10-Q 1 l88789ae10-q.txt REPUBLIC TECHNOLOGIES INT'L HOLDINGS, LLC--10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the three month period Commission File Number: 333-90709-04 ended March 31, 2001 ------------ REPUBLIC TECHNOLOGIES INTERNATIONAL HOLDINGS, LLC ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 34-1902647 ------------------------------------------- --------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 3770 EMBASSY PARKWAY AKRON, OHIO 44333-8367 (330) 670-3000 ------------------------------------------- --------------------------------- (Address of principal executive offices) (Registrant's telephone number) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X Yes No ---- ---- Number of shares outstanding of common stock as of May 11, 2000: AS OF MAY 31, 2001, THERE WERE 740 CLASS A UNITS OF MEMBERS' INTEREST, 1,000 CLASS B UNITS OF MEMBERS' INTEREST AND 30,000 CLASS C UNITS OF MEMBERS' INTEREST OUTSTANDING. 1 2 REPUBLIC TECHNOLOGIES INTERNATIONAL HOLDINGS, LLC AND SUBSIDIARIES TABLE OF CONTENTS PART I - FINANCIAL INFORMATION ------------------------------ Item 1. Unaudited Financial Statements Consolidated Statements of Operations for the Three Months Ended March 31, 2001 and 2000 3 Consolidated Balance Sheets as of March 31, 2001 and December 31, 2000 4-5 Consolidated Statements of Members' Interest for the Three Months Ended March 31, 2001 and the Year Ended December 31, 2000 6 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2001 and 2000 7 Notes to Consolidated Financial Statements 8-13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13-16 Item 3. Quantitative and Qualitative Disclosures About Market Risk 16 PART II - OTHER INFORMATION --------------------------- Item 1. Legal Proceedings 17 Item 2. Changes in Securities 17 Item 3. Defaults Upon Senior Securities 17 Item 4. Submission of Matters to a Vote of Security Holders 17 Item 5. Other Information 17 Item 6. Exhibits and Reports on Form 8-K 17 Signatures 18

2 3 PART I - FINANCIAL INFORMATION ------------------------------ ITEM 1 - UNAUDITED FINANCIAL STATEMENTS --------------------------------------- REPUBLIC TECHNOLOGIES INTERNATIONAL HOLDINGS, LLC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (IN THOUSANDS OF DOLLARS) (UNAUDITED)

~~For~~Three ~~the~~Months ~~three~~Ended ~~and~~Three ~~nine~~Months ~~month~~Ended ~~periods~~March ~~ended~~31, ~~September~~2001 30March 31, 2000 ~~Commission~~Net ~~File~~sales ~~Number~~$ 266,511 $ 358,523 Cost of goods sold (including freight expense of 6,933 and 6,680, respectively) 291,229 334,125 --------- --------- Gross profit (loss) (24,718) 24,398 Selling, general and administrative expense 12,419 14,574 Monitoring fees 1,000 1,000 Depreciation and amortization expense 14,440 15,695 Special charges: ~~333~~Workforce reduction charges (Note 4) 10,117 1,235 Restructuring charges (Note 5) 858 1,548 Loss (gain) on sale of assets (2,298) 26 Other expense, net 181 918 -~~90709~~-04------- --------- Operating loss (61,435) (10,598) Interest expense, net 29,996 26,721 --------- --------- Loss before income taxes (91,431) (37,319) Provision for income taxes 207 175 --------- --------- Net loss $ (91,638) $ (37,494) ========= =========

The accompanying notes are an integral part of these statements. 3 4 REPUBLIC TECHNOLOGIES INTERNATIONAL HOLDINGS, LLC AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS March 31, 2001 and December 31, 2000 (In thousands of dollars) (Unaudited)

~~Item~~March 1.31, ~~Unaudited~~2001 ~~Financial~~December ~~Statements~~31, ~~Consolidated/Combined~~2000 ~~Statements~~-------------- of----------------- ~~Operations~~ASSETS ~~for~~Current ~~the~~assets: ~~Three~~Cash ~~Months Ended September 30, 2000~~ and ~~the~~cash ~~Periods~~equivalents ~~from~~$ ~~August 13~~3,090 ~~1999~~$ ~~to September 30, 1999 and July~~ 1,795 ~~1999~~Accounts ~~to August 12~~receivable, ~~1999~~less 3allowances ~~Consolidated/Combined Statements~~ of ~~Operations for the Nine Months Ended September 30~~$14,781 ~~2000~~ and ~~the~~$25,210, ~~Periods~~respectively ~~from August 13~~152,698 ~~1999 to September 30~~129,278 ~~1999~~Inventories ~~and~~(Note ~~January~~3) 1210,065 ~~1999 to August 12~~271,154 ~~1999~~Assets 4held ~~Consolidated~~for ~~Balance~~sale ~~Sheets~~(Note as7) ~~of September 30~~8,313 ~~2000 and December 31~~9,306 ~~1999~~Prepaid 5expenses ~~Consolidated/Combined~~and ~~Statements~~other ofcurrent ~~Members'~~assets ~~Interest/Stockholders'~~6,962 ~~Deficit~~11,389 ~~for~~----------- ~~the~~----------- ~~Period~~Total ~~from~~current ~~January~~assets 1381,128 ~~1999~~422,922 ~~to August 12~~Property, ~~1999~~plant and ~~the~~equipment: ~~Period~~Land ~~from~~and ~~August~~improvements 1314,362 ~~1999 to December 31~~15,039 ~~1999~~Buildings and ~~the~~improvements ~~Nine Months Ended September 30~~35,336 ~~2000 6 Consolidated/Combined Statements of Cash Flows for the Nine Months Ended September 30~~35,126 ~~2000~~Machinery and ~~the~~equipment ~~Periods from August 13~~722,092 ~~1999 to September 30~~716,437 ~~1999~~Construction-in-progress ~~and January 1~~6,469 ~~1999 to August 12~~13,802 ~~1999 7 Notes to Consolidated/Combined Financial Statements 8~~-15---------- ~~Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 16~~-22---------- ~~Item~~Total 3.property, ~~Quantitative~~plant and ~~Qualitative~~equipment ~~Disclosures~~778,259 ~~About~~780,404 ~~Market~~Accumulated ~~Risk~~depreciation 23(114,830) ~~PART~~(102,492) II - ~~OTHER INFORMATION~~ ---------- -----------~~------~~ ~~Item~~Net 1.property, ~~Legal~~plant ~~Proceedings~~and 24equipment ~~Item~~663,429 2.677,912 ~~Changes~~Assets inheld ~~Securities~~for 24sale ~~Item~~(Note 3.7) ~~Defaults~~2,652 ~~Upon~~7,294 ~~Senior~~Intangible ~~Securities~~assets, 24net ~~Item 4. Submission~~ of ~~Matters~~accumulated toamortization a78,472 ~~Vote~~79,783 of ~~Security~~$17,696 ~~Holders~~and 24$15,842, ~~Item~~respectively 5. Other ~~Information~~assets 2412,382 ~~Item~~9,173 6.----------- ~~Exhibits~~----------- ~~and~~Total ~~Reports~~assets on$ ~~Form~~1,138,063 ~~8-K~~$ 241,197,084 ~~Signatures~~=========== 25===========

The accompanying notes are an integral part of these statements. 4 5 REPUBLIC TECHNOLOGIES INTERNATIONAL HOLDINGS, LLC AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS MARCH 31, 2001 AND DECEMBER 31, 2000 (IN THOUSANDS OF DOLLARS) (UNAUDITED)

