PAGE 1
- --------------------------------------------------------------------------------
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, 2001.
-----------------
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: 333-48245
--------------------
RENCO STEEL HOLDINGS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 34-1854775
(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) 399-6884
(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 June 13, 2001, the registrant had 100 shares of its common stock,
no par value, $.01 stated value, outstanding.
- --------------------------------------------------------------------------------
PAGE 2
RENCO STEEL HOLDINGS, INC. AND SUBSIDIARIES
INDEX
--------------------------------
Page No.
--------
PART I FINANCIAL INFORMATION
- ---------------------------------------
Item 1. FINANCIAL STATEMENTS OF RENCO STEEL HOLDINGS, INC.
--------------------------------------------------
Consolidated Balance Sheets as of
April 30, 2001 and October 31, 2000. 3
Consolidated Statements of Operations for the
three and six months ended April 30, 2001 and 2000. 4
Consolidated Statements of Cash Flows for the
six months ended April 30, 2001 and 2000. 5
Notes to Consolidated Financial Statements. 6
FINANCIAL STATEMENTS OF WCI STEEL, INC.
Consolidated Balance Sheets as of
April 30, 2001 and October 31, 2000. 10
Consolidated Statements of Operations for the
three and six months ended April 30, 2001 and 2000. 11
Consolidated Statements of Cash Flows for the
six months ended April 30, 2001 and 2000. 12
Notes to Consolidated Financial Statements. 13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 25
PART II OTHER INFORMATION
- -----------------------------------
Item 1. Legal Proceedings 26
Item 6. Exhibits and Reports on Form 8-K 26
Signatures 27
Exhibit Index 28
PAGE 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RENCO STEEL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amount)
April 30, October 31,
2001 2000
--------- -----------
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents ................ $ 67,936 $ 90,607
Other investments ........................ 1,905 7,514
Accounts receivable, less allowances for
doubtful accounts of $3,050 and $750,
respectively ........................... 49,378 47,599
Inventories .............................. 87,853 97,021
Prepaid expenses ......................... 1,149 1,076
--------- ---------
Total current assets ................ 208,221 243,817
Property, plant and equipment, net ......... 235,102 245,454
Excess of cost over acquired net assets, net 11,087 11,357
Intangible pension asset, net .............. 19,250 22,283
Other assets, net .......................... 8,205 18,259
--------- ---------
Total assets ........................ $ 481,865 $ 541,170
========= =========
LIABILITIES and SHAREHOLDER'S DEFICIT
Current liabilities
Current portion of long-term debt ........ $ 131 $ 128
Accounts payable ......................... 41,824 47,199
Accrued liabilities ...................... 62,824 54,138
--------- ---------
Total current liabilities ........... 104,779 101,465
Long-term debt, excluding current portion .. 420,953 420,988
Postretirement health care benefits ........ 114,931 112,130
Pension benefits, excluding current portion 33,846 36,381
Other liabilities .......................... 12,264 11,756
--------- ---------
Total liabilities ................... 686,773 682,720
--------- ---------
Shareholder's deficit
Common stock, no par value, stated value
$.01 per share, 850 shares authorized,
100 shares issued and outstanding ...... -- --
Additional paid-in capital ............... 280 280
Accumulated deficit ...................... (205,188) (141,830)
--------- ---------
Total shareholder's deficit ......... (204,908) (141,550)
Commitments and contingencies .............. -- --
--------- ---------
Total liabilities and
shareholder's deficit .......... $ 481,865 $ 541,170
========= =========
See accompanying notes to consolidated financial statements.
PAGE 4
RENCO STEEL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
(Unaudited)
Three months Six months
ended April 30, ended April 30,
2001 2000 2001 2000
--------- --------- --------- ---------
Net sales ......................... $ 99,268 $ 156,149 $ 197,459 $ 297,361
Operating costs and expenses
Cost of products sold ............ 100,953 131,137 202,922 250,245
Depreciation and amortization .... 6,549 6,703 13,155 13,448
Selling, general and
administrative expenses ......... 3,750 4,261 9,579 8,609
Asset impairment and related
charges (note 8) ................ 3,909 -- 3,909 --
--------- --------- --------- ---------
115,161 142,101 229,565 272,302
--------- --------- --------- ---------
Operating (loss) income ........... (15,893) 14,048 (32,106) 25,059
--------- --------- --------- ---------
Other income (expense)
Interest expense ................. (11,398) (11,395) (22,795) (22,804)
Interest, investment and
other (expense) income, net ..... 867 1,365 (8,457) 6,557
--------- --------- --------- ---------
(10,531) (10,030) (31,252) (16,247)
--------- --------- --------- ---------
(Loss) income before income taxes . (26,424) 4,018 (63,358) 8,812
Income tax benefit ................ -- -- -- --
--------- --------- --------- ---------
Net (loss) income ............... $ (26,424) $ 4,018 $ (63,358) $ 8,812
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
PAGE 5
RENCO STEEL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Six months
ended April 30,
2001 2000
-------- --------
Cash flows from operating activities:
Net (loss) income ................................... $(63,358) $ 8,812
Adjustments to reconcile net (loss) income
to net cash provided by operating activities
Depreciation and amortization .............. 11,670 11,980
Amortization of deferred maintenance costs . 1,484 1,468
Amortization of financing costs ............ 948 948
Postretirement health care benefits ........ 6,601 5,261
Pension benefits ........................... 2,955 3,961
Provision for losses on accounts receivable 2,300 --
Deferred income taxes ...................... -- (243)
Gain on other investments .................. (191) (1,584)
Asset impairment and other charges ......... 14,745 --
Other ...................................... 84 1,105
Cash provided (used) by changes in certain
assets and liabilities
Accounts receivable ........................ (4,079) (3,551)
Inventories ................................ 9,167 (3,702)
Prepaid expenses and other assets .......... (3,256) (1,980)
Accounts payable ........................... (5,377) (6,359)
Accrued liabilities ........................ 1,503 4,617
Other liabilities .......................... 508 649
-------- --------
Net cash (used) provided by
operating activities ...................... (24,296) 21,382
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment .......... (4,112) (6,103)
Other investments, net .............................. 5,800 4,753
-------- --------
Net cash provided (used) by investing
activities ................................ 1,688 (1,350)
-------- --------
Cash flows from financing activities:
Principal payments on long-term debt ................ (63) (60)
-------- --------
Net cash used by financing activities ...... (63) (60)
-------- --------
Net increase in cash and cash equivalents .................... (22,671) 19,972
Total cash and cash equivalents at
beginning of period ......................................... 90,607 80,004
-------- --------
Total cash and cash equivalents at end of period ............. $ 67,936 $ 99,976
======== ========
Supplemental disclosure of cash flow information
Cash paid for interest .............................. $ 21,849 $ 21,856
Cash paid for income taxes .......................... -- 21
See accompanying notes to consolidated financial statements.
