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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 six month period ended June 30, 2003
Commission File Number: 333-100581-04
REPUBLIC ENGINEERED PRODUCTS HOLDINGS LLC
-------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 35-2194249
------------------------------- ---------------------------------
(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
Indicate by check whether the registrant is an accelerated filer (as defined in
Rule 12b-2 of the Exchange Act).
[ ] Yes [X] No
REPUBLIC ENGINEERED PRODUCTS HOLDINGS LLC AND SUBSIDIARIES
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Republic Engineered Products Holdings LLC and Subsidiaries
Unaudited Consolidated Statement of Operations (Going
Concern Basis) for the Three and Six Months Ended June
30, 2003 and Republic Technologies International
Holdings, LLC and Subsidiaries (Debtor-in-Possession)
Unaudited Consolidated Statements of Changes in Net
Liabilities in Liquidation (Liquidation Basis) for the
Three and Six Months Ended June 30, 2002 3
Republic Engineered Products Holdings LLC and Subsidiaries Consolidated Balance Sheets
(Going Concern Basis) June 30, 2003 (Unaudited) and December 31, 2002 4-5
Republic Engineered Products Holdings LLC and Subsidiaries Unaudited Consolidated
Statement of Cash Flows (Going Concern Basis) for the Six Months Ended June 30,
2003 and Republic Technologies International Holdings, LLC and Subsidiaries
(Debtor-in-Possession) Unaudited Consolidated Statement of Cash Flows (Liquidation
Basis) for the Six Months Ended June 30, 2002 6
Republic Engineered Products Holdings LLC and Subsidiaries and Republic Technologies
International Holdings, LLC and Subsidiaries (Debtor-in-Possession) Notes to
Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 22
Item 3. Quantitative and Qualitative Disclosures About Market Risk 33
Item 4. Controls and Procedures 34
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 34
Item 2. Changes in Securities and Use of Proceeds 35
Item 3. Defaults Upon Senior Securities 35
Item 4. Submission of Matters to a Vote of Security Holders 35
Item 5. Other Information 35
Item 6. Exhibits and Reports on Form 8-K 35
Signatures 37
2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
REPUBLIC ENGINEERED PRODUCTS HOLDINGS LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(GOING CONCERN BASIS)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2003
REPUBLIC TECHNOLOGIES INTERNATIONAL HOLDINGS, LLC AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENT OF CHANGES IN NET LIABILITIES IN LIQUIDATION
(UNAUDITED)
(LIQUIDATION BASIS)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002
(IN THOUSANDS OF DOLLARS)
Three Months Ended Six Months Ended
------------------------------------------ -----------------------------------------
The Company The Predecessor The Company The Predecessor
(Going Concern Basis) (Liquidation Basis) (Going Concern Basis) Liquidation Basis)
June 30, 2003 June 30, 2002 June 30, 2003 June 30, 2002
--------------------- ------------------- --------------------- ------------------
Net sales $ 194,512 $ 252,590 $ 396,015 $ 508,825
Cost of goods sold 177,513 240,006 376,582 484,336
------------ ------------ ------------ ------------
Gross profit 16,999 12,584 19,433 24,489
Selling, general and administrative expense 9,951 8,885 19,906 18,883
Depreciation and amortization expense 2,406 14,175 4,711 28,346
Special charges (Note 6) - 4,774 - 9,535
Other expense (income), net 290 (3,404) 1,461 (4,425)
------------ ------------ ------------ ------------
Operating income (loss) 4,352 (11,846) (6,645) (27,850)
Interest expense, net 5,996 7,085 11,373 14,924
Reorganization items - 1,195 - 1,849
------------ ------------ ------------ ------------
Loss before income taxes (1,644) (20,126) (18,018) (44,623)
Provision for income taxes - (2) - 30
------------ ------------ ------------ ------------
Net loss $ (1,644) (20,124) $ (18,018) (44,653)
============ ============
Net liabilities at April 1, 2002 and
January 1, 2002 (going concern basis),
respectively (695,661) (671,132)
Adjustment to liquidation basis (Note 2) (458,371) (458,371)
Foreign currency translation adjustment 614 614
------------ ------------
Net liabilities in liquidation at June
30, 2002 $ (1,173,542) $ (1,173,542)
============ ============
The accompanying notes are an integral part of these statements.
3
REPUBLIC ENGINEERED PRODUCTS HOLDINGS LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(GOING CONCERN BASIS)
JUNE 30, 2003 AND DECEMBER 31, 2002
(IN THOUSANDS OF DOLLARS)
June 30, 2003 December 31, 2002
------------- -----------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 7,278 $ 2,107
Accounts receivable, less allowances of $7,140 and $10,875,
respectively 94,100 82,984
Inventories (Note 4) 163,383 170,282
Prepaid expenses and other current assets 9,527 14,134
------------- ------------
Total current assets 274,288 269,507
Property, plant and equipment:
Land and improvements 5,571 4,326
Buildings and improvements 22,247 22,247
Machinery and equipment 118,759 95,704
Construction-in-progress 1,861 24,318
------------- ------------
Total property, plant and equipment 148,438 146,595
Accumulated depreciation (7,296) (2,586)
------------- ------------
Net property, plant and equipment 141,142 144,009
Intangible assets, net of accumulated amortization
of $422 and $48, respectively 3,407 1,144
Goodwill 61,215 58,680
Other assets 1,058 1,058
------------- ------------
Total assets $ 481,110 $ 474,398
============= ============
The accompanying notes are an integral part of these statements.
4
REPUBLIC ENGINEERED PRODUCTS HOLDINGS LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(GOING CONCERN BASIS)
JUNE 30, 2003 AND DECEMBER 31, 2002
(IN THOUSANDS OF DOLLARS)
June 30, 2003 December 31, 2002
------------- -----------------
(Unaudited)
LIABILITIES AND MEMBERS' INTEREST
Current liabilities:
Revolving credit facility (Note 5) 282,756 268,378
Accounts payable 47,749 43,276
Accrued compensation and benefits 26,689 25,101
Accrued interest 1,678 1,434
Other accrued liabilities 18,941 19,688
---------- ----------
Total current liabilities 377,813 357,877
Long-term debt (Note 5) 85,000 80,000
Accrued environmental liabilities (Note 11) 5,126 5,332
---------- ----------
Total liabilities 467,939 443,209
---------- ----------
Members' interest: 13,171 31,189
---------- ----------
Total liabilities and members' interest $ 481,110 $ 474,398
========== ==========
The accompanying notes are an integral part of these statements.
5
REPUBLIC ENGINEERED PRODUCTS HOLDINGS LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(GOING CONCERN BASIS)
FOR THE SIX MONTHS ENDED JUNE 30, 2003
REPUBLIC TECHNOLOGIES INTERNATIONAL HOLDINGS, LLC AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(LIQUIDATION BASIS)
FOR THE SIX MONTHS ENDED JUNE 30, 2002
(IN THOUSANDS OF DOLLARS)
SIX MONTHS ENDED
--------------------------------------------
JUNE 30, 2003 JUNE 30, 2002
THE COMPANY THE PREDECESSOR
(GOING CONCERN BASIS) (LIQUIDATION BASIS)
--------------------- -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (18,018) $ (44,653)
Adjustments to reconcile net cash used
in operating activities:
Restructuring charges - 687
Gain on sale of fixed assets - (4,191)
Depreciation and amortization 4,710 28,346
Amortization of deferred financing cost 374 2,607
Reorganization items - 1,849
Changes in operating assets and liabilities:
Increase in accounts receivable (11,395) (27,657)
Decrease in inventory 6,899 42,330
Decrease in prepaid expenses and other current assets 4,914 589
Increase (decrease) in accounts payable 2,088 (6,473)
Increase (decrease) in accrued compensation and benefits 1,588 2,635
Increase in defined benefit pension obligations - 18,376
Increase in other postretirement benefits - 6,597
Decrease in accrued environmental liabilities (495) (88)
Decrease in other accrued liabilities (931) (7,649)
Other 67 2,098
---------- ----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (10,199) 15,403
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,844) (4,134)
Disposition of property, plant and equipment - 7,005
---------- ----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (1,844) 2,871
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 5,000 -
Net proceeds under revolving credit facilities 14,378 (13,421)
Repayments of long-term debt - (3,600)
Deferred financing costs (2,164) -
---------- ----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 17,214 (17,021)
---------- ----------
Effect of exchange rate changes on cash - 614
---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 5,171 1,867
Cash and cash equivalents - beginning of period 2,107 5,745
---------- ----------
Cash and cash equivalents - end of period $ 7,278 $ 7,612
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 10,277 $ 6,284
========== ==========
The accompanying notes are an integral part of these statements.