~~The~~March ~~Company~~31, -2001 ~~Consolidated~~December 31, 2000 -------------- -----------------~~------------~~ ~~The~~LIABILITIES ~~Predecessor~~AND -MEMBERS' ~~Period~~INTEREST ~~From~~Current ~~Combined~~liabilities: ~~Three~~Accounts ~~Months~~payable ~~August~~$ 13255,119 ~~1999~~$ ~~Period~~234,811 ~~From~~Accrued ~~Ended~~interest to22,561 ~~September 30~~34,220 ~~July~~Accrued 1,compensation ~~1999~~and tobenefits ~~September~~41,675 3038,310 ~~2000~~Other ~~1999~~postretirement ~~August~~benefits 1215,794 ~~1999~~15,794 ~~--------------------~~Defined ~~-------------------~~benefit ~~-------------------~~pension ~~Net~~obligations ~~sales~~20,854 ~~$ 289~~20,~~830~~854 $Accrued ~~209~~environmental liabilities 2,~~768~~109 $3,668 58Other accrued liabilities 60,~~279~~306 ~~Cost~~63,127 Current maturities of ~~goods~~long-term ~~sold~~debt ~~261~~11,~~691~~318 ~~211~~11,~~992~~318 57Revolving credit facility 342,~~627~~794 329,398 --------- -- ------- ----~~-----~~ ~~Gross~~Total ~~profit~~current ~~28,139~~liabilities (2772,~~224)~~530 ~~652 Selling~~751,500 ~~general~~Long-term ~~and~~debt ~~administrative expense 14~~504,~~469~~433 21502,~~251~~254 ~~4,174~~Other ~~Depreciation~~postretirement ~~and~~benefits ~~amortization expense 14~~221,~~885~~105 13217,~~367~~620 ~~3,070~~Defined ~~Workforce~~benefit ~~reduction~~pension ~~charges~~obligations ~~(Note 5) 3~~73,~~337~~734 1069,~~598~~089 ~~118~~Accrued ~~Special~~environmental ~~charges~~liabilities ~~(Note~~17,771 ~~8) 9~~15,~~329~~933 ~~-- --~~ Other ~~(income)~~liabilities ~~expense~~43,310 ~~net (1~~43,~~770)~~101 ~~(232) (120)~~ --------- -- ------- ----~~-----~~ ~~Operating~~Total ~~loss~~liabilities ~~(12~~1,~~111) (47~~632,~~208)~~883 (61,~~590) Interest expense~~599,497 ~~net~~Mandatory ~~27,507~~redeemable ~~17,208~~members' ~~4,266~~interest -~~--------~~ ~~---------~~Class ~~---------~~A ~~Loss~~Units ~~before income taxes (39~~3,~~618)~~700 ~~(64~~3,~~416)~~800 ~~(10,856)~~Members' ~~Provision~~interest: ~~for~~Class ~~income~~B ~~taxes~~Units (9527,798) ~~205~~(435,689) 44Class ~~---------~~C ~~---------~~Units ~~---------~~32,500 ~~Loss~~32,125 ~~from~~Accumulated ~~continuing~~other ~~operations~~comprehensive ~~(39,609)~~loss (643,~~621~~222) (102,~~900~~649) ~~Loss from disposition of discontinued operations (Note 7) 6,703~~ -- -- --------- --------- --~~-------~~ ~~Loss~~Total ~~before~~members' ~~extraordinary~~interest ~~item~~ (46498,~~312~~520) (64406,~~621~~213) ~~(10,900) Extraordinary loss from early extinguishment of debt~~ -- ~~23,342~~ -- --------- --------- --~~-------~~ ~~Net~~Total ~~loss~~liabilities and members' interest $ ~~(46~~1,~~312)~~138,063 $ ~~(87~~1,~~963) (10~~197,~~900)~~084 ========= == ======= ~~Preferred stock dividends 32 --------- Net loss applicable to common shares $ (10,932)~~ ====~~===== The accompanying notes are an integral part of the consolidated/combined financial statements.~~

The accompanying notes are an integral part of these statements. 5 6 REPUBLIC TECHNOLOGIES INTERNATIONAL HOLDINGS, LLC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF MEMBERS' INTEREST FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND THE YEAR ENDED DECEMBER 31, 2000 (IN THOUSANDS OF DOLLARS) (UNAUDITED)

~~The~~Accumulated ~~Company~~Other -Total ~~Consolidated~~Class B Class C Comprehensive Members' Comprehensive Units Units Income (Loss) Interest Income (Loss) ----------- --------- ------------- ---------- ~~The Predecessor~~ -------------- ~~Period~~Balance, ~~From~~January ~~Combined~~1, ~~Nine~~2000 ~~Months~~$(146,594) ~~August~~$ 1330,625 ~~1999~~$ ~~Period~~(673) ~~From~~$(116,642) ~~Ended~~Accrual toof ~~September~~preferred 30return (1,861) ~~January~~ 1,500 ~~1999~~- ~~September~~(361) ~~30,~~Net ~~2000~~loss ~~1999~~(287,234) to- ~~August~~- 12(287,234) ~~1999~~$(287,234) Other comprehensive income: Foreign currency translation adjustment - - (383) (383) (383) Minimum pension liability adjustment - - (1,593) (1,593) (1,593) ---------------- ------------------- ------------------- ~~Net sales $ 987,994 $ 209,768 $ 512,871 Cost of goods sold 902,689 211,992 485,887~~ --------- --- ------ --------- ~~Gross profit (loss) 85~~Balance,~~305~~ ~~(2,224)~~December 2631,~~984~~ ~~Selling,~~2000 ~~general and administrative expense 43,857 21,251 33,822 Depreciation and amortization expense 45,983 13,367 21,889 Workforce reduction charges~~ (~~Note 5) 8~~435,~~557 10,598 42,065 Special charges (Note 8~~689) 5532,~~121~~125 ~~-- -- Other~~ (~~income) expense~~2, ~~net (574~~649) (~~232~~406,213) $(~~144~~289,210) --------- --------- --------- ~~Operating loss (67,639) (47,208) (70,648) Interest expense, net 81,344 17,208 43,845~~ --------- --------- --------- ~~Loss before income taxes (148,983) (64,416) (114,493) Provision for income taxes 242 205 420~~ --------- ---~~------~~ ~~---------~~=============== ~~Loss~~Accrual ~~from~~of ~~continuing~~preferred ~~operations~~return (~~149~~471) 375 - (96) Net loss (91,~~225~~638) - - (6491,~~621~~638) $ (~~114~~91,~~913~~638) ~~Loss~~Other ~~from~~comprehensive ~~disposition~~income: ofForeign ~~discontinued~~currency ~~operations~~translation adjustment - - (~~Note~~573) 7(573) ~~16,524~~(573) -- -- --------- --------- --------- ~~Loss before extraordinary item (165,749) (64,621) (114,913) Extraordinary loss from early extinguishment of debt~~ -- ~~23,342~~ -- --------- --------- ------------- ~~Net~~=============== ~~loss~~Balance, March 31, 2001 $(~~165~~527,~~749~~798) $ 32,500 $ (873,~~963~~222) $(~~114~~498,~~913~~520) $ (92,211) ========= ========================================================= ~~Preferred stock dividends 224 --------- Net loss applicable to common shares $(115,137)~~ ===============

The accompanying notes are an integral part of these statements. 6 7 REPUBLIC TECHNOLOGIES INTERNATIONAL HOLDINGS, LLC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (IN THOUSANDS OF DOLLARS) (UNAUDITED)