PAGE 6
RENCO STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three and six months ended April 30, 2001 and 2000
( Unaudited )
NOTE 1: BASIS OF PRESENTATION
Renco Steel Holdings, Inc. (Renco Steel) is a holding company
incorporated in the state of Ohio on January 20, 1998 and is a wholly owned
subsidiary of The Renco Group, Inc. (Renco). On January 29, 1998, Renco
contributed to Renco Steel its interest in its wholly owned subsidiary WCI
Steel, Inc. (WCI). Accordingly the accompanying financial statements include the
accounts of Renco Steel and WCI (collectively, the Company).
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
six months ended April 30, 2001 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, 2000.
NOTE 2: CASH AND CASH EQUIVALENTS
Cash and cash equivalents of Renco Steel and WCI include cash on hand
and short-term investments with maturities of three months or less from the date
of acquisition. Renco Steel is generally restricted from utilizing the cash and
cash equivalents of WCI under the terms of the indenture governing WCI's 10%
Senior Secured Notes due 2004, except as permitted for the distribution of
dividends to Renco Steel. The unrestricted cash amounts at April 30, 2001 and
October 31, 2000 were $0.3 million and $1.1 million, respectively.
NOTE 3: OTHER INVESTMENTS
Renco Steel has from time to time invested in various limited
partnerships which invest in a variety of financial assets, including equity,
debt, and derivative securities. Renco Steel was invested in one such limited
partership on April 30, 2001 and intends to fully redeem its investment in
the third fiscal quarter to partially fund the August 1, 2001 Renco Steel
interest payment. Because of the nature of the underlying investments, Renco
Steel's investment is subject to a high degree of risk, including, but not
limited to, credit risk, interest rate risk, foreign currency exchange risk,
and equity price risk. Renco Steel does not have any off balance sheet risk
with respect to this investment, and thus its risk is limited to the amount
of this investment. This investment has been classified as a current asset in
the accompanying balance sheet as of April 30, 2001. Renco Steel accounts for
its investment in the limited partnership under the equity method and
includes its pro- rata share of the partnership's realized and unrealized
gains in investment income.
PAGE 7
The Company's consolidated statements of operations include unrealized
earnings under the equity method of $0.2 million and $0.4 million for the six
months ended April 30, 2001 and April 30, 2000 respectively, and $0.1 million
and $0.2 million for the three months ended April 30, 2001 and April 30, 2000,
respectively.
NOTE 4: 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, 2001 and October 31, 2000 was as follows:
April 30, October 31,
2001 2000
(Unaudited)
----------- -----------
(Dollars in thousands)
Raw materials .................... $30,952 $38,873
Finished and semi-finished product 59,039 60,785
Supplies ......................... 79 74
------- -------
90,070 99,732
Less LIFO reserve ................ 2,217 2,711
------- -------
$87,853 $97,021
======= =======
NOTE 5 : 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 management. 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 continue to change and have generally become
more stringent, 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.
WCI is subject to consent decrees as a result of two civil actions
instituted by the Department of Justice, on behalf of the Environmental
Protection Agency ("EPA"). These consent decrees require WCI to complete certain
supplemental environmental projects estimated to cost approximately $2.4 million
which will be expended by late 2002. These projects include sediment removal
from the Mahoning River at an estimated remaining cost of $0.9 million and the
installation of a liner for a surface impoundment estimated to cost $1.5
million. The consent decrees also provide for stipulated penalties in the event
of noncompliance which WCI does not believe will be material.
PAGE 8
As a condition of a previous Resource Conservation and Recovery Act
("RCRA") operating permit, WCI is required to undertake a corrective action
program with respect to historical material handling practices at the Warren
facility. WCI has completed the initial phase of the first investigation step of
the corrective action program, the RCRA Facility Investigation ("RFI"), and has
submitted its report to the EPA. WCI believes that additional sampling will be
required to complete a full RFI and will negotiate the extent of the second
phase with the EPA. The RFI workplan identifies thirteen historical solid waste
management units to be investigated. The final scope of 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, WCI 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 any such corrective action program would not have a material
adverse effect on the operating results or financial condition of WCI.