6
REPUBLIC ENGINEERED PRODUCTS HOLDINGS LLC AND SUBSIDIARIES
AND
REPUBLIC TECHNOLOGIES INTERNATIONAL HOLDINGS, LLC
AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT AS OTHERWISE NOTED)
(UNAUDITED)
NOTE 1. NATURE OF OPERATIONS, ORGANIZATION AND OTHER RELATED
INFORMATION
Republic Engineered Products Holdings LLC, a Delaware limited liability
company ("Republic Holdings", and together with its subsidiaries, the "Company")
produces special bar quality steel products. Special bar quality steel 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. Special bar quality steel products are sold to customers who require
precise metallurgical content and quality characteristics. Special bar quality
steel products generally contain more alloys, and sell for substantially higher
prices, than merchant and commodity steel bar and rod products. The Company
produces a wide range of special bar quality steel products and supplies a
diverse customer base that includes leading automobile and industrial equipment
manufacturers and their first tier suppliers.
Republic Holdings holds all of the outstanding membership interests of
Republic Engineered Products LLC ("Republic"). Blue Steel Capital Corp., N&T
Railway Company LLC and 2011448 Ontario Limited are wholly owned subsidiaries of
Republic. Blue Steel Capital Corp. is a Delaware corporation formed for the sole
purpose of issuing notes and holds no assets. N&T Railway Company LLC ("N&T") is
a Delaware limited liability company and operates the railroad assets located at
the Canton and Lorain, Ohio facilities. 2011448 Ontario Limited is an Ontario
corporation and its sole asset is an option to acquire the assets and properties
associated with Republic Technologies International, LLC's Hamilton, Ontario
cold-finishing facility.
KPS Special Situations Fund, L.P., a Delaware limited partnership
("KPS"), together with certain of its affiliates, may be deemed to beneficially
own the membership interests in Republic held of record by Republic Holdings.
Blue Steel Corporation, a Delaware corporation controlled by KPS, is the sole
general partner and a limited partner of Blue Bar Holdings, L.P., a Delaware
limited partnership and the sole member of Republic Holdings ("Blue Bar
Holdings"), and holds an 80.8% economic interest in such partnership. Hunt
Investment Group. L.P., a Delaware limited partnership ("Hunt"), together with
certain of its affiliates, may be deemed to beneficially own the membership
interests held of record by Republic Holdings. HIG-Steel Investors, L.P., a
Delaware limited partnership, is a limited partner of Blue Bar Holdings and
holds a 19.2% economic interest in such partnership.
The Company commenced operations on August 16, 2002 after it acquired a
substantial portion of the operating assets of Republic Technologies
International, LLC and its subsidiaries ("Republic Technologies" or "the
Predecessor") in a sale of assets under Section 363 of the United States
Bankruptcy Code. The acquired operating assets accounted for all of Republic
Technologies' steel melting capacity, over one-half of its hot-rolling capacity
and approximately two-thirds of its cold-finishing production capacity.
Management has created a more efficient, higher quality network of production
facilities operated by a smaller and more flexible workforce. The transaction
eliminated significant liabilities that had been associated with the business
acquired from Republic Technologies. The Company also acquired an option to
purchase the
7
assets associated with Republic Technologies' cold-finishing plant located in
Hamilton, Ontario on or prior to August 16, 2003 for nominal consideration and
the assumption of certain liabilities. The Company incurred significant
indebtedness in connection with the consummation of the acquisition, including
$80.0 million aggregate principal amount of senior secured notes and borrowings
of $301.9 million under a credit facility.
The Company hired approximately 2,350 of the approximately 3,700
employees of Republic Technologies and entered into a new labor agreement with
the United Steelworkers of America ("USWA"), which covers most of the hourly
employees and expires on August 16, 2007. In comparison to the labor agreement
between Republic Technologies and the USWA, the new labor agreement reduces the
number of employees and employment costs and provides increased staffing
flexibility.
In order to facilitate the orderly transfer of the special bar quality
steel product business from Republic Technologies to the Company, Republic
Technologies entered into a transition services agreement with the Company (the
"Transition Services Agreement") which expires on August 16, 2003. Under the
Transition Services Agreement, Republic Technologies provided the Company with
the ability to maintain an interim supply of certain inventory to sell to
customers while the Company modernized its Lorain facility. Specifically,
Republic Technologies continued to operate certain facilities that the Company
did not acquire. These facilities included the 12"mill at Lorain until September
2002, the finishing operation at Canton until October 2002 and the Massillon 18"
mill until December 2002. Republic Technologies' railroad company, Nimishillen &
Tuscarawas, LLC, operated until December 31, 2002, at which time its operations
were acquired by Republic. Canadian Drawn Steel Company, Inc., a subsidiary of
Republic Technologies, continues to operate under the Transition Services
Agreement. In addition, the parties supplied other services to each other to
ensure the smooth transition of Republic Technologies' business to the Company
and the wind down of the Republic Technologies bankruptcy estate. The Company
was also obligated to pay $5.0 million to Republic Technologies for its
operation of assets it retained. This fee was paid in five $1.0 million monthly
installments which commenced on September 15, 2002. The final payment was paid
on January 16, 2003. Under the terms of the Transition Services Agreement, the
Company paid these fees to The Bank of New York for the benefit of the holders
of Republic Technologies 13 3/4 % senior secured notes.
The accompanying consolidated financial statements have been prepared
on a going concern basis of accounting and do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or
to amounts and classification of liabilities that may be necessary should the
Company be unable to continue as a going concern. The Company's liquidity
position has been negatively impacted by greater than expected increases in the
cost of natural gas and by unplanned outages during January and June 2003 at the
Lorain #3 blast furnace, which resulted in property damage. The Company's
performance improved in the second quarter, as compared to the first quarter of
2003 despite sustaining the unplanned Lorain #3 blast furnace outage in June
2003. The Company's net availability on its revolving credit facility at August
8, 2003 was $17.0 million. These factors raise substantial doubt about the
Company's ability to continue as a going concern and, therefore, the Company may
be unable to realize its assets and discharge its liabilities in the normal
course of business.
Management has sought to improve the Company's liquidity position by
taking a number of actions. The Company has reduced its planned capital
expenditures from $20 million to $6 million for 2003. Additional financing of
$5.0 million was obtained from the State of Ohio (Note 5). The Company sought
reimbursement from business interruption and property insurance due
8
to damage incurred to the #3 blast furnace at the Lorain facility. In July 2003,
the insurance company issued a partial payment of $5.0 million against this
claim. Accordingly, the Company included a receivable of $5.0 million and a
corresponding reduction to operating costs in its June 30, 2003 financial
statements. Also, on May 15, 2003, the Company obtained an extension of the
contractual reductions in borrowing capacity under its senior revolving credit
facility (See Note 5). Notwithstanding these efforts, the Company may need to
obtain additional financing to meet its cash flow requirements, including
financing through the sale of additional debt or equity securities. In light of
the Company's liquidity, its ability to raise additional capital is negatively
impacted. Restrictive covenants included in the revolving credit facility and
senior secured notes limit the Company's ability to incur additional
indebtedness or sell assets (all of which are pledged), and may otherwise limit
the operational and financial flexibility of the Company.
NOTE 2. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements contain results for
Republic Holdings and Republic Technologies for the three and six months ended
June 30, 2003 and 2002, respectively. Republic Holdings' consolidated statements
have been prepared on a going concern basis of accounting. Republic
Technologies' statements were prepared on a liquidation basis of accounting.
These consolidated statements are unaudited and do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or
to amounts and classification of liabilities that may be necessary should the
Company be unable to continue as a going concern. 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 period ended December 31, 2002 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 U.S. Bankruptcy Court approved the sale of substantially all the
assets of Republic Technologies to the Company on July 11, 2002 in a transaction
that closed on August 16, 2002 (Note 1). Republic Technologies' intent was to
sell and liquidate its remaining assets, therefore, the accompanying 2002
consolidated financial statements were prepared on the liquidation basis of
accounting. Under this basis of accounting, assets and liabilities are stated at
their net realizable value, and estimated costs through the liquidation date are
provided to the extent reasonably determinable. The liquidation basis of
accounting requires significant estimates and judgments. Republic Technologies'
adjustments required to convert from the going concern (historical cost) basis
to the liquidation basis of accounting includes:
Decrease to reflect net realizable value of property, plant and equipment $ 433,748
Write-off of deferred financing costs........................................... 22,192
Decrease to reflect the net realizable value of goodwill........................ 2,431
---------
Net decrease in carrying value.................................................. $ 458,371
=========
9
NOTE 3. ACQUISITION
On August 16, 2002, Republic acquired a substantial portion of the
operating assets of Republic Technologies and its subsidiaries. The total
purchase price was $410.9 million, which consisted of $10.0 million paid to
Republic Technologies, $14.0 million in acquisition fees and expenses, and
indebtedness totaling $386.9 million, which included $301.9 million under a
senior revolving credit facility, the issuance of $80.0 million in senior
secured notes, and $5.0 million under a transition services agreement between
the Company and Republic Technologies. The total purchase price was allocated to
the assets acquired and liabilities assumed, based on a preliminary estimate of
their respective fair values.