~~September~~THREE 30MONTHS ENDED THREE MONTHS ENDED MARCH 31, ~~2000~~2001 ~~December~~MARCH 31, ~~1999~~2000 ------------------- ------------------ ~~ASSETS~~CASH ~~Current~~FLOWS ~~assets:~~FROM ~~Cash~~OPERATING ~~and~~ACTIVITIES: ~~cash~~Net ~~equivalents~~loss $ 3(91,~~876~~638) $ 4(37,~~637~~494) ~~Accounts~~Adjustments ~~receivable~~to reconcile net cash used in operating activities: Restructuring charges 858 1,548 ~~less~~(Gain)/Loss ~~allowances~~on sale of ~~$19,290~~fixed ~~and~~assets ~~$27~~(2,~~237,~~298) ~~respectively~~26 ~~166~~Depreciation and amortization 14,~~435~~440 ~~157~~15,~~166~~695 ~~Inventories~~Accretion ~~(Note~~of 4)original ~~246,700~~issue ~~284,668~~discount ~~Assets~~693 ~~held~~658 ~~for~~Amortization ~~sale~~of ~~(Note~~deferred 7)financing ~~9,581~~cost 151,~~219~~038 ~~Prepaid~~709 ~~expenses~~Changes in operating assets and ~~other~~liabilities: ~~current~~Increase ~~assets~~in 4accounts receivable (23,~~898~~420) 7(46,~~907~~255) ~~-----------~~Decrease ~~-----------~~in ~~Total~~inventory ~~current~~61,089 51,401 Decrease in prepaid assets ~~431~~4,~~490~~427 ~~469~~1,~~597~~482 ~~Property~~Increase in accounts payable 20,308 ~~plant~~673 ~~and~~Increase ~~equipment:~~in ~~Land~~accrued compensation and ~~improvements~~benefits 153,~~239~~365 ~~15,875~~507 ~~Buildings~~Increase ~~and~~(decrease) ~~improvements~~in 36defined benefit pension obligations 4,~~550~~645 43(4,~~032~~536) ~~Machinery~~Increase ~~and~~in ~~equipment~~other ~~718~~postretirement benefits 3,~~082~~485 ~~736~~8,~~300~~391 ~~Construction-~~Increase (decrease) in~~-progress~~ 9accrued environmental liabilities 279 (207) Decrease in other current liabilities (16,~~043~~203) 25(13,~~361~~572) Other 2,935 (5,680) --------~~---~~ --------~~---~~ ~~Total~~NET ~~property,~~CASH ~~plant~~USED ~~and~~IN ~~equipment~~OPERATING ~~778,914~~ACTIVITIES ~~820,568 Accumulated depreciation~~ (8915,~~455~~997) (5626,~~802~~654) --------~~---~~ --------~~---~~ ~~Net~~CASH ~~property,~~FLOWS ~~plant~~FROM ~~and~~INVESTING ~~equipment~~ACTIVITIES: ~~689,459~~Capital ~~763,766~~expenditures ~~Assets held for sale~~ (~~Note 7~~835) 7(3,~~630~~487) ~~9,009~~Disposition ~~Intangible assets, net~~ of ~~accumulated amortization of $18~~property,~~347~~ plant and ~~$11,203,~~equipment ~~respectively 162~~3,~~441~~991 ~~163~~1,~~479~~785 ~~Other assets 9,619 9,406~~ --------~~---~~ --------~~---~~ ~~Total~~NET ~~assets~~CASH $PROVIDED ~~1,300,639~~BY $(USED IN) INVESTING ACTIVITIES 3,156 (1,~~415,257~~702) ~~===========~~-------- ~~===========~~-------- ~~LIABILITIES~~CASH ~~AND~~FLOWS ~~MEMBERS'~~FROM ~~INTEREST~~FINANCING ~~Current liabilities~~ACTIVITIES: ~~Accounts~~Proceeds ~~payable~~from ~~212,077~~long-term ~~196~~debt 2,~~050~~000 ~~Accrued~~- ~~interest~~Net ~~18,208~~(payments)/proceeds ~~26,494~~under ~~Accrued~~revolving ~~compensation~~credit ~~and~~facilities ~~benefits 50~~13,~~594~~396 5029,~~162~~219 ~~Other~~Repayments ~~postretirement~~of ~~benefits~~long-term ~~15,365~~debt ~~15,365~~(514) ~~Defined~~(555) ~~benefit~~Redemption ~~pension~~of ~~obligations~~class ~~14,000~~A ~~42,000~~members' ~~Other~~interest ~~accrued~~(100) ~~liabilities~~- ~~59,909~~Payment ~~57,599~~of ~~Current~~preferred ~~maturities~~return of(73) ~~long~~-~~term~~ ~~debt~~NET ~~1,918~~CASH ~~2,391~~PROVIDED ~~Revolving~~BY ~~credit~~FINANCING ~~facility~~ACTIVITIES ~~346~~14,~~996~~709 ~~336~~28,~~397~~664 --------~~---~~ --------~~---~~ ~~Total~~Effect ~~current~~of ~~liabilities~~exchange ~~719,067~~rate ~~726,458~~changes ~~Long-term~~on ~~debt~~cash ~~511,096~~(573) ~~481,062~~(43) ~~Accrued environmental liabilities 16,955 17,373 Other postretirement benefits 215,238 204,268 Defined benefit pension obligations 78,334 56,480 Other liabilities 38,063 40,758~~ --------~~---~~ --------~~---~~ ~~Total~~NET ~~liabilities~~INCREASE ~~1,578,753~~IN CASH AND CASH EQUIVALENTS 1,~~526,399~~295 ~~Mandatorily~~265 ~~redeemable~~Cash ~~member's~~and ~~interest~~cash equivalents - ~~Class~~beginning Aof ~~Units~~period 51,~~000~~795 54,~~500~~637 ~~Members'~~======== ~~interest:~~======== ~~Class~~Cash Band ~~Units~~cash ~~(313,756)~~equivalents ~~(146,594)~~- ~~Class~~end Cof ~~Units~~period ~~31,750~~$ 303,~~625~~090 ~~Accumulated~~$ ~~other~~4,902 ~~comprehensive~~======== ~~loss~~======== ~~(1,108)~~SUPPLEMENTAL ~~(673)~~CASH ~~-----------~~FLOW ~~-----------~~INFORMATION: ~~Total~~Cash ~~members'~~paid for interest ~~(283~~$ 41,~~114)~~769 ~~(116~~$ 33,~~642)~~489 ~~-----------~~======== ~~-----------~~======== ~~Total~~Cash ~~liabilities~~paid ~~and~~for ~~members'~~income ~~interest~~taxes $ ~~1,300,639~~47 $ ~~1,415,257~~317 ========~~===~~ ========~~===~~