On January 23, 1996, two retired employees instituted an action against WCI
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 WCI 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
WCI's motion to dismiss this action and entered judgement in favor of WCI and
the USWA. On appeal by the plaintiffs 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. On October 9, 2000 the district court granted WCI's motion to
dismiss this action and entered judgement in favor of WCI and the USWA. The
plaintiffs filed an appeal regarding the court's decision to dismiss.
In addition to the above-described matters, WCI 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 WCI 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 WCI in a
particular quarter or annual period; however, WCI believes that the effect of
such matters will not have a material adverse effect on WCI's consolidated
financial position.
NOTE 6: SEGMENT REPORTING
The Company applies Statement of Financial Accounting Standards No.
131, "Disclosures About Segments of an Enterprise and Related Information,"
which requires that companies disclose segment data based on how management
makes resource allocation decisions and evaluates segment operating performance.
PAGE 9
In applying the Statement, the Company considered its operating and
management structure and the types of information subject to regular review by
its "chief operating decision maker." On this basis, the Company's only
reportable segment is WCI. The segment disclosure is presented on this basis for
the six months ended April 30, 2001 and April 30, 2000, respectively.
All revenues are generated by WCI. Geographic revenues are based on the
region in which the customer invoice was generated and all revenue was generated
within the United States. The Company measures segment profit for internal
reporting purposes as net income (loss). A reconciliation of segment income to
consolidated net income (loss) is presented below:
Six months ended
April 30,
2001 2000
-------- --------
WCI ............................. $(54,718) $ 15,608
Other ........................... (8,640) (6,796)
-------- --------
Total Consolidated $(63,358) $ 8,812
======== ========
NOTE 7: OTHER MATTERS
LTV Corporation ("LTV") filed for reorganization under Chapter 11 of
the United States Bankruptcy Code on December 29, 2000. WCI supplies steam to an
LTV Steel Company coke plant adjacent to WCI's facility in Warren, Ohio. As a
result of the filing, WCI recorded a charge of $2.1 million in the first fiscal
quarter of 2001 to reduce the amounts due from LTV to estimated net realizable
value. WCI has an ongoing exposure to LTV with respect to the supply of steam
from both a credit risk aspect and the uncertainty of actions that LTV may take
due to the filing. Cessation of operations at the coke plant or termination of
the contract for the supply of steam through reorganization proceedings, could
have a material adverse effect on WCI's results of operations until such time as
WCI would be able to install electrical generating equipment to convert the
steam to a productive use. During fiscal year 2000, WCI recorded revenue of
$10.2 million for the sale of steam to LTV. WCI continues to sell steam to LTV
in the normal course of business.
NOTE 8: ASSET IMPAIRMENT and RELATED CHARGES
The Youngstown Sinter Company ("YSC"), a wholly-owned subsidiary of
WCI, will idle its plant indefinitely effective July 15, 2001. YSC has been in
operation since 1991 producing a clinker-type material ("Sinter") from
steelmaking by-products such as slag and ore fines. The Sinter is then used as a
substitute feed stock in WCI's blast furnace facility located in Warren, Ohio.
WCI recorded a charge of $3.9 million during the three months ended April 30,
2001 to reflect plant idling costs, of which $3.0 million represents the
recognition of an impairment in the value of the assets of the facility. The
sinter plant may be restarted in the future if economically advantageous.
PAGE 10
WCI STEEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amount)
April 30, Oct. 31,
2001 2000
--------- ---------
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents .................... $ 67,596 $ 89,478
Accounts receivable, less allowance
for doubtful accounts of $3,050 and $750,
respectively ................................ 49,378 47,599
Inventories .................................. 87,042 96,171
Prepaid expenses and other current assets .... 1,149 1,076
--------- ---------
Total current assets ................. 205,165 234,324
Property, plant and equipment, net ............. 193,756 202,578
Intangible pension asset, net .................. 22,490 25,677
Other assets, net .............................. 6,167 15,597
--------- ---------
Total assets ......................... $ 427,578 $ 478,176
========= =========
LIABILITIES and SHAREHOLDER'S EQUITY
Current liabilities
Current portion of long-term debt ............ $ 131 $ 128
Accounts payable ............................. 41,824 47,201
Accrued liabilities .......................... 59,329 50,571
--------- ---------
Total current liabilities ............ 101,284 97,900
Long-term debt, excluding current portion ...... 301,186 301,252
Postretirement health care benefits ............ 114,410 111,584
Pension benefits ............................... 33,781 36,313
Other liabilities .............................. 12,264 11,756
--------- ---------
Total liabilities .................... 562,295 558,805
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 ................................. -- --
Additional paid-in capital ................... 279 279
Accumulated deficit .......................... (135,626) (80,908)
--------- ---------
Total shareholder's equity (deficit) . (135,347) (80,629)
Commitments and contingencies .................. -- --
--------- ---------
Total liabilities and
shareholder's equity (deficit) ....... $ 427,578 $ 478,176
========= =========
See accompanying notes to consolidated financial statements.
