
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION
	ITEM 1. FINANCIAL STATEMENTS
		NOTE 1 : BASIS OF PRESENTATION
		NOTE 2 : INVENTORIES
		NOTE 3 : ENVIRONMENTAL MATTERS and OTHER CONTINGENCIES
		NOTE 4 : OTHER MATTERS
		NOTE 5 : ASSET IMPAIRMENT and RELATED CHARGES
	ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PART II - OTHER INFORMATION
	ITEM 1. LEGAL PROCEEDINGS
	ITEM 6. EXHIBITS and REPORTS ON FORM 8-K
SIGNATURES

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

[x]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 31, 2001.

[ ]

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

WCI STEEL, INC.

(Exact name of registrant as specified in its charter)


Ohio		34-1585405

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)


1040 Pine Ave., S.E., Warren, Ohio		44483-6528

(Address of principal executive offices)		(Zip Code)

(330) 841-8302

(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 August 30, 2001, the registrant had 100 shares of its common stock, no par value, $.01 stated value, outstanding.

WCI STEEL, INC. AND SUBSIDIARIES

INDEX

PART I FINANCIAL INFORMATION


		Page No.

Item 1.	Financial Statements

	Consolidated Balance Sheets as of July 31, 2001 and October 31, 2000.		3

	Consolidated Statements of Operations for the three and nine months ended July 31, 2001 and 2000.		4

	Consolidated Statements of Cash Flows for the nine months ended July 31, 2001 and 2000.		5

	Notes to Consolidated Financial Statements.		6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		9

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		14

PART II OTHER INFORMATION

Item 1.	Legal Proceedings		15

Item 6.	Exhibits and Reports on Form 8-K		15

	Signatures		16

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

WCI STEEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amount)


			July 31,			October 31,
			2001			2000

			(Unaudited)
ASSETS




Current assets




	Cash and cash equivalents		$	45,862		$	89,478




	Accounts receivable, less allowance for doubtful accounts of $3,200 and $750, respectively			52,393			47,599




	Inventories			90,913			96,171




	Prepaid expenses and other current assets			643			1,076

		Total current assets		189,811			234,324




Property, plant and equipment, net				192,988			202,578




Intangible pension asset, net				20,897			25,677




Other assets, net				6,386			15,597

		Total assets	$	410,082		$	478,176


LIABILITIES and SHAREHOLDER’S EQUITY




Current liabilities




	Current portion of long-term debt		$	181		$	128




	Accounts payable			48,517			47,201




	Accrued liabilities			66,915			50,571

		Total current liabilities		115,613			97,900

Long-term debt, excluding current portion				301,374			301,252




Postretirement health care benefits				116,097			111,584




Pension benefits				18,861			36,313




Other liabilities				12,214			11,756

		Total liabilities		564,159			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			(154,356	)		(80,908	)

		Total shareholder’s equity (deficit)		(154,077	)		(80,629	)




Commitments and contingencies				—			—

		Total liabilities and shareholder’s equity (deficit)	$	410,082		$	478,176

See accompanying notes to consolidated financial statements.

WCI STEEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
(Unaudited)


		Three months ended,						Nine months ended,
		July 31,						July 31,

		2001			2000			2001			2000

Net sales		$	109,988		$	140,726		$	307,448		$	438,087




Operating costs and expenses




	Cost of products sold		112,827			122,258			315,893			372,646




	Depreciation and amortization		4,808			5,837			16,160			17,482




	Selling, general and administrative expenses		3,619			4,060			13,163			12,637




	Asset impairment and related charges (note 5)		—			—			3,909			—


			121,254			132,155			349,125			402,765

Operating income (loss)			(11,266	)		8,571			(41,677	)		35,322


Other income (expense)




	Interest expense		(8,004	)		(7,983	)		(23,972	)		(23,959	)




	Interest income and other income (expense), net		540			1,812			(7,799	)		6,645

			(7,464	)		(6,171	)		(31,771	)		(17,314	)

Income (loss) before income taxes			(18,730	)		2,400			(73,448	)		18,008




Income tax (benefit) expense			—			—			—			—


Net income (loss)		$	(18,730	)	$	2,400		$	(73,448	)	$	18,008

See accompanying notes to consolidated financial statements.