The accompanying notes are an integral part of these statements. 7 8 REPUBLIC TECHNOLOGIES INTERNATIONAL HOLDINGS, LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands of dollars, except as noted) (Unaudited) 1. NATURE OF OPERATIONS, ORGANIZATION AND OTHER RELATED INFORMATION Republic Technologies International Holdings, LLC and subsidiaries (the "Company") manufactures and markets special bar quality ("SBQ") steel bar products. SBQ steel bar products are high quality hot-rolled and cold-finished carbon and alloy steel bars and rods used primarily in critical applications in automotive and industrial equipment industries. The Company produces a wide range of SBQ steel products and supplies a diverse customer base that includes leading automobile and industrial equipment manufacturers and their first tier suppliers. The Company was formed in a combination completed on August 13, 1999 (the "Combination"). The Combination was completed through a series of mergers, asset transfers and related steps as set forth in a Master Restructuring Agreement among Bar Technologies Inc. ("BarTech"), Republic Engineered Steels, Inc. ("Republic"), USS/Kobe Steel Company and various of their affiliates. Following the Combination, Republic Technologies International, LLC ("Republic Technologies"), a newly formed legal entity and wholly owned subsidiary of the Company, directly or indirectly owns and operates all of the assets of BarTech, Republic and USS/Kobe Steel Company's SBQ steel products business ("USS/Kobe"). On April 2, 2001 ("Petition Date"), Republic Technologies International, LLC and its immediate parent, Republic Technologies International Holdings, LLC, and its subsidiaries, Bliss & Laughlin LLC, and RTI Capital Corp. (collectively, "Debtors"), filed voluntary petitions for reorganization under Chapter 11 ("Chapter 11") of the Federal Bankruptcy Code ("Bankruptcy Code") in the United States Bankruptcy Court in the Northern District of Ohio, Eastern Division ("Court"). The Company is managing its business subsequent to the Petition Date as debtor-in-possession subject to Court approval. The Debtors attributed the need to reorganize to extremely difficult market conditions that have made it impossible for them to meet their financial obligations. The industry-wide market conditions, the Company's high level of indebtedness following the Combination and an overall softening of the U. S. economy had substantially diminished the Company's liquidity, adversely impacted operations and undermined its ability to implement strategic business initiatives in the short term. Under Chapter 11 proceedings, actions by creditors to collect claims in existence at the filing date ("prepetition") are stayed ("deferred"), absent specific Court authorization to pay such claims, while the Company continues to manage the business as debtor-in-possession. The Company received approval from the Court to pay or otherwise honor certain of its prepetition obligations, including employee wages and certain employee benefits. The amount of the claims to be filed by the creditors could be significantly different than the amount of the liabilities recorded by the Company. The Company has many executory contracts and other agreements that could be rejected during the Chapter 11 proceedings. Under Chapter 11, the rights of and ultimate payments by the Company to prepetition creditors and to equity investors may be substantially altered. This could result in claims being liquidated in the Chapter 11 proceedings at less (and possibly substantially less) than 100% of their face value and the equity of the Company's equity investors being diluted or cancelled. The Company's prepetition creditors and its equity investors will each have votes in the plan of reorganization. The Company has not yet proposed a plan of reorganization. Due to material uncertainties, it is not possible to determine the additional amount of claims that may arise or ultimately be filed, or to predict the length of time the Company will operate under the protection of Chapter 11, the outcome of the Chapter 11 proceedings in general, whether the Company will continue to operate under its current organizational structure, or the effect of the proceedings on the business of the Company or its subsidiaries or on the interests of the various creditors and security holders. As a result of the Chapter 11 filings, Events of Default, as defined in the related debt agreements, have occurred with respect to all of the Company's secured and unsecured debt. Subsequent to the Petition Date, the secured debt will be classified as a current liability and the unsecured debt will be classified as liabilities subject to compromise. On April 3, 2001, the Company entered into a Debtor-in-Possession Revolving Credit Agreement ("DIP Credit Agreement") with Fleet Capital Corporation ("Fleet Capital") and other lenders who are parties thereto to provide secured debtor-in-possession financing to the Company. The maximum borrowings under the DIP Credit Agreement are $420 million in the aggregate and include a sub-facility of $50 million for the issuance of letters of credit. Advances under the DIP Credit Agreement bear interest at a base rate used by Fleet Capital, plus the applicable margin; or a Eurodollar rate on deposits for a given period, plus the applicable margin. The applicable margin on base rate loans is 1.5% and on Eurodollar loans is 3.5%. The applicable margin on base rate and Eurodollar loans may be increased by 2% under specified circumstances. A borrowing base 8 9 limits the amount available at any time. The Company's net availability on its revolving credit facility at May 31, 2001 was $26.9 million. The DIP Credit Agreement grants a security interest in accounts receivable, inventory, intellectual property and related assets of the Company, and the real estate and fixed assets comprising the Canton Ohio Caster and Continuing Rolling Facility, including the related melt shop. The DIP Credit Agreement also contains certain restrictive covenants which, among other things, restrict the Company's ability to incur additional indebtedness or guarantee the obligations of others, change its line of business, merge, consolidate and acquire or sell assets or stock, pay dividends, or prepay or amend the notes or any of its subordinated indebtedness. The Company is also required to maintain minimum cumulative EBITDA as defined in the DIP Credit Agreement and limit its net capital expenditures. Although the Company has entered into the DIP Credit Agreement, the Company may need to obtain additional financing to meet its cash flow requirements. Restrictive covenants included in the debtor-in-possession credit facility and oversight by the Bankruptcy Court limit the Company's ability to incur additional indebtedness, or sell assets (most of which are pledged), and may otherwise limit the operational and financial flexibility of the Company. The accompanying consolidated financial statements have been prepared on a going concern basis of accounting and do not reflect any adjustments that might result if the Company is unable to continue as a going concern. The Company's recurring losses and negative cash flows from operations, current liabilities in excess of current assets and the subsequent Chapter 11 cases raise substantial doubt about the Company's ability to continue as a going concern. As discussed above, management intends to submit a plan for reorganization to the Bankruptcy Court. The ability of the Company to continue as a going concern and appropriateness of using the going concern basis is dependent upon, among other things, (i) the Company's ability to comply with debtor-in-possession financing agreements, (ii) submission and confirmation of a plan of reorganization under the Bankruptcy Code, (iii) the Company's ability to achieve profitable operations after such confirmation, and (iv) the Company's ability to generate sufficient cash from operations to meet its obligations. Management believes that a plan of reorganization, as it is being developed and subject to approval of the Bankruptcy Court, and the debtor-in-possession financing, along with cash provided by operations, will provide sufficient liquidity to allow the Company to continue as a going concern; however, there can be no assurance that the sources of liquidity will be available or sufficient to meet the Company's needs. The consolidated financial statements do not include any adjustments relating to recoverability and classification of recorded asset amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. 2. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements contain results for Republic Technologies International Holdings, LLC and its subsidiaries for the three months ended March 31, 2001 and 2000. These consolidated statements are unaudited. Certain information and footnote disclosures normally prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. Although management believes that all adjustments, including normal recurring adjustments necessary for a fair presentation, have been made, interim periods are not necessarily indicative of the results of operations for a full year. As such, these financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2000 included in the Company's Form 10-K, filed with the Securities and Exchange Commission. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances have been eliminated in consolidation. Certain reclassifications have been made to prior period financial statements to conform to current period presentation. The Company operates in three separate segments: hot-rolled, cold-finished and specialty steels. In connection with the acquisition of Republic, the Company determined its intent to sell the specialty steels segment of the business ("Specialty Steel Division"). The Company manages the reportable segments as separate strategic business units. Differences between the segments include manufacturing techniques and equipment, competition, and end-users. The Company sold certain assets from its Baltimore specialty steel plant in January 2001 and is currently in the process of selling the remaining real estate and assets of the Specialty Steel Division. The accompanying consolidated financial statements reflect the Specialty Steel Division as a discontinued business in accordance with Accounting Principles Board Opinion No. 30. See Note 7 for further information related to discontinued operations. A plan of reorganization could materially change the amounts currently recorded in the consolidated financial statements. The accompanying consolidated financial statements do not give effect to any adjustment to the carrying value of assets or amounts and classifications of liabilities that might be necessary as a result of resolving the bankruptcy. For financial statement periods 9 10 after April 2, 2001 (the Petition Date), the Company's consolidated financial statements will be presented in accordance with the AICPA Statement of Position 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code. On confirmation of a plan of reorganization, the Company expects to utilize "Fresh Start Accounting" in accordance with the guidelines for accounting for emergence from bankruptcy. Under Fresh Start Accounting, a revaluation of Company assets to reflect current values can be expected. 3. INVENTORIES The components of inventories are as follows: March 31, 2001 December 31, 2000 -------------- ----------------- Raw materials $ 14,939 $ 21,583 Semi-finished and finished goods 195,126 249,571 -------- -------- Total $210,065 $271,154 ======== ======== At March 31, 2001 and December 31, 2000, inventories are net of market reserves and obsolescence reserves aggregating $7.5 million and $6.7 million, respectively. 4. WORKFORCE REDUCTION CHARGES In connection with the Republic acquisition in September 1998, a new Master Collective Bargaining Agreement and settlement agreement (collectively, the "Master CBA") covering all of the former Republic and BarTech facilities with employees represented by the United Steel Workers of America ("USWA") were entered into with the USWA. The Master CBA replaced the existing collective bargaining agreements with the USWA, other than selected plant-specific agreements. In connection with the Combination, the scope of the Master CBA was extended to cover the former USS/Kobe Lorain, Ohio facility. The Master CBA expires on October 31, 2003. The Master CBA provides for improvements in the existing defined benefit pension plans covering employees at former Republic facilities, former USS/Kobe facilities and the former Bliss & Laughlin Harvey, Illinois facility, and the creation of a defined benefit pension plan obligation covering employees at former BarTech facilities. The existing defined benefit pension plans may be consolidated into one defined benefit pension plan in the future, which will contain terms found in traditional steel industry defined benefit pension plans. The Master CBA requires Republic Technologies International, LLC to offer Early Retirement Buyouts ("ERBs") to at least 1,000 employees and permits Republic Technologies International, LLC to offer a Voluntary Severance Plan ("VSP"). The purpose of these programs is to reduce the hourly workforce by a net reduction of over 1,900 hourly employees over four years. These programs are substantially voluntary in nature. Accordingly, the costs associated with these workforce reductions are being recognized as the offers are accepted by the employees and intended to be awarded by the Company. Through March 31, 2001, 829 voluntary ERB packages were accepted. As such, the Company has recorded $106.8 million of workforce reduction charges to date for early retirement benefits and special termination payments. Under the terms of Master CBA, if the ERBs and VSPs do not achieve targeted headcount reductions, Republic Technologies International, LLC will have the flexibility to reduce the hourly workforce by approximately 300 employees in addition to the number of accepted ERBs and VSPs. Pursuant to the Master CBA, USWA represented employees will be eligible for Supplemental Unemployment Benefits (SUB) and the continuation of certain health insurance benefits. 5. RESTRUCTURING CHARGES AND RESERVES The Company continues to execute its consolidation plan developed at the time of the Combination. Through the consolidation plan, the Company expects to create a more efficient, higher quality network of production facilities operated by a smaller more flexible workforce and to rationalize the corporate overhead structure of the combined companies. During 2000, the Company shutdown two of its production facilities: the Johnstown, Pennsylvania melt shop facility and the Canton, Ohio 12" rolling mill facility, announced the shutdown of its Willimantic, Connecticut cold-finishing facility, which occurred in March of 2001, and continued to rationalize the corporate overhead structure of the combined companies. As a result of these actions, the Company recorded charges of $74.7 million during 2000 and $.9 million during the three months ended March 31, 2001. The charges recorded during 2000 were for the write-down of property, plant, and equipment for certain affected facilities and to establish reserves for labor and severance costs, other than ERBs and VSPs discussed in Note 4, and facility closure costs. The $.9 million charge recorded in the first quarter of 2001 was for severance costs relating to additional 10 11 administrative staff reductions. Also during the first quarter of 2001, an adjustment of $1.5 million was recorded in the restructuring reserves that represents a change in estimate in the reserve for facility closure costs, which was provided from recoveries on dispositions of property, plant, and equipment previously written down through asset impairment charges. During 2000, the Company recorded restructuring charges of $66.5 million related to the closing of the Johnstown facility. These charges consisted of a $40.6 million write-down of property, plant, and equipment, $6.0 million of facility closure costs, and $3.2 million in additional environmental remediation required as a result of the closure. The restructuring charges also included hourly employee separation costs of $16.0 million for hourly workers and $.7 million for non-hourly severance. The hourly employee separation charge was based on estimates of the cost of an agreement reached with the USWA. Restructuring charges of $3.5 million were also recorded during 2000 related to the announced closing of the Willimantic facility. These charges consisted of a $3.2 million write-down of property, plant, and equipment and $.3 million in additional environmental remediation required as a result of the closure. All of the affected employees accepted ERBs or VSPs in the second quarter of 2001. Unlike the closure of the Johnstown facility, the closure of the Canton 12" rolling facility was part of the Company's original consolidation plan contemplated at the time of the Republic acquisition. Fair value adjustments to the fixed assets and shutdown reserves related to the Canton 12" facility were recorded at the date of the Republic acquisition. Charges for hourly labor of $1.4 million were recorded during 2000 related to employment security provisions in the labor agreement with the USWA. The Company has not recorded a provision for hourly employee separation costs in view of the fact that all affected employees were offered and have accepted suitable alternative employment at other Company facilities. The Company had previously recorded a reserve for the reduction of non-union labor and other shutdown reserves at the date of the Republic acquisition related to the manufacturing locations selected for closure (the Canton 12" rolling facility and the Chicago 11" rolling facility) amounting to $4.4 million and $1.9 million, respectively. Adjustments reducing these previously recorded reserves due to changes in estimates were recorded in 2000 amounting to $1.4 million. Additionally, a reserve for the reduction of administrative labor amounting to $4.6 million during 2000, including $1.5 million for the first quarter 2000, was recorded as a restructuring charge in the consolidated statement of operations. The activity impacting the accruals for restructuring reserves during the year three months ended March 31, 2001, is summarized in the table below: Labor & Facility Severance Closure Total Costs -------- -------- -------- December 31, 2000 $ 18,568 $ 6,385 $ 24,953 Provision 858 858 Amount utilized (1,902) (1,170) (3,072) Adjustments 1,544 1,544 -------- -------- -------- March 31, 2001 $ 17,524 $ 6,759 $ 24,283 ======== ======== ======== 6. SEGMENT INFORMATION The Company operates in three reportable segments: hot-rolled, cold-finished and specialty steels. As discussed previously in Note 2, the Company intends to sell its specialty steel division and accordingly, the accompanying consolidated financial statements reflect that division as a discontinued operation in accordance with Accounting Principles Board Opinion No. 30. As such the following tables do not reflect specialty steels as a reportable segment. The Company manages the reportable segments as separate strategic business units. Differences between the segments include manufacturing techniques and equipment, competition, and end-users. The Company measures segment performance based on earnings before net interest expense, income taxes, depreciation and amortization expense, other postretirement benefit charges, workforce reduction charges and other (income) loss, net ("EBITDA, as defined"). HOT-ROLLED Hot-rolled bars and rods are processed from blooms and billets on rolling mills to change the internal physical properties, size or shape of the steel. Desirable characteristics of hot-rolled products include internal soundness, uniformity of chemical 11 12 composition and freedom from surface imperfection. The Company's hot-rolled products include rounds, squares and hexagons, in both cut-lengths and coils. Customers for hot-rolled products include manufacturers of automotive parts, industrial equipment, independent forgers, steel service centers, and converters. The Company's hot-rolled products are used in the manufacture of end-use products such as automotive drive trains, engine and transmission parts, bearings and tractor components. COLD-FINISHED Cold-finishing is a value-added process which improves the physical properties of hot-rolled bars and rods. Cold-finished products are produced from hot-rolled bars by cold-drawing, turning, grinding, thermal treating or a combination of these processes. The manufacturing process allows for production of products with more precise size and straightness tolerances, as well as improved strength and surface finish, that provides customers with a more efficient means of producing a number of end products by often eliminating processing steps in the customers' use of the products. The Company's cold-finished products include rounds, squares, hexagons, and flats, all of which can be further processed by turning, grinding or polishing, or a combination thereof. Customers for cold-finished products include manufacturers of automotive parts, industrial equipment, steel service centers and distributors. The Company's cold-finished products are used in the manufacture of end-use products such as automotive steering assemblies, electrical motor shafts, ball and roller bearings, valves and hand tools. Intersegment sales are made at an agreed upon transfer cost which is adjusted quarterly and are eliminated in consolidation. Selling, general and administrative and other costs are allocated 80% to hot-rolled and 20% to cold-finished. Pension costs are allocated based on the amount of payroll incurred by each segment.