PAGE 11
WCI STEEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
(Unaudited)
Three months Six months
ended April 30, ended April 30,
2001 2000 2001 2000
------------------------ ------------------------
Net sales ...................... $ 99,268 $ 156,149 $ 197,459 $ 297,361
Operating costs and expenses
Cost of products sold ....... 101,026 131,208 203,066 250,388
Depreciation and amortization 5,647 5,801 11,352 11,645
Selling, general and
administrative expenses .... 3,722 4,232 9,543 8,577
Asset impairment and related
charges (note 5) ........... 3,909 -- 3,909 --
--------- --------- --------- ---------
114,304 141,241 227,870 270,610
--------- --------- --------- ---------
Operating income(loss) ....... (15,036) 14,908 (30,411) 26,751
--------- --------- --------- ---------
Other income (expense)
Interest expense ............ (7,983) (7,981) (15,968) (15,976)
Interest and other income
(expense), net ............. 811 1,095 (8,339) 4,833
--------- --------- --------- ---------
(7,172) (6,886) (24,307) (11,143)
--------- --------- --------- ---------
Income (loss) before income
taxes ...................... (22,208) 8,022 (54,718) 15,608
Income tax (benefit) expense . -- -- -- --
--------- --------- --------- ---------
Net income (loss) ............ $ (22,208) $ 8,022 $ (54,718) $ 15,608
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
PAGE 12
WCI STEEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Six months
ended April 30,
2001 2000
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .............................. $(54,718) $ 15,608
Adjustments to reconcile net income (loss) to
net cash provided by operating activities
Depreciation and amortization ................ 9,868 10,177
Amortization of deferred maintenance costs ... 1,484 1,468
Amortization of financing costs .............. 645 645
Postretirement health care benefits .......... 6,626 5,286
Pension benefits ............................. 3,112 4,118
Provision for losses on accounts receivable .. 2,300 --
Asset impairment and other charges ........... 14,393 --
Other ........................................ 84 1,108
Cash provided (used) by changes in certain
assets and liabilities
Accounts receivable .......................... (4,079) (3,551)
Inventories .................................. 9,129 (3,741)
Prepaid expenses and other assets ............ (3,256) (1,628)
Accounts payable ............................. (5,377) (6,359)
Accrued liabilities .......................... 1,574 4,419
Other assets and liabilities, net ............ 508 (980)
-------- --------
Net cash provided (used) by operating
activities ......................... (17,707) 28,198
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment ... (4,112) (6,103)
-------- --------
Net cash used by investing activities (4,112) (6,103)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt ......... (63) (60)
Dividends paid ............................... -- (5,300)
-------- --------
Net cash used by financing activities (63) (5,360)
-------- --------
Net increase in cash and cash equivalents ............. (21,882) 16,735
Cash and cash equivalents at beginning of period ...... 89,478 76,349
-------- --------
Cash and cash equivalents at end of period ............ $ 67,596 $ 93,084
======== ========
Supplemental disclosure of cash flow information
Cash paid for interest ....................... $ 15,324 $ 15,331
Cash paid for income taxes ................... -- 21
See accompanying notes to consolidated financial statements
PAGE 13
WCI STEEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three and six months ended April 30, 2001 and 2000
( 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, 2001 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, 2000.
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, 2001 and October 31, 2000 was as follows:
April 30, October 31,
2001 2000
(Unaudited)
----------- -----------
(Dollars in thousands)
Raw materials .................... $30,952 $38,873
Finished and semi-finished product 59,039 60,785
Supplies ......................... 79 74
------- -------
90,070 99,732
Less LIFO reserve ................ 3,028 3,561
------- -------
$87,042 $96,171
======= =======
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 management. 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 continue to change and
PAGE 14
have generally become more stringent, and the Company 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 the Company's financial condition and results of operations.
The Company is subject to consent decrees as a result of two civil
actions instituted by the Department of Justice, on behalf of the Environmental
Protection Agency ("EPA"). These consent decrees require the Company to complete
certain supplemental environmental projects estimated to cost approximately $2.4
million which will be expended by late 2002. These projects include sediment
removal from the Mahoning River at an estimated remaining cost of $0.9 million
and the installation of a liner for a surface impoundment estimated to cost $1.5
million. The consent decrees also provide for stipulated penalties in the event
of noncompliance which the Company does not believe will be material.
As a condition of a previous Resource Conservation and Recovery Act
("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 has completed the initial phase of the first
investigation step of the corrective action program, the RCRA Facility
Investigation ("RFI"), and has submitted its report to the EPA. The Company
believes that additional sampling will be required to complete a full RFI and
will negotiate the extent of the second phase with the EPA. The RFI workplan
identifies thirteen historical solid waste management units to be investigated.
The final scope of 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 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. On appeal by the plaintiffs 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. On October 9, 2000 the district 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.
In addition to the above-described 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,
PAGE 15
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 quarter 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: OTHER MATTERS
LTV Corporation ("LTV") filed for reorganization under Chapter 11 of
the United States Bankruptcy Code on December 29, 2000. WCI supplies steam to an
LTV Steel Company coke plant adjacent to WCI's facility in Warren, Ohio. As a
result of the filing, WCI recorded a charge of $2.1 million in the first fiscal
quarter of 2001 to reduce the amounts due from LTV to estimated net realizable
value. WCI has an ongoing exposure to LTV with respect to the supply of steam
from both a credit risk aspect and the uncertainty of actions that LTV may take
due to the filing. Cessation of operations at the coke plant or termination of
the contract for the supply of steam through reorganization proceedings, could
have a material adverse effect on WCI's results of operations until such time as
WCI would be able to install electrical generating equipment to convert the
steam to a productive use. During fiscal year 2000, WCI recorded revenue of
$10.2 million for the sale of steam to LTV.