WCI STEEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)


				Nine months ended July 31,

				2001			2000

CASH FLOWS FROM OPERATING ACTIVITIES:




	Net income (loss)			$	(73,448	)	$	18,008




	Adjustment to reconcile net income (loss) to net cash provided (used) by operating activities:




		Depreciation and amortization			14,658			15,276




		Amortization of deferred maintenance costs			1,502			2,206




		Amortization of financing costs			977			968




		Postretirement health care benefits			9,913			8,869




		Pension benefits			3,174			4,053




		Provision for losses on accounts receivable			2,450			—




		Asset impairment and other charges			14,393			—




		Other			93			1,150




	Cash provided (used) by changes in certain assets and liabilities




		Accounts receivable			(7,244	)		4,920




		Inventories			5,258			(10,388	)




		Prepaid expenses and other assets			(3,319	)		770




		Accounts payable			1,316			(7,670	)




		Accrued liabilities			(5,829	)		(4,765	)




		Other liabilities			458			807

			Net cash provided (used) by operating activities		(35,648	)		34,204

CASH FLOWS FROM INVESTING ACTIVITIES:




	Additions to property, plant and equipment				(8,248	)		(12,404	)




	Gross proceeds from the sale of assets				105			—

			Net cash used by investing activities		(8,143	)		(12,404	)

CASH FLOWS FROM FINANCING ACTIVITIES:




	Net change in long-term debt				175			(90	)




	Dividends paid				—			(9,200	)

			Net cash provided (used) by financing activities		175			(9,290	)

	Net increase (decrease) in cash and cash equivalents				(43,616	)		12,510




	Cash and cash equivalents at beginning of period				89,478			76,349

	Cash and cash equivalents at end of period			$	45,862		$	88,859

	Supplemental disclosure of cash flow information




		Cash paid for interest		$	30,489		$	30,483




		Cash paid for income taxes			—			21

See accompanying notes to consolidated financial statements.

WCI STEEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three and nine months ended July 31, 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 nine months ended July 31, 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 July 31, 2001 and October 31, 2000 was as follows:


	July 31,		October 31,
	2001		2000

	(Unaudited)
	(Dollars in Thousands)
Raw materials	$	31,154	$	38,873




Finished and semi-finished product		62,122		60,785




Supplies		122		74

		93,398		99,732




Less LIFO reserve		2,485		3,561

	$	90,913	$	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 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, 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 the nine months ended July 31, 2001, WCI recorded revenue of $8.3 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, idled its plant indefinitely effective July 15, 2001. YSC had been in operation since 1991 producing a clinker-type material (“Sinter”) from steelmaking by-products such as slag and ore fines. The sinter was 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.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.

RESULTS OF OPERATIONS

Three Months Ended July 31, 2001 Compared to
Three Months Ended July 31, 2000.

Net sales for the three months ended July 31, 2001 were $110.0 million on 278,552 tons shipped, representing a 21.8% decrease in net sales and a 9.8% decrease in tons shipped compared to the three months ended July 31, 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 13.4% to $395 in the 2001 period compared to $456 for the 2000 period, with net selling prices down 13.9% offset somewhat by changes in product mix. However, net selling prices were flat in the third quarter compared to the second quarter of 2001. Shipments of custom carbon, alloy and electrical steels accounted for 52.4% of total shipments for the three months ended July 31, 2001 compared to 54.3% for the three months ended July 31, 2000. On July 31, 2001, WCI’s order backlog was approximately 158,000 net tons compared to approximately 187,000 net tons at July 31, 2000 and 144,000 net tons at October 31, 2000.

The table below shows the Company’s product mix for the three months ended July 31, 2001 and July 31, 2000.


		Net Tons Shipped				Percent of Total

		Three Months Ended				Three Months Ended
		July 31,				July 31,

		2001		2000		2001			2000


CUSTOM PRODUCTS:





	Hot Rolled		75,747		93,700		27.2	%		30.3	%




	Cold Rolled		5,193		5,856		1.9	%		1.9	%




	Coated products		64,899		68,116		23.3	%		22.1	%


Total Custom Products			145,839		167,672		52.4	%		54.3	%





Total Commodity Products			132,713		141,240		47.6	%		45.7	%


Total Steel Products			278,552		308,912		100.0	%		100.0	%

The following table sets forth the percentage of WCI’s net tons shipped to various markets for the three months ended July 31, 2001 and July 31, 2000.


		Three Months Ended
		July 31,
*Customer Category*		2001			2000

	Conversion / further processing		51.6	%		43.2	%




	Steel service centers		16.5	%		26.6	%




	Construction		18.2	%		15.0	%




	Electrical equipment		4.4	%		5.0	%




	Direct automotive		4.8	%		6.2	%




	Other		4.5	%		4.0	%


Total			100.0	%		100.0	%

Gross margin (loss) (sales less cost of products sold) was ($2.8) million for the three months ended July 31, 2001 compared to gross margin of $18.5 million for the three months ended July 31, 2000. The decrease in gross margin reflects the lower shipping volume and transaction prices discussed above and higher per ton production costs resulting from lower production volume and its effect on fixed operating costs per ton. Production volume during the third quarter of 2001 was approximately 82% of operating capacity compared to approximately 85% in the 2000 period.