~~REPUBLIC TECHNOLOGIES INTERNATIONAL HOLDINGS, LLC AND SUBSIDIARIES CONSOLIDATED/COMBINED STATEMENTS OF MEMBERS' INTEREST/STOCKHOLDERS' DEFICIT~~ For the ~~Period~~Three ~~From January 1, 1999 to August 12, 1999, the Period from August 13, 1999 to December 31, 1999 and the Nine~~ Months Ended ~~September~~March 3031, ~~2000~~2001 ~~(In thousands of dollars) (Unaudited) Bar Technologies Inc.~~ -------------------------------- ~~Members' Interest Series B Class A~~ ------------------------------ ~~Class B Class C Preferred Common Units Units Stock Stock~~ ------------- -------~~-------~~ ~~--------------~~Inter Segment Cold-~~-------------~~ ~~Balance,~~Total ~~January~~Elimination/ ~~1, 1999 $~~ Hot-Rolled $Finished -Segments ~~Net loss~~ Other ~~comprehensive~~Consolidated ~~income:~~Net ~~Foreign~~sales ~~currency~~$ ~~translation adjustment Minimum pension liability adjustment Preferred stock dividends ------------- -------------- -------------- -------------- Balance~~234,245 ~~August 12, 1999 - - Exchange of members' interest to effect combination~~ $ 6759,~~468~~313 $ 30293,~~000~~558 ~~Preferred return~~ $(~~786~~27,047) ~~625~~$ ~~Distribution~~266,511 ofDepreciation ~~preferred~~and ~~return~~amortization ~~Net~~13,181 ~~loss~~1,259 ~~(213~~14,~~276)~~440 ~~Other comprehensive income: Foreign currency translation adjustment~~ --~~-----------~~ ~~--------------~~14,440 ~~--------------~~Segment ~~--------------~~profit ~~Balance~~(EBITDA, ~~December~~as 31defined) (32,075) ~~1999~~(449) (~~146~~32,~~594~~524) ~~30,625 $~~ - $ - ~~==============~~(32,524) ~~==============~~Segment ~~Preferred~~assets ~~return~~990,129 (1129,~~413)~~277 1,~~125~~119,406 ~~Distribution~~18,540 ~~of preferred return Redemption of Class A Units Net loss (165~~1,~~749)~~137,946 ~~Other~~Capital ~~comprehensive~~expenditures ~~income:~~783 ~~Foreign~~52 ~~currency~~835 ~~translation adjustment~~ --~~-----------~~ ~~-------------- Balance, September 30, 2000 $(313,756) $ 31,750 ============= ==============~~835

~~REPUBLIC TECHNOLOGIES INTERNATIONAL HOLDINGS, LLC AND SUBSIDIARIES CONSOLIDATED/COMBINED STATEMENTS OF MEMBERS' INTEREST/STOCKHOLDERS' DEFICIT~~ For the ~~Period~~Three ~~From January 1, 1999 to August 12, 1999, the Period from August 13, 1999 to December 31, 1999 and the Nine~~ Months Ended ~~September~~March 3031, 2000 ~~(In thousands of dollars) (Unaudited) Republic Bar Technologies Inc. Engineered~~ ----------------------------------------------- ~~Class B Class C Steels, Inc. Additional Common Common Warrants Common Paid~~-~~In Stock Stock Outstanding Stock Capital~~ --------------- --------------- ----~~----------~~ Inter Segment Cold-~~---------------~~ Total Elimination/ Hot-~~-------------~~Rolled ~~Balance,~~Finished ~~January~~Segments 1,Other ~~1999~~Consolidated $Net 1sales $ 1314,627 $ 582,~~119~~453 $ -397,080 $ ~~158~~(38,~~510~~557) ~~Net~~$ ~~loss~~358,523 ~~Other~~Depreciation ~~comprehensive~~and ~~income:~~amortization ~~Foreign~~14,479 ~~currency~~1,216 ~~translation~~15,695 ~~adjustment~~-- ~~Minimum~~15,695 ~~pension~~Segment ~~liability~~profit ~~adjustment~~(EBITDA, ~~Preferred~~as ~~stock~~defined) ~~dividends~~10,838 ~~---------------~~3,500 ~~---------------~~14,338 --~~------------~~ ~~---------------- -------------- Balance~~14,338 ~~August~~Segment ~~12,~~assets ~~1999~~ 1 ~~1 5~~,~~119~~195,946 ~~- 158~~265,~~510~~925 ~~Exchange of members' interest to effect combination (~~1),461,871 (~~1) (5~~75,~~119~~079) ~~(158~~1,~~510)~~386,792 ~~Preferred~~Capital ~~return~~expenditures ~~Distribution of preferred return Net loss Other comprehensive income: Foreign currency translation adjustment --------------- --------------- -------------- ---------------- -------------- Balance~~3,248 ~~December~~239 313,487 ~~1999 $~~ - $ - $ - $ - $ - =============== =============== ============== ================ ============== Preferred return Distribution of preferred return Redemption of Class A units Net loss Other comprehensive income: Foreign currency translation adjustment Balance3, ~~September 30, 2000~~487