NOTE 5: ASSET IMPAIRMENT and RELATED CHARGES
The Youngstown Sinter Company ("YSC"), a wholly-owned subsidiary of
WCI, will idle its plant indefinitely effective July 15, 2001. YSC has been in
operation since 1991 producing a clinker-type material ("Sinter") from
steelmaking by-products such as slag and ore fines. The sinter is then used as a
substitute feed stock in WCI's blast furnace facility located in Warren, Ohio.
WCI recorded a charge of $3.9 million during the three months ended April 30,
2001 to reflect plant idling costs, of which $3.0 million represents the
recognition of an impairment in the value of the assets of the facility. The
sinter plant may be restarted in the future if economically advantageous.
PAGE 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
Three Months Ended April 30, 2001
Compared to Three Months Ended
April 30, 2000.
Net sales for the three months ended April 30, 2001 were $99.3 million
on 241,131 tons shipped, representing a 36.4% decrease in net sales and a 31.1%
decrease in tons shipped compared to the three months ended April 30, 2000.
Shipping volume for the 2001 period decreased due primarily to lower customer
demand resulting from a general slowing in the U.S. economy. Net sales per ton
shipped decreased 7.6% to $412 in the 2001 period compared to $446 for the 2000
period, with net selling prices down 11.7% offset somewhat by changes in product
mix. Shipments of custom carbon, alloy and electrical steels accounted for 56.8%
of total shipments for the three months ended April 30, 2001 compared to 50.6%
for the three months ended April 30, 2000. On April 30, 2001, WCI's order
backlog was approximately 158,000 net tons compared to approximately 234,000 net
tons at April 30, 2000 and 144,000 net tons at October 31, 2000.
The table below shows WCI's product mix for the three months ended
April 30, 2001 and April 30, 2000.
Net Tons Shipped Percent of Total
------------------- ------------------
Three Months Ended Three Months Ended
April 30, April 30,
------------------- ------------------
2001 2000 2001 2000
------- ------- ------- -------
CUSTOM PRODUCTS:
Hot Rolled .......... 76,847 105,771 31.9% 30.2%
Cold Rolled ......... 4,325 4,658 1.8% 1.3%
Coated products ..... 55,610 66,747 23.1% 19.1%
------- ------- ------- -------
Total Custom Products .. 136,782 177,176 56.8% 50.6%
Total Commodity Products 104,349 172,569 43.2% 49.4%
------- ------- ------- -------
Total Steel Products ... 241,131 349,745 100.0% 100.0%
======= ======= ======= =======
PAGE 17
The following table sets forth the percentage of WCI's net tons shipped
to various markets for the three months ended April 30, 2001 and April 30, 2000.
Three Months Ended
April 30,
CUSTOMER CATEGORY 2001 2000
- ----------------------------- ------------------------
Conversion/further processing 47.0% 48.3%
Steel service centers ....... 20.9% 26.4%
Construction ................ 16.2% 11.9%
Electrical equipment ........ 5.5% 4.8%
Direct automotive ........... 5.1% 4.9%
Other ....................... 5.3% 3.7%
------- -------
Total .............. 100.0% 100.0%
Gross margin (loss) (sales less cost of products sold) was ($1.7)
million for the three months ended April 30, 2001 compared to gross margin of
$25.0 million for the three months ended April 30, 2000. The decrease in gross
margin reflects the lower shipping volume and transaction prices discussed above
and higher per ton production costs resulting from significantly lower
production volume and its effect on fixed operating costs per ton. Production
volume during the second quarter of 2001 was approximately 73% of operating
capacity compared to approximately 98% in the 2000 period.
Operating income (loss) was ($15.9) million, or ($66) per ton, for the
three months ended April 30, 2001 compared to operating income of $14.0 million,
or $40 per ton, for the three months ended April 30, 2000. The decrease in
operating income for the 2001 period reflects the lower gross margin discussed
above along with a charge of $3.9 million associated with YSC's announced
indefinite idling of its operating facility by July 15, 2001. (See "Note 8:
Asset Impairment and Related Charges" above). Excluding the impairment charge,
the operating loss was ($12.0) million, or ($50) per ton for the three months
ended April 30, 2001.
Interest, investment and other (expense) income, net was $0.9 million
for the three months ended April 30, 2001 compared to $1.4 million for the three
months ended April 30, 2000. Interest and investment income declined by $0.5
million in the second quarter of 2001 due to lower returns from the limited
partnership investment and lower interest income from lower levels of cash and
cash equivalent balances.
As a result of the items discussed above, the Company had a loss before
taxes of $26.4 million for the three months ended April 30, 2001 compared to
income before taxes of $4.0 million for the three months ended April 30, 2000.
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.
PAGE 18
Six Months Ended April 30, 2001
Compared to Six Months Ended April
30, 2000.
Net sales for the six months ended April 30, 2001 were $197.5 million
on 478,154 tons shipped, representing a 33.6 % decrease in net sales and a 29.2%
decrease in tons shipped compared to the six months ended April 30, 2000.
Shipping volume for the 2001 period was lower due primarily to lower customer
demand resulting from a general slowing in the U.S. economy coupled with high
levels of imported steel. Net sales per ton shipped decreased 6.1% to $413 in
the 2001 period compared to $440 for the 2000 period, with net selling prices
down 9.5% offset somewhat by changes in product mix. Shipments of custom carbon,
alloy and electrical steels accounted for 54.6% of total shipments for the six
months ended April 30, 2001 compared to 51.4% for the six months ended April 30,
2000.
