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WCI Steel, Inc. Reports Net Income of $4.3 Million for the Two Months Ended June 30, 2006

Posted on: Thursday, 10 August 2006, 09:00 CDT

WARREN, Ohio, Aug. 10 /PRNewswire-FirstCall/ -- WCI Steel, Inc. announced today net income of $4.3 million for the two-month period ending June 30, 2006. On May 1, WCI Steel purchased all the assets of the former WCI Steel, Inc. (Old WCI) as part of its plan of reorganization. Revenues for the two months totaled almost $160 million, which is 25 percent higher than in the same period last year for Old WCI. For the two-month period, the company reported:

- Shipments of 232,000 tons in May and June - Total revenues of $159.9 million, with revenues from product sales of $156.6 million, or $674 per ton - EBITDA of $11.9 million, or $51 per ton - Operating income of $9.0 million, or $39 per ton - Net income of $4.3 million, or $19 per ton - Diluted earnings per share of $.43 - Implementation of new industry pattern work systems, reducing job classes from 34 to six and significantly reducing headcount

Patrick G. Tatom, president and chief executive officer, said: "We are off to a great start as the new WCI Steel. We are pleased with our performance to date and appreciate the efforts of our employees. Good demand in our key markets, strong shipments and generally robust prices contributed to our solid performance for the first two months of the new company."

"The operational efficiency and cost reduction made possible by the new work systems is the centerpiece of the company's new collective bargaining agreement with the United Steel Workers. Achievement of these efficiencies requires substantial training of the workforce, and the company is working its way through that process," Tatom said.

At the end of July, 209 hourly employees had elected to leave the company through the Transitional Assistance Program (TAP). This represents more than a 17 percent decrease in the number of hourly employees. Another 35 employees are projected to leave before the end of the year through the TAP process; however, they are currently being retained for training and operational support.

Cynthia B. Bezik, chief financial officer, added: "Our liquidity is strong. At the end of June, we had $7.8 million of cash on hand and only $15.5 million borrowed under the $150 million revolving credit facility. We anticipate that our borrowing under the credit facility will increase over the balance of the year due to our planned capital spending program and the normal seasonal build-up of raw materials for the winter."

Capital Expenditures

As previously announced, WCI Steel is investing $66 million in two major capital projects:

- A $36.7 million new walking beam slab reheat furnace at the hot strip mill, which is expected to be completed in January, 2008. The new walking beam furnace will replace three pusher-style furnaces. One of the three pusher-style furnaces will be decommissioned in November to facilitate construction of the new walking beam furnace. The new furnace is a key step in the strategic plan to grow WCI Steel's custom product business, increase coil size and enhance the operating cost structure by improving energy efficiency, increasing material yields and lowering maintenance costs. - A $29.3 million new baghouse system at the basic oxygen furnace to reduce emissions and meet new federal air quality standards. The new baghouse is set to be operational in April, 2007.

During the two months ended June 30, WCI Steel spent $4.1 million in capital, primarily related to these two projects. Capital spending in the second half of the year is currently forecasted at about $30 million.

"We expect to invest more than $125 million in the 2006 to 2009 time frame in capital to improve the operating efficiencies and capabilities of our facilities," Tatom said.

Outlook

"We are focused on continuous improvement within our operations while targeting profitable growth areas that capitalize on our core competencies in customer service, technical service and providing custom products serving niche markets," Tatom noted. He added that the appointment of Thomas J. Gentile on May 1 to the newly created position of Vice President - Business Development signaled the company's focus on building its strategic position for the future.

WCI Steel currently plans to ship approximately 320,000 tons in the quarter ending Sept. 30, 2006 and about 310,000 tons in the final quarter of the year. Combined with the 232,000 tons shipped in the May to June period, and the 456,000 tons shipped by Old WCI in the January through April time period, calendar year shipments are anticipated to total 1,318,000 tons.

Projected shipments of 630,000 tons in the second half of the calendar year are below the combined 688,000 tons shipped in the first half of the calendar year by WCI Steel and Old WCI. This reflects seasonal factors, inventory levels and scheduled production outages.

