six months
ended April 30, 1999 and 1998, respectively, and are estimated to be
approximately $15 million for all of fiscal 1999. Management has funded
capital expenditures in 1999 and 1998 through cash balances and cash provided
by operating activities. At April 30, 1999, the Company had commitments for
capital expenditures of approximately $2.0 million.
<PAGE> 11
The Revolving Credit Facility and the indenture governing the Company's 10%
Senior Secured Notes due 2004 (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 which limit 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 paid no dividends during the six months ended April 30, 1999 and,
under the terms of the Senior Secured Notes indenture, was not permitted to
pay dividends at April 30, 1999.
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 or after the year 2000. Over the past several
years, the Company has been assessing and modifying its business systems to
be year 2000 ready and has completed the required program changes and the
replacement/upgrading of purchased systems. The Company has completed
testing of approximately 95% of the applications and, after completing
additional remediation on approximately 5% of the programs tested, has found
them to be year 2000 ready. The Company completed a comprehensive
enterprise-wide test for its business systems in March 1999. Based on the
results of this test, the Company believes that its critical business systems
are year 2000 ready. The Company has completed an inventory and assessment
of its process control environment including automation, instrumentation and
components with embedded chips, with approximately 90% of the assessed
inventory being year 2000 ready. The Company expects to complete remediation
and testing of the process control systems and components, including
integration tests, by June 1999. The Company does not expect year 2000
issues related to its business systems or process control environment to
cause any significant disruption to operations. The Company incurred $0.3
million of incremental costs to address year 2000 issues during the six
months ended April 30, 1999 and, based on information available at this time,
estimates that it will incur additional incremental costs of approximately
$0.5 million during the remainder of 1999.
In conjunction with its efforts to achieve year 2000 readiness, the Company
is also monitoring the status of the year 2000 readiness programs at its
significant suppliers and business partners through questionnaires which were
sent to each such entity. The Company has received responses from
approximately 87% of these entities. The Company is evaluating these
responses and has made and intends to make additional inquiries of critical
suppliers during 1999 to monitor the status of their year 2000 readiness
efforts. The Company is using information learned from this process to
develop its contingency plans to mitigate the impact that may occur if its
critical suppliers are not year 2000 ready on a timely basis.
While the Company is developing contingency plans for the sourcing and
transportation of raw material components critical to its operations, the
Company is presently dependent on a single source for certain of its energy,
raw materials and transportation needs. If certain vendors are unable to
supply the raw materials, energy or transportation services on a timely basis
<PAGE> 12
in the year 2000, it could result in the Company being unable to operate or
require the Company to operate at a reduced level. In addition, the lack of
accurate and timely year 2000 information from suppliers of automation and
process control systems and components or suppliers' inability to provide
year 2000 ready replacement components could result in the Company being
unable to operate, or require the Company to operate at a reduced level, in
the year 2000.
Accounting Standards
In March 1998, the American Institute of Certified Public Accounts issued its
Statement of Position No. 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1
provides guidelines for companies to capitalize or expense as incurred costs
to develop or obtain internal-use software. The Company adopted SOP 98-1
effective November 1, 1998. The adoption of SOP 98-1 did not have a material
impact on the Company's results of operations for the six months ended April
30, 1999.
Labor Matters
Most of the Company's hourly employees are represented by the USWA, with
which the Company has a four-year collective bargaining agreement that
expires September 1, 1999. While the Company does not expect any disruption
to its operations as a result of the expiration of the current agreement, the
Company has experienced such disruptions in the past and no assurance can be
given that there will not be a disruption to operations at the expiration of
this agreement. The Company is unable to estimate the effect on its results
of operations that a new labor agreement may have.
Several large integrated steel producers contracts with the USWA expire on
July 31, 1999. Customers may require these integrated producers to increase
steel inventories prior to the expiration of the labor agreements as a hedge
against any potential work stoppage. If there are no work stoppages, the
excess inventories produced prior to the contract expiration could result in
a supply-demand imbalance which could adversely effect the Company's
shipments in the fourth fiscal quarter.
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
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; effects of future collective bargaining agreements;
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
<PAGE> 13
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> 14
PART II - OTHER INFORMATION
WCI STEEL, INC.
ITEM 1. LEGAL PROCEEDINGS
For information as to the environmental matters and as to the
employee litigation described in the Company's Form 10-K for
the year ended October 31, 1998, see Part I, Note 3 to Item 1,
Financial Statements.
Leonard v. WCI Steel, Inc.
--------------------------
Reference is made to the description of this action in the
Company's Form 10-K for the year ended October 31, 1998, see
Part I, Item 3. Legal Proceedings.
In March 1999, the court dismissed the plaintiff's appeal of
the directed verdict in favor of the Company.
Thomas C. Williams, etc. v. WCI Steel, Inc.
-------------------------------------------
Reference is made to the description of this action contained in
the Company's annual report on Form 10-K for the year ended October
31, 1998.
In March 1999, the appellate court upheld the dismissal of the
claims under ERISA and common law, but reversed the dismissal of
the NLRA claim and remanded to the district court for further
proceedings.
United States v. WCI Steel, Inc.
--------------------------------
Reference is made to the description of these actions in the
Company's Form 10-K for the year ended October 31, 1998, see
Part I, Item 1. Business.
Proposed consent decrees embodying settlements reached between the
Company and the EPA regarding the Clean Water Act and Clean Air Act
civil actions have been lodged with the court. The proposed
consent decrees were subject to public comment for a period of
30 days (concluding May 22, 1999) prior to action by the court.
The agreements provide for $1.74 million in cash penalties and
for injunctive relief and supplemental environmental projects
estimated to cost between $1.7 million and $2.2 million that will
be expended over two years. The largest of the projects to be
undertaken as part of the settlement involves sediment removal from
the Mahoning River at an estimated cost of $750,000 but not to
exceed $1 million. WCI had previously established reserves to
provide for the estimated settlement and related costs and does not
expect the settlement to result in any charge to earnings.
<PAGE> 15
The action against the Company under the Resource Conservation
and Recovery Act remains pending and is not affected by these
settlements. See note 3 to Item 1. 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:
No report on Form 8-K was filed during the quarter ended
April 30, 1999.
<PAGE> 16
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 24, 1999 /S/ BRET W. WISE
-----------------------------
Bret W. Wise
Vice President and
Chief Financial Officer
(principal financial officer)
/S/ JOHN P. JACUNSKI
-----------------------------
John P. Jacunski
Controller
<PAGE> 17
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 April 30, 1999 (UNAUDITED) AND THE
CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE SIX MONTH PERIOD ENDED
April 30, 1999 (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-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> APR-30-1999
<CASH> 78,231
<SECURITIES> 0
<RECEIVABLES> 54,625
<ALLOWANCES> 904
<INVENTORY> 71,932
<CURRENT-ASSETS> 204,161
<PP&E> 362,333
<DEPRECIATION> 149,292
<TOTAL-ASSETS> 448,051
<CURRENT-LIABILITIES> 108,019
<BONDS> 301,442
0
0
<COMMON> 0
<OTHER-SE> (87,641)
<TOTAL-LIABILITY-AND-EQUITY> 448,051
<SALES> 249,392
<TOTAL-REVENUES> 249,392
<CGS> 223,716
<TOTAL-COSTS> 223,716
<OTHER-EXPENSES> 18,374
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,016
<INCOME-PRETAX> (7,326)
<INCOME-TAX> (4,558)
<INCOME-CONTINUING> (2,768)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,768)
<EPS-BASIC> .00
<EPS-DILUTED> .00
</TABLE>