As a result of the acquisition of a substantial portion of the
operating assets from Republic Technologies, the Company has become the largest
domestic producer of special bar quality steel products. In connection with the
acquisition, the Company was able to select the assets and properties of
Republic Technologies and negotiate a modified successor labor contract that it
expects will enable it to create a more efficient, higher quality network of
production facilities operated by a smaller and more flexible workforce.
The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed at August 16, 2002, as determined based on
independent appraisals, and also reflects any subsequent adjustments to the
estimated fair values.
Current assets $ 300,205
Property, plant and equipment 129,298
Goodwill 61,215
Other assets 376
----------
Total assets 491,094
Current liabilities 74,901
Long-term liabilities 5,622
----------
Total liabilities 80,523
----------
Net assets acquired $ 410,571
==========
As discussed in Note 1, the Company also acquired an option to purchase
the assets associated with Republic Technologies' cold-finishing plant located
in Hamilton, Ontario on or prior to August 16, 2003 for nominal consideration
and the assumption of certain liabilities. If the Company decides to purchase
the cold-finishing plant, the purchase price allocation will be adjusted
accordingly.
NOTE 4. INVENTORIES
The Company values its inventory at the lower of cost or market applied
on a first-in, first-out (FIFO) method for finished and semi-finished goods, and
a weighted-average method for raw materials. Inventory standards have been set
based on this methodology and periodically reviewed to verify that the standards
approximate actual costs. During the second quarter, the Company determined that
its standards did not properly reflect actual costs. Thus, the standards were
adjusted to reflect the Company's current cost structure, resulting in a $6.0
million increase in inventory, and a corresponding decrease in cost of goods
sold. Due to the unusual manufacturing
10
activity in the first quarter caused by the outage of the #3 blast furnace at
the Lorain facility, the Company was unable to determine the amount of the
adjustment, if any, which should be applied to the first quarter of 2003.
The components of inventories are as follows:
JUNE 30, 2003 DECEMBER 31, 2002
------------- -----------------
Raw materials......................................... $ 13,033 $ 14,368
Semi-finished and finished goods...................... 150,350 155,914
------------- ------------
Total................................................. $ 163,383 $ 170,282
============= ============
Inventories are reduced by $7.0 million and $5.6 million at June 30,
2003 and December 31, 2002, respectively due to obsolescence.
NOTE 5. REVOLVING CREDIT FACILITIES AND LONG-TERM DEBT
On August 16, 2002, Republic entered into a credit facility, which
matures on June 30, 2007, with Fleet Capital Corporation, as administrative
agent, and other lenders. The credit facility was amended on May 15, 2003.
REVOLVING CREDIT FACILITY
Prior to the amendment discussed below, the credit facility consisted
of a senior revolving credit facility with a total commitment of up to $336.0
million. This total commitment will automatically reduce by $5.0 million on the
first day of each quarter commencing the fiscal quarter that begins on July 1,
2003 until such time as the total commitment is reduced to $275.0 million.
Availability under the credit facility was limited to a borrowing base as
defined in the credit facility as the sum of 85% of eligible accounts receivable
plus 70% of the net book value of eligible inventory plus the eligible fixed
asset component which is currently $100.0 million. Under the terms of the senior
revolving credit facility prior to the amendment discussed below, the borrowing
base, effective June 30, 2003, was to be reduced to 85% of eligible accounts
receivable, plus 60% of eligible inventory, plus the eligible fixed asset
component, which would have been $92.0 million. The Company borrowed an
aggregate of $301.9 million in connection with the closing of the acquisition of
assets of Republic Technologies, and the Company is entitled to draw amounts
under the new credit facility to finance working capital and capital
expenditures, and for other general corporate purposes.
The borrowings under the credit facility are secured by a first
priority perfected security interest in the capital stock and other equity
interests of each direct and indirect subsidiary of Republic Holdings, other
than 2011448 Ontario Limited, which collateral also secures the senior secured
notes in an equal and ratable basis, and all of the Company's presently owned
and subsequently acquired inventory, accounts receivable, intellectual property
and related assets (other than those of Republic Holdings) and the real estate
and fixed assets comprising, and the intellectual property relating to, the
Canton, Ohio Caster and Continuing Rolling Facility, or Canton CR(TM). The
obligations under the credit facility are secured and are unconditionally and
irrevocably guaranteed jointly and severally by Republic Holdings and each of
Republic's subsidiaries other than 2011448 Ontario Limited. Republic Holdings'
guarantee is limited in recourse to all of Republic's membership interests owned
by Republic Holdings, which have been pledged to secure the guarantee.
11
Borrowings under the credit facility bear interest, at the Company's
option, at either a base rate equal to the higher of the "prime rate" by Fleet
National Bank, the weighted average of rates on overnight federal funds
transactions with members of the Federal Reserve System arranged by federal
funds brokers, plus the applicable margin, or a Eurodollar rate on deposits for
one, two, three or six month periods, plus the applicable margin. The applicable
margin on base rate loans initially is 1.25% and on Eurodollar loans is 3.00%.
The amendment to our credit facility discussed below increased these applicable
margins by 1.0% each. The applicable margin on base rate and Eurodollar loans
may be reduced to as low as 0.25% and 2.00%, respectively, if we achieve
specified reduced leverage ratios. The Company's credit facility balance as of
June 30, 2003 was $282.8 million and the average interest rate for the Company's
credit facility for the six months ended June 30, 2003 was approximately 5.75%
per year for base rate loans and 4.67% per year for Eurodollar loans. As of June
30, 2003, borrowings under the credit facility are accruing interest at the rate
of 6.25% per year for base rate loans and 5.21% per year for Eurodollar loans.
The credit facility contains negative covenants and provisions that
restrict, among other things, the ability to incur additional indebtedness or
guarantee the obligations of others, grant liens, make investments, pay
dividends, repurchase stock or make other forms of restricted payments, merge,
consolidate and acquire assets or stock, engage in sale and leaseback
transactions or dispose of assets, make capital expenditures in excess of
specified annual amounts, engage in transactions with the affiliates, and prepay
or amend the senior secured notes. The credit facility also requires the Company
to meet financial covenants and ratios, particularly a minimum fixed charge
coverage ratio based on operating cash flow to total debt service to be tested
quarterly commencing on March 31, 2004.
AMENDMENT TO REVOLVING CREDIT FACILITY
On May 15, 2003, the Company's credit facility was amended. Under the
terms of the amendment, the maturity date was accelerated to June 30, 2006 and
the total commitment was reduced to $315.0 million with the total commitment
being reduced by $5.0 million on the first day of each fiscal quarter,
commencing with the fiscal quarter beginning January 1, 2004 until the total
commitment is reduced to $275.0 million. Consistent with the original credit
facility, availability under the amended credit facility is limited to a
borrowing base, however, the components of the borrowing base have been amended
to delay the June 30, 2003 reduction of the advance rate for eligible inventory
from 70% of the net book value to 60% until January 1, 2004. In addition, the
reduction in the eligible fixed asset component of the borrowing base originally
scheduled to occur on July 1, 2003 was restructured so that the reduction occurs
ratably over a twelve-month period ending June 29, 2004. The availability under
the credit facility as amended at August 8, 2003 was $17.0 million. Finally, the
amendment requires the Company to maintain minimum cumulative EBITDA (as defined
in the amendment) levels and limits the amount of annual capital expenditures
the Company may incur to $9.0 million in 2003 and $20.0 million thereafter.
The credit facility amendment required the Company to pay a $1.6
million restructuring fee to the lenders with $1.1 million of the fee was paid
upon execution of the amendment and the remaining $0.5 million is due on January
31, 2004. In addition, the amendment increases the applicable margin on base
rate and Eurodollar loans by 1.0%. Finally, the amendment provides for the
issuance of warrants representing five percent of the fully diluted equity of
the Company to the lenders upon the occurrence of certain events as defined in
the amendment.