Second half results are forecasted to benefit from continued favorable market conditions and pricing, along with lower employment levels. WCI Steel expects that market positives will be partially offset by operational inefficiencies due to workforce retraining and disruptions associated with the capital program. Energy costs also remain a concern. As a result, it is currently expected that EBITDA per ton shipped for the second half will range between $50 to $60 per ton as compared to the $51 per ton achieved in the May to June period.

WCI's preliminary estimate of steel shipments for 2007 is 1,250,000 tons, slightly below the projected 2006 calendar year level due to production outages related to the capital program.

Background Information

WCI Steel, Inc., a Delaware corporation, was formed in March, 2006 and had no assets or liabilities until May 1. Under a plan of reorganization for WCI Steel, Inc., an Ohio corporation (Old WCI), confirmed by the US Bankruptcy Court on March 30 and effective on May 1, WCI Steel, the newly formed company, acquired substantially all the assets of Old WCI. On May 1, WCI Steel issued $100 million 2016 senior secured notes, received $50 million in cash for the issuance of 5.0 million preferred shares and distributed approximately 19,000 shares of common stock. Under the plan of reorganization, WCI Steel is obligated to issue 4.0 million shares of common stock to the creditors of Old WCI as bankruptcy claims are resolved. As of June 30, WCI Steel had distributed 3.5 million shares of common stock and expects to distribute the remainder by year-end. The 5.0 million shares of preferred stock have a 10 percent "payment-in-kind" dividend and convert into common stock at a 1.2 ratio no later than May 1, 2008. Assuming conversion of the 5.0 million shares of preferred stock as of June 30, 2006 and the 4.0 million shares of common stock, WCI Steel has approximately 10.1 million common shares outstanding on a fully diluted basis.

Additional Financial Information

Additional financial information on WCI Steel's financial performance and that of Old WCI is available on the company's web-site: http://www.wcisteel.com/. Under the Indenture for the $100 million of senior secured notes, WCI Steel plans to exchange the notes with new notes that will be registered with the SEC in the second quarter of 2007 and, at that time, the company expects to begin to file periodic financial reports with the SEC.

General Information

WCI Steel is a niche-oriented integrated producer of value-added, custom steel products, with an emphasis on customer and technical service. WCI Steel focuses on smaller orders of a wide range of custom flat-rolled steel products, including high carbon, alloy, ultra high strength, and heavy-gauge galvanized steel and on developing closer, more responsive relationships with customers. WCI Steel currently produces 185 grades of flat-rolled custom and commodity steel products at its Warren, Ohio facility. Major customers are steel converters, processors, service centers, construction product companies, and to a lesser extent, automobile manufacturers.

Forward-Looking Statements

Information contained in this release, other than historical information, should be considered "forward-looking statements" within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

WCI Steel cautions that there are various important factors that could cause actual events to differ materially from those indicated in the forward- looking statements; accordingly, there can be no assurance that such indicated events will occur. Among such factors are: general economic and business conditions; demand for WCI Steel's products; changes in industry capacity and levels of imports of steel or steel products; industry trends, including product pricing, competition; currency fluctuations; the loss of any significant customer; pricing and availability of raw materials and energy; power outages or curtailments; availability of qualified personnel; ability to train the existing workforce; plant operating performance; major equipment failures; the timing and completion of capital projects; changes in, or the failure or inability to comply with, government regulation, including, without limitation, environmental regulations; the outcome of legal matters and other risk factors. Except as required by law, WCI Steel does not assume any responsibility to update any forward-looking statements to reflect future developments or events.