7. DISCONTINUED OPERATIONS In connection with its acquisition of Republic, the Company determined its intent to sell its Specialty Steel Division and accordingly, the accompanying consolidated financial statements reflect that division as a discontinued operations in accordance with Accounting Principles Board Opinion No. 30. An estimate of the operating results of the Specialty Steel Division during the phase-out period from the acquisition date to the estimated ultimate disposition date was made and included as a fair value adjustment as part of the allocation of the Republic purchase price. During the year ended December 31, 2000, a provision of $9.8 million was made for estimated additional loss and a charge of $7.0 million was taken for the permanent shutdown of the Baltimore Specialty facility. In the three months ended March 31, 2001, no additional provision was recorded related to the Specialty Steel Division. 12 13 The Company sold certain assets from its Baltimore plant in January 2001 and is currently in the process of selling the remaining real estate and assets of the Specialty Steel Division. Management anticipates the disposition to be completed during the second quarter of 2001. Sales and related losses for the discontinued operations were as follows (net loss on discontinued operations has been reflected in the Company's financial statements as a reduction in the accrual for losses on the discontinued operations that was provided as part of the estimated loss on disposition): Three Month's Ended March 31 2001 2000 -------------------------------- Net sales $ 6,324 $ 12,902 Gross loss (1,541) (2,651) Loss before income taxes (1,123) (3,843) Provision for income taxes -- -- -------------------------------- Net loss $ (1,123) $ (3,843) ================================ The components of net assets of discontinued operations included in the Company's consolidated balance sheets as assets held for sale are as follows: March 31, 2001 December 31, 2000 -------------- ----------------- Assets held for sale, current- Inventories $8,313 $9,306 ====== ====== Assets held for sale, non-current - Property, plant and equipment $2,652 $7,294 ====== ====== ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS ------------------------------------------------------------------------------- OF OPERATIONS ------------- GENERAL The Company is the largest producer of special bar quality steel products in the United States with a market share of approximately 23%, based on 2000 calendar year shipments. SBQ steel products are high quality hot-rolled and cold-finished carbon and alloy steel bar and rod used primarily in critical applications in automotive and industrial equipment. SBQ steel products are sold to customers who require precise metallurgical content and quality characteristics. SBQ steel products generally contain more alloys and sell for substantially higher prices than merchant and commodity steel bar and rod products. The Company produces the widest range of SBQ steel products in the United States and supplies a diverse customer base that includes leading automobile and industrial equipment manufacturers and their first tier suppliers. RESULTS OF OPERATIONS The following discussion relates to the Company's consolidated results of operations for the three months ended March 31, 2001 and 2000. The results for the three months ended March 31, 2001 are not necessarily indicative of the results to be expected for the full year ended December 31, 2001. THREE MONTHS ENDED MARCH 31, 2001 COMPARED WITH THREE MONTHS ENDED MARCH 31, 2000 Net sales for the three months ended March 31, 2001 totaled $266.5 million on shipments of approximately 536,991 net tons compared with net sales of $358.5 million for the three months ended March 31, 2000 on shipments of approximately 708,800 tons. Net sales for the three months ended March 31, 2001 were comprised of $207.2 million for hot-rolled and $59.3 million for cold-finished, compared with hot-rolled net sales of $276.1 million and cold-finished net sales of $82.5 million for the three months ended March 31, 2000. The decrease in net sales and tons shipped reflects the weak demand in the automotive and service center markets that has negatively effected the results for the three months ended March 31, 2001. There was also an overall decrease in net selling value per ton shipped of $9.50 or 1.9% from the three months ended March 31, 2000 to the three months ended March 31, 2001. This was due to the change in product as the Company's less value added semi-finished sales were higher in the first quarter of 2001 than in the prior year. Cost of sales totaled $291.2 million, or 109.3% of net sales, for the three months ended March 31, 2001 compared with cost of sales of $334.1 million, or 93.9% of net sales, for the similar period ended March 31, 2000. Cost of sales for the three months 13 14 ended March 31, 2001 consisted of $233.5 million on hot-rolled products and $57.7 million on cold-finished products compared with $257.9 million on hot-rolled products and $76.2 million on cold-finished products for the three months ended March 31, 2000. The overall increase in cost of sales as a percentage of net sales from the three months ended March 31, 2000 to the three months ended March 31, 2001 was primarily due to reduced units of production in the current quarter coupled with primarily fixed labor costs. Selling, general and administrative expenses were $12.4 million, or 4.7% of net sales, for the three months ended March 31, 2001 compared with $14.6 million, or 4.1% of net sales, for the three months ended March 31, 2000. The overall decrease in selling, general and administrative expenses is due in part to the continuing benefits derived from combining selling, general and administrative functions following the Combination. Additionally there was a further reduction in selling, general and administrative headcount during the quarter. Depreciation and amortization expenses were $14.4 million for the three months ended March 31, 2001, compared with $15.7 million for the three months ended March 31, 2000. The decrease in the current period was primarily related to the reduction of goodwill amortization following the impairment charge taken in the fourth quarter of 2000. Workforce reduction charges were $10.1 million for the three months ended March 31, 2001, compared with $1.2 million for the three months ended March 31, 2000. The increase was due to 49 voluntary early retirement buyouts ("ERBs") being accepted during the first three months of 2000 compared to 6 ERBs accepted during the first three months of 2000. Restructuring charges were $.9 million and $1.5 million of severance related costs for administrative staff reductions for the three months ended March 31, 2001 and 2000, respectively. This was caused by a reduced amount of terminations in the first quarter of 2001 as compared to the first quarter of 2000. Net interest expense was $30.0 million for the three months ended March 31, 2001 compared with $26.7 million for the three months ended March 31, 2000. The $3.3 million increase in net interest expense was attributable to the increased average borrowings during the quarter over the first quarter of 2000. The provision for income taxes for the three month periods ended March 31, 2001 and 2000, consisted of currently payable income taxes, primarily foreign income taxes owed by Canadian Drawn Steel Company ("CDSC"). As a result of the above, the Company reported a net loss of $91.6 million for the three months ended March 31, 2001 compared with a net loss of $37.5 million for the three months ended March 31, 2000. LIQUIDITY AND CAPITAL RESOURCES The Company's sources of liquidity include cash and cash equivalents, cash from operations, and amounts available under its revolving credit facility. Subsequent to the Petition Date, sources of liquidity also include its debtor-in-possession facility, which is provided by the same group of banks that provided the revolving credit facility. The Company's primary liquidity needs prior to the Petition Date related to working capital needs, funding requirements relating to its agreement with the Pension Benefit Guaranty Corporation (the "PBGC"), capital expenditures and other costs relating to the Company's consolidation plan, debt service requirements and tax distributions to the Company's members. PBGC Obligations ---------------- In connection with the Combination, Republic Technologies International, LLC agreed with the PBGC to fund $178 million into the Republic Engineered Steels, Inc. USWA Defined Benefit Plan, a defined benefit pension plan for employees represented by the USWA in connection with the headcount reduction and related early retirement benefits contemplated by the Company's consolidation plan. Of the $178 million, $66.5 million has been funded through April 2001. Republic Technologies International, LLC, under the terms of the current amended PBGC agreement, was required to make quarterly contributions in accordance with the following schedule: $2.0 million per quarter for the next two payments, $14.8 million per quarter for the next three payments, and $14.2 million per quarter for the next four payments, and one final quarterly payment of $6.3 million. These funding levels are subject to the outcome of the Chapter 11 proceedings. In addition, pursuant to the Company's consolidation plan, Republic Technologies International, LLC was to offer a combination of early retirement buyout packages to its employees. The actual cost of the early retirement buyout packages and voluntary retirement plans will depend on the 14 15 outcome of the Chapter 11 proceedings and the mix of such arrangements offered to and accepted by the hourly employees represented by the USWA. In addition, with respect to the USS/Kobe Union Eligible Pension Plan, a defined benefit plan for union employees, the Company agreed with the PBGC to maintain a specified level of funding based on statutory funding requirements. The contributions were to be made as follows: for the year 2001, an amount necessary to avoid an accumulated funding deficiency plus $6 million , an amount so that the December 31, 2001 credit balance equals that of December 31, 2000 with interest plus $2 million; for 2002, an amount so that the December 31, 2002 credit balance equals that of December 2001 with interest plus $2 million; for 2003, an amount so that the December 31, 2003 credit balance equals that of December 31, 2002 with interest plus $2 million. Beginning with 2004, the Company was to make contributions to maintain the December 31, 2003 credit balance with interest. As security for such obligation, the Company has provided the PBGC with a $5 million letter of credit. The Company currently estimates that approximately $52.2 million of fundings will be required to obtain the December 31, 2004 required balance. These funding levels are also subject to the outcome of the Chapter 11 proceedings. Capital Expenditures -------------------- The Company invested $835.2 thousand in capital expenditures during the three months ended March 31, 2001 and $13.1 million during the year 2000. The Company's debtor-in-possession facility limits capital expenditures to $29.0 million in 2001 and $30.2 million in 2002. The Company's four-year consolidation plan originally contemplated construction of a new large bar mill which management estimates would cost approximately $90 million. The plan to construct this facility is currently under review and subject to the outcome of the Chapter 11 proceedings. Debt Service Requirements ------------------------- On April 3, 2001, the Company has entered into a Debtor-in-Possession Revolving Credit Agreement ("DIP Credit Agreement") with Fleet Capital Corporation ("Fleet Capital") and other lenders who are parties thereto to provide secured debtor-in-possession financing to the Company. The maximum borrowings under the DIP Credit Agreement are $420 million in the aggregate and include a sub-facility of $50 million for the issuance of letters of credit. Advances under the DIP Credit Agreement bear interest at a base rate used by Fleet Capital, plus the applicable margin; or a Eurodollar rate on deposits for a given period, plus the applicable margin. The applicable margin on base rate loans is 1.5% and on Eurodollar loans is 3.5%. The applicable margin on base rate and Eurodollar loans may be increased by 2% under specified circumstances. A borrowing base limits the amount available at any time. The Company's net availability on its revolving credit facility at May 31, 2001 was $26.9 million. Although the Company has obtained a debtor-in-possession credit facility, liquidity will be impacted by the uncertainty of the bankruptcy proceedings, including restructuring and settlement of prepetition obligations, the terms of the debtor-in-possession credit facility and the ability to obtain other financing. As a result of these uncertainties, there can be no assurance existing or future sources of liquidity will be adequate. The accrual and payment of interest on debt facilities, other than the debtor-in-possession facility, has been suspended subsequent to the Petition Date. All such debt service requirements are subject to the outcome of the Chapter 11 proceedings. Liquidity Sources and Other Factors Affecting Liquidity ------------------------------------------------------- The Company's lower than expected sales in the first quarter of 2001 caused its liquidity to be negatively affected. The Company's liquidity position has also been negatively impacted by the implementation of its consolidation plan as a result of the time lag between the incurrence of certain costs and the receipt of the expected cash flow benefits, such as in the case of headcount reductions requiring lump sum payouts. Management has sought to improve the Company's liquidity position by taking a number of actions including increasing spot prices, reducing administrative staff, implementing cost cutting programs, reducing inventories, and closing operations. The Company closed its Baltimore, Maryland Specialty Steel facility and its Willimantic cold-finishing plant in the first quarter of 2001. In addition, the Company reduced its planned capital expenditures from $48.0 to $13.1 million for the year 2001, and obtained deferrals of approximately $46.0 million of certain quarterly 2000 and 2001 Pension Benefit Guaranty Corporation ("PBGC") funding requirements until 2002 and 2003. The Company is also in the process of selling its specialty steels division and expects to complete the sale in the second quarter of this year. The Company is also in the process of selling certain real estate from facilities closed as part of the consolidation plan. 15 16 Notwithstanding these actions, on April 2, 2001, the Company and the majority of its subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the Federal Bankruptcy Code in the United States Bankruptcy Court (see Note 1 to the consolidated financial statements). Although the Company has obtained a debtor-in-possession credit facility, the Company may need to obtain additional financing to meet its cash flow requirements. Restrictive covenants included in the debtor-in-possession credit facility and oversight by the Bankruptcy Court limit the Company's ability to incur additional indebtedness, or sell assets (most of which are pledged), and may otherwise limit the operational and financial flexibility of the Company. FORWARD LOOKING STATEMENTS Statements included in this filing with the SEC (including those portions of Management's Discussion and Analysis that refer to the future) may contain forward-looking statements that are not historical facts but refer to management's intentions, beliefs, or expectations for the future. It is important to note that the Company's actual results could differ materially from those projected in such forward-looking statements. Certain factors that could cause actual results to differ from those in such forward-looking statements include, but are not limited to, the following: - the Company's ability to develop and obtain approval of a plan of reorganization during its Chapter 11 proceedings; - the Company's ability to increase sales to existing and new customers, particularly sales to automotive and industrial equipment manufacturers; - the Company's ability to implement its consolidation plan and to realize the expected benefits of the Combination in the time frame and at the costs currently contemplated; - market conditions and general risks associated with the steel industry; and - the matters discussed under the caption "Risk Factors" in the Company's Registration Statement on Form S-4. The reader should not place undue reliance on the forward-looking statements contained in this report. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ------------------------------------------------------------------ The Company has a cold-finished facility in Canada and is, therefore, subject to foreign currency exchange rate exposure. Historically, the exchange rate volatility and related exposure to the Company has been minimal. At the present time, the Company does not hedge foreign currency risks. The Company is exposed to market risks due to changes in interest rates with respect to certain of its long-term debt. The fair value of the Company's Senior Notes was determined using quoted market prices. At March 31, 2001, the fair value of the Company's senior notes was $57.4 million based on the quoted price of $13.50 per $100 of par value. There was no significant change in the fair value of the remainder of the Company's debt from December 31, 2000. 16 17 PART II - OTHER INFORMATION --------------------------- ITEM 1. LEGAL PROCEEDINGS ------------------------- Bankruptcy Filings. On April 2, 2001, Republic Technologies International, LLC and its immediate parent, Republic Technologies International Holdings, LLC, and its subsidiaries, Bliss & Laughlin, LLC and RTI Capital Corp., filed voluntary petitions for reorganization under Chapter 11of the Federal Bankruptcy Code in the United States Bankruptcy Court in the Northern District of Ohio, Eastern Division. The Chapter 11 cases have been assigned to Judge Marilyn Shea-Stonum and designated as case Numbers 01-51117 (Republic Technologies International, LLC), 01-51118 (Republic Technologies International Holdings, LLC), 01-51119 (Bliss & Laughlin, LLC), and 01-51120 (RTI Capital Corp.). The chapter 11 cases will be jointly administered for procedural purposes, only, under case Number 01-51117. Each of these entities will continue to operate its business and manage its property as a debtor in possession pursuant to sections 1107 and 1108 of the Bankruptcy Code. As a result of the Chapter 11 filings, litigation relating to prepetition claims against the Debtors is stayed; however, certain prepetition claims by the government or governmental agencies seeking equitable or other non-monetary relief against the Debtors are not subject to the automatic stay. Other. The Company and its subsidiaries are involved in various legal proceedings occurring in the ordinary course of business. It is the opinion of management, after consultation with legal counsel, that except for certain environmental proceedings (which is discussed in detail in the Company's Annual Report filed on Form 10-K), these matters will not materially affect the Company's consolidated financial position, results of operations or cash flows. ITEM 2. CHANGES IN SECURITIES ----------------------------- None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES --------------------------------------- As a result of the Chapter 11 filings, Events of Default, as defined in the related debt agreements, have occurred with respect to all of the Company's $515.7 million of secured and unsecured debt. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ----------------------------------------------------------- None. ITEM 5. OTHER INFORMATION ------------------------- None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ---------------------------------------- a.) Reports on Form 8-K (10.51) Form 8-K dated April 9, 2001 related to Republic Technologies International, LLC and its immediate parent, Republic Technologies International Holdings, LLC, and its subsidiaries, Bliss & Laughlin LLC, and RTI Capital Corp. filing voluntary petitions for reorganization under Chapter 11 of the Federal Bankruptcy Code in the United States Bankruptcy Court in the Northern District of Ohio, Eastern Division. 17 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. REPUBLIC TECHNOLOGIES INTERNATIONAL HOLDINGS, LLC Date: June 1, 2001 By: /s/Joseph F. Lapinsky --------------------- Joseph F. Lapinsky Chief Executive Officer, President and Chief Operating Officer Date: June 1, 2001 By: /s/Stephen Graham ----------------- Stephen Graham Executive Vice President and Chief Financial Officer Date: June 1, 2001 By: /s/ Joseph A. Kaczka -------------------- Joseph A. Kaczka Vice President of Finance, Controller and Chief Accounting Officer 18