The table below shows WCI's product mix for the six months ended April
30, 2001 and April 30, 2000.
Net Tons Shipped Percent of Total
------------------- ------------------
Six Months Ended Six Months Ended
April 30, April 30,
2001 2000 2001 2000
------- ------- ------- -------
CUSTOM PRODUCTS:
Hot Rolled ............ 153,810 218,583 32.2% 32.3%
Cold Rolled ........... 8,374 8,705 1.8% 1.3%
Coated products ....... 98,493 120,479 20.6% 17.8%
------- ------- ------- -------
Total Custom Products .... 260,677 347,767 54.6% 51.4%
Total Commodity Products . 217,477 328,021 45.4% 48.6%
------- ------- ------- -------
Total Steel Products ..... 478,154 675,788 100.0% 100.0%
======= ======= ======= =======
The following table sets forth the percentage of WCI's net tons shipped to
various markets for the six months ended April 30, 2001 and April 30, 2000.
Six Months Ended
April 30,
CUSTOMER CATEGORY 2001 2000
- ----------------------------- ------------------------
Conversion/further processing 49.5% 52.2%
Steel service centers ....... 21.6% 24.7%
Construction ................ 13.8% 10.4%
Electrical equipment ........ 5.2% 5.0%
Direct automotive ........... 5.1% 4.3%
Other ....................... 4.8% 3.4%
------- -------
Total .............. 100.0% 100.0%
======= =======
PAGE 19
Gross margin (loss) (sales less cost of products sold) was ($5.5)
million for the six months ended April 30, 2001 compared to gross margin of
$47.1 million for the six months ended April 30, 2000. The decrease in gross
margin reflects the lower shipping volume and transaction prices discussed above
and higher per ton production costs resulting from significantly lower
production volume and its effect on fixed operating costs per ton. Production
volume during the six months ended April 30, 2001 was approximately 67% of
operating capacity compared to approximately 98% in the 2000 period.
Operating income (loss) was ($32.1) million, or ($67) per ton, for the
six months ended April 30, 2001 compared to operating income of $25.1 million,
or $37 per ton, for the six months ended April 30, 2000. The decrease in
operating income for the 2001 period reflects the lower gross margin discussed
above along with a charge of $3.9 million associated with YSC's announced
indefinite idling of its operating facility by July 15, 2001 (See "Note 8: Asset
Impairment and Related Charges" above) and a charge of $2.1 million to establish
a reserve for amounts due from a financially distressed steel company (See "Note
7: Other Matters" above). Excluding these charges, the operating loss was
($26.1) million, or ($55) per ton for the six months ended April 30, 2001.
Interest income and other income (expense), net was ($8.5) million for
the six months ended April 30, 2001 compared to income of $6.6 million for the
six months ended April 30, 2000. Investment income declined by $1.5 million in
the first six months of 2001 due to significantly lower returns from the limited
partnership investment as a result of lower amounts of invested capital. In the
2001 period the Company recorded a charge of $10.8 million to write down the
carrying value of its investment in Acme Metals 10.875% Senior Unsecured Notes.
In the 2000 period, WCI recorded a gain of $2.8 million as a result of an
agreement with the United Steelworkers, which permitted WCI to pay certain
medical benefits from assets in a trust previously restricted for other
benefits.
As a result of the items discussed above, the Company had a loss before
taxes of $63.4 million for the six months ended April 30, 2001 compared to
income before taxes of $8.8 million for the six months ended April 30, 2000.
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.
LIQUIDITY AND CAPITAL RESOURCES
Renco Steel
In February 1998, Renco Steel issued $120.0 million 10 7/8% Senior
Secured Notes due 2005 (Senior Secured Notes) which are secured by the stock of
WCI. Interest on the Senior Secured Notes is payable semi- annually in arrears
on February 1, and August 1 of each year.
PAGE 20
Renco Steel's liquidity requirements result from its debt service
obligations related to the Senior Secured Notes, as well as to a nominal extent
general corporate overhead. Renco Steel has met these requirements through
distributions from WCI, as permitted under the terms of WCI's outstanding
indebtedness and from its cash and its investments, other than in WCI (Other
Investments). Renco Steel had available cash and Other Investment balances of
$2.2 million at April 30, 2001. Renco may also make contributions or advances to
Renco Steel to meet its debt services obligations. Renco, however, has no
obligation to do so. Renco has indicated it intends to support the working
capital needs of Renco Steel in fiscal 2001.
The ability of Renco Steel to meet its debt service obligations is
dependent upon WCI's operating performance and financial results and the
performance of Renco Steel's Other Investments. WCI's operating performance and
financial results are subject to financial, economic, political, competitive and
other factors, many of which are beyond the Company's control. In addition,
WCI's ability to pay dividends to Renco Steel is restricted by the terms of the
indenture governing WCI's 10% Senior Secured Notes due 2004 (Senior Secured
Notes of WCI). Pursuant to the indenture, dividends are generally limited to 50%
of WCI's cumulative earnings since October 31, 1996 (Dividend Basket). As of
April 30, 2001, WCI had a negative Dividend Basket of $62.5 million, therefore,
WCI will not be permitted to pay dividends to Renco Steel until its future
earnings exceed such amount. WCI has reported that it expects to incur a loss in
the third quarter of 2001 and such loss would increase the negative Dividend
Basket. As a result, WCI does not expect to pay dividends to Renco Steel in the
foreseeable future. Other than allowable dividends, WCI's assets may not be
utilized by Renco Steel. Renco Steel expects to meet the August 1, 2001 interest
payment on its Senior Secured Notes with available cash, proceeds from the
planned redemption of its Other Investments and an advance from Renco.