Operating income (loss) was ($11.3) million, or ($40) per ton, for the three months ended July 31, 2001 compared to operating income of $8.6 million, or $28 per ton, for the three months ended July 31, 2000. The decrease in operating income for the 2001 period reflects the lower gross margin discussed above.

Interest income and other income (expense), net was $0.5 million for the three months ended July 31, 2001 compared to $1.8 million for the three months ended July 31, 2000. The decrease in interest income was due primarily to lower cash balances and lower interest rates in the 2001 period compared to the 2000 period.

As a result of the items discussed above, the Company had a loss before taxes of $18.7 million for the three months ended July 31, 2001 compared to income before taxes of $2.4 million for the three months ended July 31, 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.

Nine Months Ended July 31, 2001 Compared to
Nine Months Ended July 31, 2000.

Net sales for the nine months ended July 31, 2001 were $307.4 million on 756,706 tons shipped, representing a 29.8% decrease in net sales and a 23.2% decrease in tons shipped compared to the nine months ended July 31, 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 8.8% to $406 in the 2001 period compared to $445 for the 2000 period, with net selling prices down 11.0% offset somewhat by changes in product mix. Shipments of custom carbon, alloy and electrical steels accounted for 53.7% of total shipments for the nine months ended July 31, 2001 compared to 52.4% for the nine months ended July 31, 2000.

The table below shows the Company’s product mix for the nine months ended July 31, 2001 and July 31, 2000.


		Net Tons Shipped				Percent of Total

		Nine Months Ended				Nine Months Ended
		July 31,				July 31,
		2001		2000		2001			2000

CUSTOM PRODUCTS:





	Hot Rolled		229,557		312,283		30.3	%		31.7	%




	Cold Rolled		13,567		14,561		1.8	%		1.5	%




	Coated products		163,392		188,595		21.6	%		19.2	%


Total Custom Products			406,516		515,439		53.7	%		52.4	%





Total Commodity Products			350,190		469,261		46.3	%		47.6	%


Total Steel Products			756,706		984,700		100.0	%		100.0	%

The following table sets forth the percentage of WCI’s net tons shipped to various markets for the nine months ended July 31, 2001 and July 31, 2000.


		Nine Months Ended
		July 31,
*Customer Category*		2001			2000

	Conversion / further processing		50.3	%		49.4	%




	Steel service centers		19.7	%		25.3	%




	Construction		15.4	%		11.8	%




	Electrical equipment		4.9	%		5.0	%




	Direct automotive		5.0	%		4.9	%




	Other		4.7	%		3.6	%

Total			100.0	%		100.0	%

Gross margin (loss) (sales less cost of products sold) was ($8.4) million for the nine months ended July 31, 2001 compared to gross margin of $65.4 million for the nine months ended July 31, 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 nine months ended July 31, 2001 was approximately 73% of operating capacity compared to approximately 94% in the 2000 period.

Operating income (loss) was ($41.7) million, or ($55) per ton, for the nine months ended July 31, 2001 compared to operating income of $35.3 million, or $36 per ton, for the nine months ended July 31, 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 indefinite idling of its operating facility on July 15, 2001 (See “Note 5: 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 4: Other Matters” above). Excluding these charges, the operating loss was ($35.7) million, or ($47) per ton for the nine months ended July 31, 2001.

Interest income and other income (expense), net was ($7.8) million for the nine months ended July 31, 2001 compared to income of $6.6 million for the nine months ended July 31, 2000. In the 2001 period WCI recorded a charge of $10.5 million to write down the carrying value of Acme Metals, Inc. 10.875% Senior Unsecured Notes owned by WCI. In the 2000 period, the Company recorded a gain of $2.8 million as a result of an agreement with the United Steelworkers, which permitted the Company to pay certain medical benefits from assets in a trust previously restricted for other benefits. Interest income was $2.4 million for the nine months ended July 31, 2001 compared to interest income of $3.4 million for the nine months ended July 31, 2000. The decrease in interest income was due primarily to lower cash balances and lower interest rates in the 2001 period compared to the 2000 period.

As a result of the items discussed above, the Company had a loss before taxes of $73.4 million for the nine months ended July 31, 2001 compared to income before taxes of $18.0 million for the nine months ended July 31, 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

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. The Company’s primary sources of liquidity as of July 31, 2001 consisted of cash and cash equivalents of $45.9 million and available borrowing under its $100 million revolving credit agreement (“Revolver”).