12
LONG-TERM DEBT
The outstanding notes are senior secured obligations of the issuers,
aggregating $80.0 million of principal amount, and will mature on August 16,
2009. Interest on the notes accrues at the rate of 10% per annum and is payable
quarterly in cash on each March 31, June 30, September 30 and December 31,
commencing September 30, 2002.
The notes were issued under an indenture dated as of August 16, 2002
among Republic and Blue Steel Capital Corp., as issuers, N&T Railway Company LLC
and Blue Bar, L.P., as guarantors, and LaSalle Bank National Association, as
trustee. As described in Note 12, the indenture was amended pursuant to the
First Supplemental Indenture among Republic, Blue Steel Capital Corp., N&T
Railway Company LLC, Republic Holdings and LaSalle Bank National Association.
The indenture governing the notes requires the Company to redeem the notes with
certain proceeds from asset sales of any collateral that secures the notes and
contains significant affirmative and negative covenants including separate
provisions imposing restrictions on additional borrowings, certain investments,
certain payments, sale or disposal of assets, payment of dividends and change of
control provisions, in each case, subject to certain exceptions. The notes are
secured, subject to exceptions and limitations, by (1) a first priority lien on,
and security interest in, substantially all of the existing assets of the
Company and its subsidiaries, other than the Canton CR(TM), inventory, accounts
receivable and intellectual property and related assets, and (2) a first
priority interest in the capital stock and other equity interests of each direct
and indirect subsidiary of Republic Holdings, other than 2011448 Ontario
Limited. Each of Republic Holdings and N&T Railway Company LLC has jointly and
severally guaranteed the notes on a senior secured basis, and each guarantee is
full and unconditional. 2011448 Ontario Limited does not currently guarantee the
notes, but it must become a guarantor of the notes in order to exercise its
option to acquire the assets and properties associated with the Hamilton,
Ontario cold-finishing plant owned by Canadian Drawn Steel Company, Inc., a
subsidiary of Republic Technologies. Any domestic subsidiary that Republic may
form or acquire in the future will guarantee the notes on a joint and several
and full and unconditional basis.
On June 6, 2003, the Company obtained a $5.0 million loan from the Ohio
Department of Development. This loan is secured by the 20" mill at the Lorain
facility and accrues interest at the rate of 3% per annum payable on the first
day of each calendar month until the loan matures in July 2008.
NOTE 6. PREDECESSOR'S SPECIAL CHARGES
The Predecessor maintained a Master Collective Bargaining Agreement and
settlement agreement (collectively, the "Master CBA") with employees represented
by the United Steel Workers of America which required Republic Technologies to
offer Early Retirement Buyouts ("ERBs") to at least 1,000 employees and
permitted Republic Technologies International, LLC to offer a Voluntary
Severance Plan ("VSP"). The purpose of these programs was to reduce the hourly
workforce by a net reduction of over 1,900 hourly employees over four years.
These programs were substantially voluntary in nature. Accordingly, the costs
associated with these workforce reductions were being recognized as the offers
were accepted by the employees and intended to be awarded by the Predecessor.
During the six months ended June 30, 2002, there were 43 ERB's accepted
amounting to $8.8 million.
As an outcome of restructuring activities, Republic Technologies took
several actions resulting in the need to record certain asset impairments and
restructuring reserves, including shutting down the Johnstown, Pennsylvania melt
shop facility, the Canton, Ohio 12" rolling mill
13
facility, and the Willimantic, Connecticut cold-finishing facility. As a result
of these actions, the Predecessor recorded restructuring charges of $0.7 million
during the six months ended June 30, 2002. These charges related to supplemental
unemployment benefits payments, salary terminations, and the related health
insurance costs.
NOTE 7. SEGMENT INFORMATION
The Company operates in two reportable segments: hot-rolled and
cold-finished. The Predecessor operated its Specialty Steel division as a third
segment, however, as discussed in Note 8, the Specialty Steel division was
accounted for as a discontinued operation. As such the following information
related to the Predecessor does not reflect the Specialty Steel division 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,
and depreciation and amortization expense ("EBITDA"). The Predecessor measured
segment performance based on earnings before interest, taxes, depreciation and
amortization, other postretirement benefits ("OPEB"), workforce reduction
charges, restructuring charges, monitoring fees, gain or loss from the sale of
fixed assets, and reorganization items ("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 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
drivetrains, 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.
Inter-segment 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 90% to hot-rolled and 10% to
cold-finished for the Company and 80% to hot-rolled and 20% to cold-finished for
the Predecessor. Pension costs are allocated by the Predecessor based on the
amount of payroll incurred by each segment.
14
THE COMPANY FOR THE THREE MONTHS ENDED JUNE 30, 2003
-----------------------------------------------------------------------
COLD- TOTAL INTER-SEGMENT
HOT-ROLLED FINISHED SEGMENTS ELIMINATION/OTHER CONSOLIDATED
---------- ---------- ---------- ----------------- ------------
Net sales.......................... $ 181,899 $ 33,569 $ 215,468 $ (20,956) $ 194,512
Depreciation and amortization...... 2,214 192 2,406 - 2,406
Segment profit (EBITDA)............ 4,230 2,528 6,758 - 6,758
Capital expenditures............... 699 163 862 - 862
Segment Assets..................... 432,153 48,957 481,110 - 481,110
THE PREDECESSOR FOR THE THREE MONTHS ENDED JUNE 30, 2002
-----------------------------------------------------------------------
COLD- TOTAL INTER-SEGMENT
HOT-ROLLED FINISHED SEGMENTS ELIMINATION/OTHER CONSOLIDATED
---------- ---------- ---------- ----------------- ------------
Net sales.......................... $ 229,818 $ 48,236 $ 278,054 $ (25,464) $ 252,590
Depreciation and amortization...... 12,921 1,254 14,175 - 14,175
Segment profit (loss) (EBITDA,
as defined)...................... 11,838 (3,336) 8,502 - 8,502
Capital expenditures............... 3,567 - 3,567 - 3,567
Segment Assets..................... 446,767 81,915 528,682 14,461 543,143
THE COMPANY FOR THE SIX MONTHS ENDED JUNE 30, 2003
-----------------------------------------------------------------------
COLD- TOTAL INTER-SEGMENT
HOT-ROLLED FINISHED SEGMENTS ELIMINATION/OTHER CONSOLIDATED
---------- ---------- ---------- ----------------- ------------
Net sales.......................... $ 368,500 $ 66,437 $ 434,937 $ (38,922) $ 396,015
Depreciation and amortization...... 4,327 384 4,711 - 4,711
Segment profit(loss) (EBITDA)...... (2,503) 569 (1,934) - (1,934)
Capital expenditures............... 1,662 182 1,844 - 1,844
Segment Assets..................... 432,153 48,957 481,110 - 481,110
THE PREDECESSOR FOR THE SIX MONTHS ENDED JUNE 30, 2002
-----------------------------------------------------------------------
COLD- TOTAL INTER-SEGMENT
HOT-ROLLED FINISHED SEGMENTS ELIMINATION/OTHER CONSOLIDATED
---------- ---------- ---------- ----------------- ------------
Net sales.......................... $ 462,992 $ 99,118 $ 562,110 $ (53,285) $ 508,825
Depreciation and amortization...... 25,841 2,505 28,346 - 28,346
Segment profit (loss) (EBITDA,
as defined)...................... 23,503 (6,483) 17,020 - 17,020
Capital expenditures............... 4,134 - 4,134 - 4,134
Segment Assets..................... 446,767 81,915 528,682 14,461 543,143
A reconciliation of EBITDA of the Company and EBITDA, as defined for
the Predecessor, to loss before income taxes is as follows:
15
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------- -------------------------------
JUNE 30, 2003 JUNE 30, 2002 JUNE 30, 2003 JUNE 30, 2002
------------- -------------- ------------- ---------------
THE COMPANY THE PREDECESSOR THE COMPANY THE PREDECESSOR
------------- -------------- ------------- ---------------
Segment profit (loss) (EBITDA for the
Company and EBITDA, as defined, for the
Predecessor)................................. $ 6,758 $ 8,502 $ (1,934) $ 17,020
Depreciation and amortization expense........ 2,406 14,175 4,711 28,346
Interest expense............................. 5,996 7,085 11,373 14,924
Special charges.............................. - 4,774 - 9,535
Gain on sale of fixed assets................. - (4,191) - (4,191)
OPEB expense................................. - 5,590 - 11,180
Reorganization items......................... - 1,195 - 1,849
------------- ----------- ------------- -----------
Loss before income taxes..................... $ (1,644) $ (20,126) $ (18,018) $ (44,623)
============= =========== ============= ===========
NOTE 8. PREDECESSOR'S DISCONTINUED OPERATIONS
The Predecessor historically reported its Specialty Steel division as a
discontinued operation. Certain assets of the Baltimore plant were sold in
January 2001. The assets of the Canton plant, representing a substantial portion
of the remaining assets, were sold on September 5, 2002.