The indenture governing the Senior Secured Notes contains numerous
covenants and prohibitions that limit the financial activities of Renco Steel,
including, among others, limitations on the incurrence of additional
indebtedness and additional liens. The ability of Renco Steel to comply with
such covenants will be dependent upon WCI's future performance.
As of June 13, 2001, Renco owns $59,320,000 face value of Renco Steel's
Senior Secured Notes. Renco is entitled to receive interest payments from Renco
Steel in accordance with the terms of the indenture governing the Senior Secured
Notes.
Cash used by operating activities was $24.3 million for six months
ended April 30, 2001 compared to cash provided by operating activities of $21.4
million for the 2000 period. The decreased operating cash flow in the 2001
period compared to the 2000 period resulted primarily from a decrease in income
before taxes excluding non-cash charges offset somewhat by changes in working
capital.
Cash provided by investing activities was $1.7 million in the six
months ended April 30, 2001 compared with cash used by investing activities
of $1.4 million in the six months ended April 30, 2000. Renco Steel's
proceeds from the sale of Other Investments were $5.8 million in 2001 and in
2000 the proceeds, net of purchases of Other
PAGE 21
Investments were $4.8 million. WCI's capital expenditures were $4.1 million and
$6.1 million during the six months ended April 30, 2001 and 2000, respectively.
Capital expenditures are expected to be approximately $15 million for all of
fiscal 2001. WCI expects to reline the blast furnace during the second calendar
quarter of 2002 at an estimated cost of $10 million to $15 million. Capital
expenditures in 2001 and 2000 have been funded through cash balances and cash
provided by operating activities. At April 30, 2001, WCI had commitments for
capital expenditures of approximately $3.1 million.
Renco Steel paid no dividends and was not permitted to do so under the
Senior Secured Notes indenture during the six months ended April 30, 2001.
WCI
WCI's liquidity requirements result from capital investments, working
capital requirements, postretirement health care 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. WCI's primary sources of liquidity as of
April 30, 2001 consisted of cash and cash equivalents of $67.6 million and
available borrowing under its $100 million revolving credit agreement (Revolving
Credit Facility of WCI).
The Revolving Credit Facility of WCI has a maximum borrowing limit of
$100 million, is secured by eligible inventories and receivables, as defined
therein, and expires on December 29, 2003. As of April 30, 2001, WCI had no
borrowings outstanding under the Revolving Credit Facility of WCI, with a
borrowing limit of $76.3 million based on eligible inventories and receivables,
net of $14.1 million in letters of credit outstanding or committed.
Cash (used) provided by operating activities was ($17.7) million for
the six months ended April 30, 2001 compared to $28.2 million for the 2000
period. The decreased operating cash flow in the 2001 period compared to the
2000 period resulted primarily from a decrease in income before taxes excluding
non-cash charges offset somewhat by changes in working capital.
Capital expenditures were $4.1 million and $6.1 million during the six
months ended April 30, 2001 and 2000, respectively. Capital expenditures are
expected to be approximately $15 million for all of fiscal 2001. WCI expects to
reline its blast furnace during the second calendar quarter of 2002 at an
estimated cost of $10 million to $15 million. WCI has funded its capital
expenditures in 2001 and 2000 through cash balances and cash provided by
operating activities. At April 30, 2001, WCI had commitments for capital
expenditures of approximately $3.1 million.
The Revolving Credit Facility of WCI and the indenture governing the
Senior Secured Notes of WCI contain numerous covenants and prohibitions that
limit the financial activities of WCI, including requirements that WCI satisfy
certain financial ratios. On April 30, 2001 WCI and its lenders under the
Revolving Credit Facility of WCI agreed to amend the loan agreement to require
WCI to maintain a minimum net worth, as defined, of not less than a negative
$200 million instead
PAGE 22
of the previous minimum net worth requirement of not less than a negative $150
million. The ability of WCI to meet its debt service requirements and to comply
with such covenants will be dependent upon future operating performance and
financial results of WCI, which will be subject to financial, economic,
political, competitive and other factors affecting WCI, many of which are beyond
its control.
WCI paid no dividends and was not permitted to do so under the Senior
Secured Notes of WCI indenture during the six months ended April 30, 2001. WCI
does not expect to be permitted to pay dividends for the foreseeable future
based on limitations under the Senior Secured Notes of WCI indenture.
Postretirement Benefit Plans
WCI provides postretirement health care and life insurance benefits to
substantially all employees who retire from WCI upon meeting certain age and
length of service eligibility requirements. As a result of the collective
bargaining agreement effective September 1, 1999, WCI is permitted to pay
current claims up to $8.8 million from a trust, after which time (expected to
occur late in the third fiscal quarter or early in the fourth fiscal quarter of
2001) WCI will be required to pay claims from corporate assets. Claims paid by
WCI or trust totaled $2.6 million, $4.4 million and $3.4 million during the six
months ended April 30, 2001,and fiscal years 2000 and 1999, respectively.