REPUBLIC TECHNOLOGIES INTERNATIONAL HOLDINGS, LLC AND SUBSIDIARIES CONSOLIDATED/COMBINED STATEMENTS OF MEMBERS' INTEREST/STOCKHOLDERS' DEFICIT For the Period From January 1, 1999 to August 12, 1999, the Period from August 13, 1999 to December 31, 1999 and the Nine Months Ended September 30, 2000 (In thousands of dollars) (Unaudited) Total Accumulated Members' Other Interest/ Accumulated Comprehensive Stockholders' Comprehensive Deficit Income (Loss) Deficit Income (Loss) --------------- ---------------- ---------------- ---------------- Balance, January 1, 1999 $ (230,004) $ (3,682) $ (70,055) $ (116,746) ================ Net loss (114,913) (114,913) $ (114,913) Other comprehensive income: Foreign currency translation adjustment 157 157 157 Minimum pension liability adjustment 2,491 2,491 2,491 Preferred stock dividends (224) (224) --------------- ---------------- ---------------- ---------------- Balance, August 12, 1999 (345,141) (1,034) (182,544) $ (112,265) ================ Exchange of members' interest to effect combination 345,141 278,978 Preferred return Distribution of preferred return (161) Net loss (213,276) $ (213,276) Other comprehensive income: Foreign currency translation adjustment 361 361 361 --------------- ---------------- ---------------- ---------------- Balance, December 31, 1999 $ - (673) (116,642) $ (212,915) =============== ================ Preferred return Distribution of preferred return (288) Redemption of Class A units (500) Net loss (165,749) $ (165,749) Other comprehensive income: Foreign currency translation adjustment (435) (435) (435) ---------------- ---------------- ---------------- Balance, September 30, 2000 $ (1,108) $ (283,114) $ (166,184) ================ ================ ================