WCI Steel, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) (Dollars in millions, except per share amounts) Old WCI Two months Two months ended ended June 30, 2006 June 30, 2005 Revenues Product sales $156.6 $125.0 Freight 3.3 2.7 Total revenues 159.9 127.7 Operating costs and expenses Cost of products sold 144.9 117.3 Depreciation and amortization 2.9 2.3 Selling, general and administrative expenses 3.1 2.4 Total operating costs and expenses 150.9 122.0 Operating income 9.0 5.7 Interest expense 1.8 0.1 Restructuring expense - 1.4 Net income before income taxes 7.2 $4.2 Income tax expense 2.9 Net income $4.3 WCI Steel, Inc. and Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in millions) (Unaudited) Old WCI June 30, May 1, June 30, 2006 2006 2005 ASSETS Current assets Cash $7.8 $40.4 $10.3 Accounts receivable, less allowances 89.2 74.9 74.0 Inventories 134.1 127.3 168.0 Other current assets 14.7 35.1 3.6 Total current assets 245.8 277.7 255.9 Property, plant and equipment, net 173.4 172.0 97.0 Other assets 34.0 34.3 23.3 Total assets $453.2 $484.0 $376.2 LIABILITIES and SHAREHOLDERS' EQUITY Current liabilities Revolving credit facility $15.5 $- $- Accounts payable 36.4 29.7 27.7 Acquisition related obligations 14.7 74.8 - Accrued liabilities and other 52.4 51.0 54.4 Liabilities subject to compromise (current) - - 71.9 Total current liabilities 119.0 155.5 154.0 Senior secured notes 100.0 100.0 300.0 Postretirement health benefits, excluding current portion 15.3 15.2 150.4 Pension benefits, excluding current portion 18.4 17.4 17.0 Other liabilities 19.2 18.9 17.7 Total liabilities 271.9 307.0 639.1 Total shareholders' equity 181.3 177.0 (262.9) Total liabilities and shareholders' equity $453.2 $484.0 $376.2 WCI Steel, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in millions) Old WCI Two months Two months ended ended June 30, 2006 June 30, 2005 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $4.3 $4.2 Adjustments to reconcile net income to net cash used by operating activities: Depreciation and amortization 2.9 2.3 Pension benefits 1.3 (0.6) Other 0.7 1.8 Cash provided (used) by changes in certain assets and liabilities: Accounts receivable (14.8) 14.2 Inventories (6.8) (21.1) Accounts payable 6.7 3.9 Other assets and liabilities, net 3.0 - Acquisition related obligations (60.1) - Net cash used by operating activities (62.8) 4.7 CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant and equipment (4.1) (2.9) Cash restricted for acquisition related obligations 18.8 - Net cash provided by investing activities 14.7 (2.9) CASH FLOWS FROM FINANCING ACTIVITIES: Revolving credit facility 15.5 - Other - (0.4) Net cash provided by financing activities 15.5 (0.4) Net increase/(decrease) in cash (32.6) 1.4 Cash at beginning of period 40.4 8.9 Cash at end of period $7.8 $10.3 WCI Steel, Inc. and Subsidiaries SUPPLEMENTARY FINANCIAL INFORMATION (Unaudited) (Dollars in millions, except per ton data) Old WCI Two months Two months ended ended June 30, 2006 June 30, 2005 EBITDA Reconciliation (a): Net income $4.3 $4.2 Income tax expense 2.9 - Interest expense 1.8 0.1 Depreciation and amortization 2.9 2.3 EBITDA $11.9 $6.6 Supplementary Financial Data: Per ton Per ton shipped shipped Product sales (b) $156.6 $674 $125.0 $672 Cost of products sold (b) 141.6 610 114.6 617 Gross margin $15.0 $64 $10.4 $55 Operating income $9.0 $39 $5.7 $31 Tons shipped (in 000's) 232 186 (a) EBITDA is a non-GAAP financial measure. The Company believes that EBITDA is useful to investors because it is the basis upon which we assess our financial performance, it provides useful information regarding our ability to service debt, and because it is a commonly used financial analysis tool for measuring and comparing companies in several areas. (b) excludes freight which has no effect on gross margin

WCI Steel, Inc.

CONTACT: ANALYSTS, Cynthia B. Bezik, Vice President and CFO,+1-330-841-8301, or MEDIA, Tim Roberts, Public Affairs Manager,+1-330-841-8205, both of WCI Steel, Inc.

Web site: http://www.wcisteel.com/

Source: PRNewswire-FirstCall

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