WCI has a defined benefit pension plan ("DBP") which covers
substantially all bargained for employees. WCI expects to contribute
approximately $7.2 million, $24.6 million and $15.4 million to the plan during
2001, 2002 and 2003, respectively, which is expected to satisfy the minimum
funding requirements of ERISA for those periods. WCI contributed $4.2 million
and $6.7 million to the plan during fiscal 2000 and fiscal 1999, respectively.
Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("FAS133"). In June 2000, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 138, "Accounting for Derivative Instruments and Hedging Activities an
amendment of FASB Statement No. 133," ("FAS138") which amended FAS133 and added
guidance for certain derivative instruments and hedging activities. The new
standard, FAS133 as amended by FAS138, requires recognition of all derivatives
as either assets or liabilities at fair value. One of the primary amendments to
FAS133, which is covered by FAS138 establishes a "normal purchases and normal
sales" exception. This exception permits companies to exclude contracts which
provide for the purchase or sale of something other than a financial or
derivative instrument that will be delivered in quantities expected to be used
or sold by the entity over a reasonable period of time in the normal course of
business operations. The Company adopted FAS133 as amended by FAS138 effective
November 1, 2000. WCI has forward purchase contracts for certain energy and
coating metal commodities that qualify for the "normal purchase exception"
provisions of FAS138. The adoption of FAS133 as amended by FAS138 had no
material effect on either financial position or results of operations.
PAGE 23
Outlook
The domestic steel market continues to be negatively impacted by high
levels of steel imports and a general slowing of the economy. However, the
recent interest rate cuts by the Federal Reserve are expected to strengthen the
economy and lead to increased steel consumption later this year. In addition,
service center inventories and car and light truck inventories have dropped
significantly from their recent highs. While we are encouraged by the
preliminary determinations recently announced by the U.S. Department of Commerce
regarding the importation of hot-rolled carbon steel products and the initiation
of an investigation of steel imports by the International Trade Commission under
Section 201 of the United States trade law, imports are expected to continue to
supply a significant portion of domestic steel demand which will result in
continued price pressure.
The WCI's order entry rate has improved modestly and WCI expects
shipping volume increases to approach approximately 10% in the third fiscal
quarter of 2001 from the record lows experienced in the first and second
quarters. Net sales prices are expected to be flat in the third quarter compared
to the second quarter as price increases announced effective March 1, 2001 have
generally not been successful. Custom products are expected to comprise
approximately 54% of shipments in the third quarter compared to 56.8% in the
second quarter. Per ton production costs are expected to decline slightly in the
third quarter compared to the second quarter as the effect of production rate
increases more than offset the effect of higher natural gas prices. As a result,
WCI expects to incur a loss in the third quarter that is slightly less than that
reported in the second quarter excluding special charges. While WCI expects its
cash balance to decrease during the third quarter due to the $15 million coupon
payment on the Senior Secured Notes of WCI, management of WCI believes that it
has sufficient liquidity to support its operations.
Renco Steel's liquidity is significantly impacted by WCI's expected
losses and WCI's inability to pay dividends to Renco Steel for the
foreseeable future. As of April 30, 2001, WCI would need to earn in excess of
$62.5 million, the negative Dividend Basket amount, before it is permitted to
resume dividend payments. Renco Steel expects to meet the August 1, 2001
interest payment on its Senior Secured Notes with available cash, proceeds
from the planned redemption of its Other Investments and an advance from
Renco.
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; major equipment failures; changes in, or the failure or inability to
comply with, government regulation, including, without
PAGE 24
limitation, environmental regulations; the outcome of legal matters; and the
performance of the Other Investments. 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 25
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
WCI is exposed to commodity price risk with respect to natural gas and
zinc. WCI uses forward purchase contracts to manage the volatility related to
these exposures. No contracts are entered into for speculative purposes. WCI's
previously placed forward purchase contracts for natural gas expired in March
2001 requiring WCI to place new forward purchase contracts at higher market
prices. Market prices for natural gas are currently approximately 50% higher
than WCI's cost during the six months ended April 30, 2001. This increase will
result in an increase of per ton production costs of approximately 2% in the
third quarter of 2001 compared to the second quarter.
PAGE 26
PART II - OTHER INFORMATION
RENCO STEEL HOLDINGS, 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,
2000, see Part I, Note 5 to Item 1, Financial Statements.
ITEM 6. EXHIBITS and REPORTS ON FORM 8-K
Exhibits:
(a) 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 April 30, 2001, the Company filed a current report on Form
8-K, responding to Item 5. Other Events, to report material
events that have occurred since the Company filed its
quarterly report on Form 10-Q on March 15, 2001 for the three
months ended January 31, 2001.
PAGE 27
RENCO STEEL HOLDINGS, 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.
RENCO STEEL HOLDINGS, INC.
(registrant)
Date: June 13, 2001 /s/ JAMES N. CHAPMAN
------------------------------
James N. Chapman
President
(principal executive officer)
/S/ ROGER L. FAY
------------------------------
Roger L. Fay
Vice President and
Chief Financial Officer
(principal financial and
accounting officer)
PAGE 28
RENCO STEEL HOLDINGS, INC.
EXHIBIT INDEX
Exhibit Number Description
-------------- -----------
10.1.3(1) Amendment No. 1 dated April 30, 2001 to the Second
Amended and Restated Loan and Security Agreement
dated July 30, 1999, between WCI Steel, Inc. and
Congress Financial Corporation.
- ----------
(1) Incorporated by reference to the WCI Steel, Inc. Form 10-Q report for the
quarterly period ended April 30, 2001.