A reserve for the estimated operating losses of the Specialty Steel
division was made as part of the accounting for the discontinued operations and
periodically revised as part of the periodic reassessment of the carrying values
of the net assets relating to the discontinued operations. In the six months
ended June 30, 2002, no provision was recorded for any gain or loss from the
disposition of the discontinued operations.
Sales and related losses for the discontinued operations were as
follows (net loss on discontinued operations were reflected in the Predecessor'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):
SIX MONTHS ENDED
JUNE 30, 2002
----------------
Net sales.......................... $ 8,514
Gross loss......................... (2,439)
Loss before income taxes........... (2,726)
Provision for income taxes......... -
----------
Net loss........................... $ (2,726)
==========
NOTE 9. RELATED PARTY TRANSACTIONS
A Management Services Agreement dated as of August 16, 2002 between
Blue Bar, L.P. and Republic provides that Blue Bar, L.P. will provide certain
ongoing advisory and management services to Republic as requested by Republic
from time to time. Republic pays Blue Bar, L.P. a
16
quarterly fee of $250,000 for such services and reimburses Blue Bar, L.P. and
its affiliates for all reasonable costs and expenses incurred by them in
providing such advisory and management services. Republic's obligation to make
such payments will terminate upon the first to occur of (i) August 16, 2012, or
(ii) the end of the fiscal year in which Blue Bar, L.P., or any of its
affiliates, directly or indirectly, ceases to own any membership interests in
Republic. As part of the restructuring described in Note 12, Blue Bar, L.P.
assigned to Blue Bar Holdings its interests and obligations under the Management
Services Agreement. The credit facility amendment discussed in Note 5 restricts
the payment of management fees if certain liquidity-related benchmarks are not
satisfied.
NOTE 10. CONTINGENCIES
The Company, in the ordinary course of business, is the subject of or
party to various pending or threatened legal and environmental actions. The
Company provides for the costs related to these matters when a loss is probable
and the amount is reasonably estimable. Based on information presently known to
the Company, management believes that any ultimate liability resulting from
these actions will not have a material adverse affect on its consolidated
financial position, results of operations or cash flows.
In connection with the closing of the asset purchase transaction with
Republic Technologies, the USWA took the position that the Company's new labor
agreement did not apply to the unionized employees of Canadian Drawn Steel
Company, Inc., a Canadian subsidiary of Republic Technologies. In light of the
USWA's position and rather than delay consummation of the entire transaction,
the parties negotiated the first amendment to the Asset Purchase Agreement,
which among various other matters included the inventory and receivables of
Canadian Drawn Steel in the assets the Company acquired and gave the Company a
one-year option to purchase the other assets of Canadian Drawn Steel for nominal
additional consideration, without adjustment to the overall purchase price.
Under the option, if the business of Canadian Drawn Steel is sold to a third
party, Republic Technologies will pay the net proceeds of that sale to the
Company.
On August 30, 2002, the USWA filed a motion with the Bankruptcy Court
seeking to compel the sale to the Company of substantially all of the assets of
Canadian Drawn Steel. On September 17, 2002, the Company and Republic
Technologies filed separate objections to the USWA's motion, asserting among
other things that the USWA had breached the agreement with Republic Technologies
with respect to the unionized employees of Canadian Drawn Steel and was
attempting to force the Company to assume additional liabilities for legacy
costs which the Company did not agree to assume under the Asset Purchase
Agreement. In addition, Republic Technologies asserted various procedural
defenses against the USWA and the Company objected to several of the factual
assumptions underlying the USWA's proposed orders.
The USWA withdrew its motion described above and on October 21, 2002
filed a complaint with the Bankruptcy Court seeking similar relief as in the
motion. The complaint alleged, among other things, that because the Company did
not purchase substantially all of the assets of Canadian Drawn Steel, (i)
Republic Technologies breached a shutdown agreement with the USWA, (ii) the
Company breached a letter agreement with the USWA, (iii) the Company breached
the Asset Purchase Agreement and (iv) the Company and Republic Technologies
violated an order of the Bankruptcy Court which approved the sale of assets by
Republic Technologies to the Company. In the complaint, the USWA requested the
Bankruptcy Court to compel the sale to the Company of substantially all of the
assets of Canadian Drawn Steel. On December 4, 2002, the Company and Republic
Technologies filed separate answers to the
17
USWA's complaint in which the Company and Republic Technologies denied the
principal allegations of the USWA and asserted various defenses and
counterclaims. The Company expects to vigorously pursue this litigation. An
evidentiary hearing is scheduled for August 29, 2003, to determine whether or
not the Company's new labor agreement applies to the unionized employees of
Canadian Drawn Steel.
NOTE 11. ENVIRONMENTAL MATTERS
As is the case with most steel producers, the Company could incur
significant costs related to environmental issues in the future. The Company's
operations are subject to federal, state and local environmental laws and
regulations that in the event of environmental contamination could result in the
Company incurring significant liabilities.
The Company continuously monitors its compliance with applicable
environmental laws and regulations and believes that it currently is in
substantial compliance with them. The Company anticipates that its expenditures
for environmental control measures during the next 12-month period will be
approximately $0.3 million. The Company currently believes that estimated
aggregate costs to resolve environmental contingencies are likely to be in the
range of $3.9 million to $8.4 million over the lives of its facilities. The
Company's reserve to cover probable environmental liabilities was approximately
$5.1 million as of June 30, 2003. To the extent the Company incurs any such
remediation costs, these costs will most likely be incurred over a number of
years; however, future regulatory action regarding historical disposal practices
at the Company's facilities, as well as continued compliance with environmental
requirements, may require it to incur significant costs that may have a material
adverse effect on its future financial performance.
NOTE 12. RESTRUCTURING
Republic effected a restructuring so that the presentation of the
consolidated financial statements of Republic Holdings will satisfy the
financial reporting obligations of each of the issuers and guarantors of the
notes. As part of the restructuring, Blue Bar, L.P., a Delaware limited
partnership and the present parent company of Republic, merged with and into
Republic Holdings. In addition, the indenture governing the Company's notes was
amended so that the guarantee of Republic Holdings, as successor by merger of
Blue Bar, L.P., is full and unconditional. The indenture was also amended to
permit Republic Holdings to satisfy Republic's reporting obligations under the
indenture so long as Republic Holdings holds 100% of Republic's membership
interests and has no material business operations, assets or liabilities of its
own. Republic Holdings was formed on January 28, 2003. The consolidated
financial statements presented give effect to the common control merger of Blue
Bar, L.P. with Republic Holdings (successor to Blue Bar L.P.) that was completed
on February 10, 2003 as part of the restructuring.
NOTE 13. CONDENSED CONSOLIDATING SUPPLEMENTAL INFORMATION
Republic and Blue Steel Capital Corp. have issued $80.0 million
aggregate principal amount of 10% senior secured notes due 2009. Each of
Republic Holdings and N&T Railway Company LLC has jointly and severally
guaranteed the notes on a senior secured basis, and each guarantee is full and
unconditional. 2011448 Ontario Limited does not currently guarantee the notes,
but it must become a guarantor of the notes in order to exercise its option to
acquire the assets and properties associated with the Hamilton, Ontario
cold-finishing plant owned by Canadian Drawn Steel Company, Inc., a subsidiary
of Republic Technologies. Any domestic subsidiary that Republic may form or
acquire in the future will guarantee the notes on a joint and several and full
and unconditional basis.
18
The following presents supplemental financial information with respect
to Republic Holdings, Republic and Blue Steel Capital Corp. on a consolidating
basis, the guarantor subsidiaries on a combined consolidating basis and the
non-guarantor subsidiaries on a combined consolidating basis at June 30, 2003
and for the six months ended June 30, 2003.