The Revolver 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 July 31, 2001, WCI had no borrowings outstanding under the Revolver, with a borrowing limit of $81.5 million based on eligible inventories and receivables, net of $14.2 million in letters of credit outstanding or committed.

Cash (used) provided by operating activities was ($35.6) million for nine months ended July 31, 2001 compared to $34.2 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 $8.2 million and $12.4 million during the nine months ended July 31, 2001 and 2000, respectively. Capital expenditures are expected to be approximately $15 million for all of fiscal 2001. The Company expects to reline its blast furnace during the third calendar quarter of 2002 at an estimated cost of $15 million. Management has funded the Company’s capital expenditures in 2001 and 2000 through cash balances and cash provided by operating activities. At July 31, 2001, the Company had commitments for capital expenditures of approximately $5.9 million.

The Revolver and the indenture governing WCI’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. The Revolver requires the Company to maintain a minimum net worth, as defined, of not less than a negative $200 million. 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 and was not permitted to do so under the Senior Secured Notes indenture during the nine months ended July 31, 2001. The Company does not expect to be permitted to pay dividends for the foreseeable future based on limitations under the Senior Secured Notes indenture.

Postretirement Benefit Plans

The Company provides postretirement health care and life insurance benefits to substantially all employees who retire from the Company upon meeting certain age and length of service eligibility requirements. As a result of the collective bargaining agreement effective September 1, 1999, the Company was permitted to pay current claims up to $8.8 million from a trust. That limit was reached during the three months ended July 31, 2001 which will now require the Company to pay claims from corporate assets. Claims paid by the Company or trust totaled $4.0 million, $4.4 million and $3.4 million during the nine months ended July 31, 2001 and fiscal years 2000 and 1999, respectively.

The Company has a defined benefit pension plan (“DBP”) which covers substantially all bargained for employees. The Company 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. The Company contributed $5.4 million, $4.2 million and $6.7 million to the plan during the nine months ended July 31, 2001 and fiscal years 2000 and 1999, respectively.

Accounting Standards

In July 2001, the Financial Accounting Standards Board issued Statement No. 141, Business Combinations, and Statement No. 142, Goodwill and Other Intangible Assets. Statement 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001 as well as all purchase method business combinations completed after June 30, 2001. Statement 142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of Statement 142. The Company is required to adopt the provisions of Statement 141 immediately, and Statement 142 effective November 1, 2002. The adoption of Statement 141 and Statement 142 is not expected to have a material effect on either financial position or results of operation.

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. The Company 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.

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 early next year. In addition, service center inventories and car and light truck inventories have dropped significantly from their recent highs. While we are encouraged by both the preliminary and final determinations recently announced by the U.S. Department of Commerce regarding the importation of hot-rolled carbon steel products, and the initiation of a Section 201 International Trade Commission investigation, imports are expected to continue to supply a significant portion of domestic steel demand which will result in continued price pressure.

The Company’s order entry rate has stabilized and the Company expects shipping volume to be flat in the fourth fiscal quarter of 2001 compared to the third quarter. Selling prices are expected to decline slightly in the fourth quarter compared to the third quarter due to decreases in prices for cold rolled and galvanized products. Custom products are expected to comprise approximately 50% of shipments in the fourth quarter compared to 52.4% in the third quarter. Per ton production costs are expected to increase slightly in the fourth quarter compared to the third quarter due to increased maintenance costs and natural gas prices and the cost of idling certain finishing facilities periodically during the quarter. As a result, the Company expects to incur a loss in the fourth quarter that is larger than that reported in the third 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; major equipment failures; changes in, or the failure or inability to comply with, government regulation, including, without limitation, environmental regulations; and the outcome of legal matters. These forward-looking statements speak only as of the date of this report. The Company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in the Company’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to commodity price risk with respect to natural gas and zinc. The Company uses forward purchase contracts to manage the volatility related to these exposures. No contracts are entered into for speculative purposes. The Company’s market risk has not changed materially from that reported in the Company’s 10-K for the fiscal year ended October 31, 2000.

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, 2000, see Part I, Note 3 to Item 1, Financial Statements.

ITEM 6. EXHIBITS and REPORTS ON FORM 8-K


(a)		Exhibits:

		None

(b)		Reports on Form 8-K:

		None

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: August 30, 2001		/S/ JOHN P. JACUNSKI


		John P. Jacunski Vice President and Chief Financial Officer (principal financial officer)

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WCI STEEL INC 10-Q