The Company - Consolidated ----------------------------------------- The Predecessor- Period From Combined Nine Months August 13, 1999 Period From Ended September to September January 1, 1999 to 30, 2000 30, 1999 August 12, 1999 -------------------- ----------------- -------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(165,749) $ (87,963) $(114,913) Adjustments to reconcile net cash used in operating activities: Gain on sale of fixed assets (4,318) -- -- Special charges 55,121 -- -- Extraordinary loss from early extinguishment of debt -- 23,342 -- Depreciation and amortization 45,983 13,367 21,889 Accretion of original issue discount 1,972 409 5,750 Amortization of deferred financing cost 2,395 1,656 1,483 Changes in operating assets and liabilities: (Increase) decrease in accounts receivable (9,269) 44,943 (61,295) (Increase) decrease in inventory 37,968 (21,256) (6,645) (Increase) decrease in other current assets 3,009 15,509 (3,237) Increase (decrease) in accounts payable 16,027 (85,771) 111,959 Increase (decrease) in accrued compensation and benefits 432 (4,867) 2,774 (Decrease) increase in defined benefit pension obligations (6,146) 17,608 (3,140) Increase in other postretirement benefits 10,970 8,987 14,720 (Decrease) increase in accrued environmental liabilities (1,043) (3,671) 1,805 Decrease in other current liabilities (24,415) (8,669) (3,349) Other 4,121 (24,254) (23,228) --------- --------- --------- NET CASH USED IN OPERATING ACTIVITIES (32,942) (110,630) (55,427) --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (7,336) (2,543) (21,788) Disposition of property, plant and equipment 8,665 -- -- Acquisition, net of cash acquired -- 14,621 -- --------- --------- --------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 1,329 12,078 (21,788) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term debt 30,000 419,950 387 Net proceeds under revolving credit facilities 10,599 235,833 80,816 Repayments of long-term debt (2,411) (685,021) (3,277) Preferred stock dividends -- -- (224) Redemption of Class A members' interest (500) -- -- Payment of preferred return (288) -- -- Deferred financing costs (6,113) (30,274) -- Proceeds from capital contributions -- 155,025 -- --------- --------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES 31,287 95,513 77,702 --------- --------- --------- Effect of exchange rate changes on cash (435) 254 157 --------- --------- --------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (761) (2,785) 644 Cash and cash equivalents - beginning of period 4,637 6,592 5,948 --------- --------- --------- Cash and cash equivalents - end of period $ 3,876 $ 3,807 $ 6,592 ========= ========= ========= SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for interest, net of amounts capitalized $ 45,258 $ 10,416 $ 41,224 ========= ========= ========= Cash paid for income taxes $ 901 $ -- $ 156 ========= ========= =========

BarTech Republic Adjustment Combined -------------- -------------- ------------- ------------ Period from July 1, 1999 to August 12, 1999 Net sales $ 16,125 $ 42,154 -- $ 58,279 Net loss (7,067) (3,833) -- (10,900) Period from January 1, 1999 to August 12, 1999 Net sales $ 152,494 $ 360,377 -- $ 512,871 Net loss (25,277) (89,634) -- (114,913)

For the Three Months Ended September 30, 2000 -------------------------------------------------------------------------------------- Inter Segment Cold- Total Elimination/ Hot-Rolled Finished Segments Other Consolidated Net sales $289,597 $ 64,594 $ 354,191 $(64,361) $ 289,830 Depreciation and amortization 13,723 1,162 14,885 -- 14,885 Segment profit (EBITDA, as defined) 14,934 2,851 17,785 -- 17,785 Capital expenditures 1,953 167 2,120 -- 2,120 For the Period from August 13, 1999 to September 30, 1999 -------------------------------------------------------------------------------------- Inter Segment Cold- Total Elimination/ Hot-Rolled Finished Segments Other Consolidated Net sales $167,550 $ 47,709 $ 215,259 $ (5,491) $ 209,768 Depreciation and amortization 11,824 1,543 13,367 -- 13,367 Segment profit (EBITDA, as defined) (21,378) 484 (20,894) -- (20,894) Capital expenditures 2,407 136 2,543 -- 2,543

For the Period from July 1, 1999 to August 12, 1999 -------------------------------------------------------------------------------------- Inter Segment Cold- Total Elimination/ Hot-Rolled Finished Segments Other Consolidated Net sales $ 48,078 $ 22,550 $ 70,628 $ (12,349) $ 58,279 Depreciation and amortization 2,825 245 3,070 -- 3,070 Segment profit (EBITDA, as defined) 2,425 (5,243) (2,818) -- (2,818) Capital expenditures 2,518 269 2,787 -- 2,787

For the Nine Months Ended September 30, 2000 -------------------------------------------------------------------------------------- Inter Segment Cold- Total Elimination/ Hot-Rolled Finished Segments Other Consolidated Net sales $921,936 $ 222,466 $1,144,402 $ (156,408) $ 987,994 Depreciation and amortization 42,410 3,573 45,983 -- 45,983 Segment profit (EBITDA, as defined) 44,197 9,838 54,035 -- 54,035 Capital expenditures 6,970 480 7,450 (114) 7,336

For the Period from January 1, 1999 to August 12, 1999 -------------------------------------------------------------------------------------- Inter Segment Cold- Total Elimination/ Hot-Rolled Finished Segments Other Consolidated Net sales $ 346,550 $ 199,295 $ 545,845 $ (32,974) $ 512,871 Depreciation and amortization 17,051 4,838 21,889 -- 21,889 Segment profit (EBITDA, as defined) 953 (3,449) (2,496) -- (2,496) Capital expenditures 18,784 1,574 20,358 -- 20,358

Three Months Ended September 30, Nine Months Ended September 30, ---------------------------------------------- ----------------------------------------------- 2000 1999 2000 1999 ---------------------------------------------- ----------------------------------------------- Net sales $ 10,763 $ 9,894 $36,710 $35,780 Gross loss (1,404) (1,197) (5,249) (3,114) ---------------------------------------------- ----------------------------------------------- Net loss $ (2,265) $(1,814) $(8,474) $(5,057)

September 30, 2000 December 31, 1999 ----------------------- ----------------------- Assets held for sale, current- Inventories $ 9,581 $15,219 ======================= ======================= Assets held for sale, non-current - Property, plant and equipment $ 7,630 $ 9,009 ======================= =======================

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