STATEMENT OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2003
(IN THOUSANDS OF DOLLARS)
BLUE STEEL NON-
REPUBLIC CAPITAL GUARANTOR GUARANTOR
HOLDINGS REPUBLIC CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- -------- ---------- ------------ ------------ ------------ ------------
Net sales..................... $192,947 $ 1,565 $ 194,512
Cost of goods sold............ 176,171 1,342 177,513
-------- ------- ---------- ---------- ------------ ------------ -----------
Gross profit ................. 16,776 223 16,999
-------- -------- ---------- ---------- ------------ ------------ -----------
Selling, general and
administrative expense...... 9,923 28 9,951
Depreciation expense.......... 2,403 3 2,406
Other operating expense, net.. 290 - 290
-------- -------- ---------- ---------- ------------ ------------ -----------
Operating gain................ 4,160 192 4,352
Interest expense.............. 5,996 - 5,996
-------- -------- ---------- ---------- ------------ ------------ -----------
Net loss...................... (1,836) 192 (1,644)
Results of affiliates'
operations.................. $ (1,644) - - $ 1,644 -
-------- -------- ---------- ---------- ------------ ------------ -----------
Net loss...................... $ (1,644) $ (1,836) 192 $ 1,644 $ (1,644)
======== ========= ========== ========== ============ ============ ===========
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2003
(IN THOUSANDS OF DOLLARS)
BLUE STEEL NON-
REPUBLIC CAPITAL GUARANTOR GUARANTOR
HOLDINGS REPUBLIC CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- -------- ---------- ------------ ------------ ------------ ------------
Net sales..................... $392,858 $ 3,157 $ 396,015
Cost of goods sold............ 373,825 2,757 376,582
-------- ------- ---------- ------------ ------------ ------------ -----------
Gross profit ................. 19,033 400 19,433
-------- -------- ---------- ------------ ------------ ------------ ------------
Selling, general and
administrative expense...... 19,834 72 19,906
Depreciation expense.......... 4,705 6 4,711
Other operating expense, net.. 1,461 - 1,461
-------- -------- ---------- ------------ ------------ ------------ -----------
Operating loss................ (6,967) 322 (6,645)
Interest expense.............. 11,373 - 11,373
-------- -------- ---------- ------------ ------------ ------------ -----------
Net loss...................... (18,340) 322 (18,018)
Results of affiliates'
operations.................. $(18,018) - - $ 18,018 -
------- -------- ---------- ------------ ------------ ------------ -----------
Net loss...................... $(18,018) $(18,340) 322 $ 18,018 $ (18,018)
======== ======== ========== ============ ============ ============ ===========
19
BALANCE SHEET
JUNE 30, 2003
(IN THOUSANDS OF DOLLARS)
BLUE STEEL NON-
REPUBLIC CAPITAL GUARANTOR GUARANTOR
HOLDINGS REPUBLIC CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- -------- ---------- ------------ ------------ ------------ ------------
ASSETS
Current assets:
Cash and cash
equivalents .............. $ 7,254 $ 24 $ 7,278
Accounts receivable, net ... 93,482 618 94,100
Accounts receivable
with affiliates .......... - 566 (566) -
Inventories ................ 163,350 33 163,383
Prepaid expenses and
other current assets ..... 9,525 2 9,527
-------- -------- ---------- ----------- ------------ ------------ ------------
Total current assets ......... 273,611 1,243 (566) 274,288
Property, plant and
equipment .................. 148,338 100 148,438
Accumulated depreciation ..... (7,286) (10) (7,296)
-------- -------- ---------- ----------- ------------ ------------ ------------
Net property, plant and
equipment .................. 141,052 90 141,142
Intangibles, net ............. 3,407 - 3,407
Goodwill ..................... 60,758 457 61,215
Investment in subsidiaries $ 13,171 486 - $ (13,657) -
Other assets ................. 1,058 - 1,058
-------- -------- ---------- ----------- ------------ ------------ ------------
Total assets ................. $ 13,171 $480,372 1,790 $ (14,223) $ 481,110
======== ======== ========== =========== ============ ============ ============
LIABILITIES AND
MEMBER'S INTEREST
Current liabilities:
Revolving credit
facility ................ $282,756 $ 282,756
Accounts payable ......... 47,206 $ 543 47,749
Accounts payable with
affiliates .............. 566 - $ (566) -
Accrued compensation
and benefits ............ 26,240 449 26,689
Accrued interest ......... 1,678 - 1,678
Other accrued
liabilities ............. 18,629 312 18,941
-------- -------- ---------- ----------- ------------ ------------ ------------
Total current liabilities .. 377,075 1,304 377,813
Long-term debt.............. 85,000 85,000
Accrued environmental
liabilities .............. 5,126 - 5,126
-------- -------- ---------- ----------- ------------ ------------ ------------
Total liabilities ............ 467,201 1,304 467,939
-------- -------- ---------- ----------- ------------ ------------ ------------
Member's interest ............ $ 13,171 $ 13,171 486 $ (13,657) $ 13,171
-------- -------- ---------- ----------- ------------ ------------ ------------
Total liabilities and
member's interest ........ $ 13,171 $480,372 $ 1,790 $ (14,223) $ 481,110
======== ======== ========== =========== ============ ============ ============
20
STATEMENT OF CASH FLOWS
SIX MONTH PERIOD ENDED JUNE 30, 2003
(IN THOUSANDS OF DOLLARS)
BLUE STEEL NON-
REPUBLIC CAPITAL GUARANTOR GUARANTOR
HOLDINGS REPUBLIC CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- -------- ---------- ------------ ------------ ------------ ------------
NET CASH USED IN OPERATING
ACTIVITIES....................... $ - $(10,175) $ (24) $ (10,199)
-------- -------- ---------- --------- ------------ ------------ ----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures.............. (1,844) (1,844)
-------- ---------- --------- ------------ ------------ -----------
NET CASH USED IN INVESTING
ACTIVITIES....................... - (1,844) - (1,844)
-------- -------- ---------- --------- ------------ ------------ -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net borrowings under revolving
credit facility.................. 14,378 14,378
Proceeds from long-term debt...... 5,000 5,000
Financing costs................... (2,164) (2,164)
-------- -------- ---------- --------- ------------ ------------ -----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES....................... - 17,214 - 17,214
-------- -------- ---------- --------- ------------ ------------ -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS............. 5,195 (24) 5,171
Cash and cash equivalents -
beginning of period.............. - 2,059 48 2,107
-------- -------- ---------- --------- ------------ ------------ -----------
Cash and cash equivalents - end
of period........................ $ - $ 7,254 24 $ 7,278
======== ======== ========== ========== ============ ------------ ===========
NOTE 14. NEW ACCOUNTING PRONOUNCEMENTS
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS No. 146 addresses issues
regarding the recognition, measurement and reporting of costs that are
associated with exit and disposal activities, including restructuring
activities. The scope of SFAS No. 146 includes (1) costs to terminate contracts
that are not capital leases; (2) costs to consolidate facilities or relocate
employees; and (3) termination benefits provided to employees who are
involuntarily terminated under the terms of a one-time benefit arrangement that
is not an ongoing benefit arrangement or an individual deferred-compensation
contract. The provisions of this Statement were effective for exit or disposal
activities initiated after December 31, 2002. There was no financial statement
implication related to the adoption of this statement by the Company effective
January 1, 2003.
In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, including Indirect
Guarantees of Indebtedness of Others, which addresses disclosures to be made by
a guarantor in its interim and annual financial statements about its obligations
under certain guarantees that it has issued. It also clarifies that a guarantor
is required to recognize, at the inception of a guarantee, a liability for the
fair value of the obligation undertaken in issuing the guarantee. The initial
recognition and initial measurement provisions of this Interpretation are
applicable on a prospective basis to guarantees issued or modified after
December 31, 2002, irrespective of the guarantor's fiscal year end. The
disclosure requirements are effective for financial statements for periods
ending after December 15, 2002. Refer to Note 13 for discussion of the Company's
guarantees.
21
In January 2003, the FASB issued Interpretation No. 46, Consolidation
of Variable Interest Entities, an interpretation of ARB No. 51. This
Interpretation addresses the consolidation by business enterprises of variable
interest entities as defined in the Interpretation. The Interpretation applies
immediately to variable interests in variable interest entities created after
January 31, 2003, and to variable interests in variable interest entities
obtained after January 31, 2003. For public companies with a variable interest
in a variable interest entity created before February 1, 2003, the
Interpretation applies to that company no later than the beginning of the first
interim or annual reporting period beginning after June 15, 2003. The
Interpretation requires certain disclosures in financial statements issued after
January 31, 2003 if it is reasonably possible that the company will consolidate
or disclose information about variable interest entities when the Interpretation
becomes effective. The application of this Interpretation does not have an
effect on the company's consolidated financial statements.
In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133
on Derivative Instruments and Hedging Activities, which amends and clarifies
accounting for derivative instruments and hedging activities under SFAS No. 133
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 149
provides guidance relating to decisions made (a) as part of the Derivatives
Implementation Group process, (b) in connection with other FASB projects dealing
with financial instruments and (c) regarding implementation issues raised in the
application of the definition of a derivative and the characteristics of a
derivative that contains financing components. SFAS No. 149 is effective for
contracts entered into or modified and for hedging relationships designated
after June 30, 2003. The application of this Statement is not expected to have a
material impact on the Company's consolidated financial statements.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments and Characteristics of both Liabilities and Equity, which
requires freestanding financial instruments such as mandatory redeemable shares,
forward purchase contracts and written put options to be reported as liabilities
by their issuers, as well as imposing related new disclosure requirements. The
provisions of SFAS No. 150 are effective for instruments entered into or
modified after May 31, 2003 and pre-existing instruments as of the beginning of
the first interim period that commences after June 15, 2003. The application of
this Statement is not expected to have a material effect on the Company's
consolidated financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
We are the largest domestic producer of special bar quality steel
products. Special bar quality steel 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. Special bar quality steel
products are sold to customers who require precise metallurgical content and
quality characteristics. Special bar quality steel products generally contain
more alloys, and sell for substantially higher prices, than merchant and
commodity steel bar and rod products. We produce a wide range of special bar
quality steel products and supply a diverse customer base that includes leading
automobile and industrial equipment manufacturers and their first tier
suppliers.
22
Our company commenced operations in August 2002 after it acquired a
substantial portion of the operating assets of Republic Technologies in a sale
of assets under Section 363 of the United States Bankruptcy Code. We selected
the assets and properties of Republic Technologies according to our management
team's plan to create a more efficient, higher quality network of production
facilities operated by a smaller and more flexible workforce. The assets and
properties we acquired represent the core operating assets associated with
Republic Technologies' steel melting and hot-rolled and cold-finishing
production. The acquired operating assets accounted for all of Republic
Technologies' steel melting capacity, over one-half of its hot-rolling capacity
and approximately two-thirds of its cold-finishing production capacity.
Specifically, we acquired Republic Technologies' melt shops at Canton and
Lorain, Ohio, its hot-rolling and processing mills at Canton and Lorain, Ohio
and Lackawanna, New York, its cold-finishing facilities at Massillon, Ohio and
Gary, Indiana (Dunes Highway) and certain assets at the machine shop in
Massillon, Ohio. We did not acquire Republic Technologies' idled melt shop at
Johnstown, Pennsylvania; its hot-rolling and processing mills at Massillon, Ohio
and Chicago, Illinois; or its cold-finishing facilities at Harvey, Illinois;
Gary, Indiana (Seventh Avenue); Beaver Falls, Pennsylvania; Willimantic,
Connecticut (idled); and Cartersville, Georgia. Republic Technologies'
Willimantic and Cartersville facilities previously had been sold to third
parties at the time we acquired the assets from Republic Technologies. We
believe the assets we acquired will enable us to better align our rolling
capabilities with our steel producing ability as compared to Republic
Technologies. We also acquired the following property: assets located on the
premises of Republic Technologies' corporate headquarters located in Akron,
Ohio; all permits used in the business in conjunction with the purchased assets;
all intellectual property used in connection with the business; certain
contracts; books, files and records used in the business; all inventory wherever
located; all accounts receivable; and an option to purchase the assets
associated with Republic Technologies' cold-finishing plant located in Hamilton,
Ontario on or prior to August 16, 2003 for nominal consideration and the
assumption of certain liabilities.
Our company hired approximately 2,350 of the approximately 3,700
employees of Republic Technologies. Of the approximately 2,350 employees we
hired, approximately 1,900 are hourly employees and approximately 450 are
salaried employees. We hired substantially all of the employees that had
previously been employed by Republic Technologies at the facilities that we
acquired. At these acquired facilities, we did not hire approximately 100
employees as a result of revised staffing levels, work eliminations and other
factors. We purchased a substantial part, but not all, of Republic Technologies'
facilities in Canton and Lorain, Ohio. Employees previously engaged by Republic
Technologies at the parts of the Canton and Lorain facilities that we did not
purchase were not hired.
We entered into a new labor agreement with the USWA, which covers most
of our hourly employees and has a five-year term. Compared to the labor
agreement between Republic Technologies and the USWA, our new labor agreement
reduces the number of employees and employment costs and provides us with
increased staffing flexibility to match our changing operating requirements. It
removes several significant items of fixed cost, which will permit improved
scheduling flexibility and eliminate legacy costs. Legacy costs that have been
eliminated consist of costs associated with non-employees, including retirees
and future retirees, under defined benefit retirement plans and retiree medical
and life insurance plans to which Republic Technologies contributed. These
plans, which had burdened the cash flow and balance sheet of Republic
Technologies, are not a part of the new labor agreement. We also expect the new
labor agreement to provide a better connection between the business plan
performance and variable compensation through the profit sharing plan and the
performance based incentive plan for unionized employees that are contemplated
under the new labor agreement. In addition, the
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new labor agreement will simplify labor administration, which we expect to
contribute to the success of our business.
The transaction eliminated significant liabilities that had been
associated with the business acquired from Republic Technologies, including $425
million in principal amount of Republic Technologies' 13 3/4% senior secured
notes, approximately $219.6 million of trade accounts payable, approximately
$134.7 million in revenue bonds and loans from governmental entities and
approximately $453.4 million of retiree pension and health benefits costs. We
purchased the assets free and clear of any liabilities pursuant to the order of
the Bankruptcy Court, except for those liabilities that we explicitly assumed
pursuant to the terms of the Asset Purchase Agreement. These assumed liabilities
include obligations under the contracts that we purchased from Republic
Technologies; up to $32.0 million of trade payables incurred by Republic
Technologies after it filed for bankruptcy protection; up to $2.6 million of
accrued freight, utilities and other miscellaneous current liabilities of
Republic Technologies; up to $3.6 million of taxes incurred by Republic
Technologies in the ordinary course of business after it filed for bankruptcy
protection; all liabilities arising after the closing of the acquisition from or
under the purchased assets; and certain environmental clean-up obligations of
Republic Technologies under a U.S. Environmental Protection Agency corrective
action order that may arise after the closing of the acquisition relating to
real property that we purchased at the Canton, Ohio facility. In addition, we
agreed to reimburse Republic Technologies for up to $29.5 million of wages,
withholding taxes, vacation benefits, management performance incentives, and
health insurance benefits incurred but not reported to the extent that these
liabilities had been accrued by Republic Technologies prior to the closing of
the transaction and are not otherwise covered by any insurance or welfare
benefit fund maintained by Republic Technologies.
We incurred significant indebtedness in connection with the
consummation of the acquisition, including $80.0 million aggregate principal
amount of the notes and borrowings of $301.9 million under our credit facility.
We also agreed to pay $5.0 million to the holders of Republic Technologies' 13
3/4 % senior notes under the terms of a transition service agreement with
Republic Technologies.
RESULTS OF OPERATIONS OF OUR COMPANY AND OUR PREDECESSOR
The historical consolidated financial information of Republic
Technologies and Republic Holdings may not be entirely comparable and may be of
limited value in evaluating our financial and operating results. The
consolidated results of operations for the three and six months ended June 30,
2003 are not necessarily indicative of the results to be expected for the full
year ended December 31, 2003.
Three Months ended June 30, 2003 compared with Three Months ended June 30, 2002
The following discussion provides a comparison of the results of
operations of our company and Republic Technologies for the three months ended
June 30, 2003 and 2002, respectively. The discussion is provided for comparative
purposes only, but the value of such a comparison may be limited.
Net sales for the three months ended June 30, 2003 totaled $194.5
million on shipments of approximately 376,790 net tons compared with net sales
of $252.6 million for the three months ended June 30, 2002 on shipments of
approximately 509,262 tons. Net sales for the three months ended June 30, 2003
were comprised of $160.9 million for hot-rolled and $33.6 million for
cold-finished, compared with hot-rolled net sales of $204.4 million and
cold-finished net sales of $48.2
24
million for the three months ended June 30, 2002. The decrease in net sales and
tons shipped reflects the elimination of hot-rolled bar and cold-finished bar
capacity resulting from the idling or sale of two rolling mills and four
cold-finished bar facilities. Weak service center market demand also contributed
to the decrease in shipments for the three months ended June 30, 2003.
Cost of sales totaled $177.5 million, or 91.3% of net sales, for the
three months ended June 30, 2003 compared with cost of sales of $240.0 million,
or 95.0% of net sales, for the similar period ended June 30, 2002. Cost of sales
for the three months ended June 30, 2003 consisted of $147.0 million on
hot-rolled products and $30.5 million on cold-finished products compared with
$190.0 million on hot-rolled products and $50.0 million on cold-finished
products for the three months ended June 30, 2002. The overall decrease in cost
of sales as a percentage of net sales for the three months ended June 30, 2003
compared to the three months ended June 30, 2002 was primarily due to the
increased utilization of production facilities and reduced labor costs
associated to our new labor contract implemented in August 2002. During the
three months ended June 30, 2003, the Company recorded a $5.0 million reduction
to cost of goods sold as a result of the partial reimbursement from a business
interruption and property insurance claim. This claim was filed due to the
unplanned outage and damage to the #3 blast furnace at the Lorain facility
during the first quarter of 2003. This damage also caused the Company to
experience an additional outage at the #3 blast furnace in June 2003. The
estimated costs related to the June outage which have been included in the
Company's cost of goods sold for the three months ended June 30, 2003 are
approximately $5.8 million. The Company's inventory standards were also updated
to reflect the current cost structure resulting in a $6.0 million increase in
inventory and a corresponding decrease in cost of goods sold. Due to the unusual
manufacturing activity in the first quarter caused by the outage of the #3 blast
furnace at the Lorain facility, the Company was unable to determine the amount
of the adjustment, if any, which should be applied to the first quarter of 2003.
Selling, general and administrative expenses were $10.0 million, or
5.1% of net sales, for the three months ended June 30, 2003 compared with $8.9
million, or 3.5% of net sales, for the three months ended June 30, 2002. The
selling, general and administrative expenses increased as a percentage of sales
due to a $1.1 million increase in insurance premium costs in the three months
ended June 30, 2003 as compared to the three months ended June 30, 2002.
Depreciation and amortization expenses were $2.4 million for the three
months ended June 30, 2003, compared with $14.2 million for the three months
ended June 30, 2002. The reduction in depreciation and amortization expense in
the current period is primarily a result of the change in basis of fixed assets
and intangible assets of Republic Technologies to the fair market value of fixed
assets acquired by Republic Holdings.
There were no special charges for the three months ended June 30, 2003,
compared with $4.8 million for the three months ended June 30, 2002. The charges
during the three months ended June 30, 2002 included $4.9 million in voluntary
early retirement buyouts. These charges also included $0.7 million in
supplemental unemployment benefits payments, salary terminations, and the health
insurance costs related to the shutdown of Republic Technologies' Johnstown,
Pennsylvania melt shop facility, Canton 12" rolling mill facility, and
Willimantic, Connecticut cold-finishing facility. A gain of $0.8 million as a
result of Republic Technologies' Willimantic plant sale and the reversal of a
substantial portion of Republic Technologies' related shutdown reserve offset
these charges.
Net interest expense was $6.0 million for the three months ended June
30, 2003 compared with $7.1 million for the three months ended June 30, 2002.
The decrease in net interest expense was primarily a result of the Company
maintaining a lower average balance in its revolving credit facility, as well as
lower interest rates in the three months ended June 30, 2003 as compared to the
Predecessor in the three months ended June 30, 2002.
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As a result of the above, the Company reported a net loss of $1.6
million for the three months ended June 30, 2003 compared with the Predecessor's
net loss of $20.1 million for the three months ended June 30, 2002.
Six Months ended June 30, 2003 compared with Six Months ended June 30, 2002
The following discussion provides a comparison of the results of
operations of our company and Republic Technologies for the six months ended
June 30, 2003 and 2002, respectively. The discussion is provided for comparative
purposes only, but the value of such a comparison may be limited.
Net sales for the six months ended June 30, 2003 totaled $396.0 million
on shipments of approximately 767,847 net tons compared with net sales of $508.8
million for the six months ended June 30, 2002 on shipments of approximately
1,317,927 tons. Net sales for the six months ended June 30, 2003 were comprised
of $329.6 million for hot-rolled and $66.4 million for cold-finished, compared
with hot-rolled net sales of $409.7 million and cold-finished net sales of $99.1
million for the six months ended June 30, 2002. The decrease in net sales and
tons shipped reflects the elimination of hot-rolled bar and cold-finished bar
capacity resulting from the idling or sale of two rolling mills and four
cold-finished bar facilities. Weak service center market demand also contributed
to the decrease in shipments for the six months ended June 30, 2003.
Cost of sales totaled $376.6 million, or 95.1% of net sales, for the
six months ended June 30, 2003 compared with cost of sales of $484.3 million, or
95.2% of net sales, for the similar period ended June 30, 2002. Cost of sales
for the six months ended June 30, 2003 consisted of $313.7 million on hot-rolled
products and $62.9 million on cold-finished products compared with $382.6
million on hot-rolled products and $101.7 million on cold-finished products for
the six months ended June 30, 2002. Cost of sales as a percentage of net sales
from the six months ended June 30, 2003 to the six months ended June 30, 2002
remained essentially unchanged. Increased natural gas and scrap prices and
unplanned outages at a Lorain, Ohio blast furnace resulting from property damage
offset the benefits of increased utilization of production facilities and
reduced labor costs associated to our new labor contract implemented in August
2002. During the six months ended June 30, 2003, the Company recorded a $5.0
million reduction to cost of goods sold as a result of the partial reimbursement
from a business interruption and property insurance claim. This claim was filed
due to the unplanned outage and damage to the #3 blast furnace at the Lorain
facility during the first quarter of 2003. This damage also caused the Company
to experience an additional outage at the #3 blast furnace in June 2003. The
estimated costs related to the June outage which have been included in the
Company's cost of goods sold for the six months ended June 30, 2003 are
approximately $5.8 million. The Company's inventory standards also were updated
to reflect the current cost structure resulting in a $6.0 million increase in
inventory and a corresponding decrease in cost of goods sold. Due to the
unusual manufacturing activity in the first quarter caused by the outage of the
#3 blast furnace at the Lorain facility, the Company was unable to determine the
amount of the adjustment, if any, which should be applied to the first quarter
of 2003.
Selling, general and administrative expenses were $19.9 million, or
5.0% of net sales, for the six months ended June 30, 2003 compared with $18.9
million, or 3.7% of net sales, for the six months ended June 30, 2002. The
selling, general and administrative expenses increased as a percentage of sales
primarily due to a $2.5 million increase in insurance premium costs in the six
months ended June 30, 2003 as compared to the six months ended June 30, 2002
offset by a reduction of salary wage costs of $1.9 million.
Depreciation and amortization expenses were $4.7 million for the six
months ended June 30, 2003, compared with $28.3 million for the six months ended
June 30, 2002. The reduction in
26
depreciation and amortization expense in the current period is primarily a
result of the change in basis of fixed assets and intangible assets of Republic
Technologies to the fair market value of fixed assets acquired by Republic
Holdings.
There were no special charges for the six months ended June 30, 2003,
compared with $9.5 million for the six months ended June 30, 2002. The charges
during the six months ended June 30, 2002 included $8.8 million in voluntary
early retirement buyouts. These charges also included $1.5 million in
supplemental unemployment benefits payments, salary terminations, and the health
insurance costs related to the shutdown of Republic Technologies' Johnstown,
Pennsylvania melt shop facility, Canton 12" rolling mill facility, and
Willimantic, Connecticut cold-finishing facility. A gain of $0.8 million as a
result of Republic Technologies' Willimantic plant sale and the reversal of a
substantial portion of Republic Technologies' related shutdown reserve offset
these charges.
Net interest expense was $11.4 million for the six months ended June
30, 2003 compared with $14.9 million for the six months ended June 30, 2002. The
decrease in net interest expense was primarily a result of the Company
maintaining a lower average balance in its revolving credit facility, as well as
lower interest rates in the six months ended June 30, 2003 as compared to the
Predecessor in the six months ended June 30, 2002.
As a result of the above, the Company reported a net loss of $18.0
million for the six months ended June 30, 2003 compared with the Predecessor's
net loss of $44.7 million for the six months ended June 30, 2002.
OUR LIQUIDITY AND CAPITAL RESOURCES
Going Concern Matters
The accompanying consolidated financial statements have been prepared
on a going concern basis of accounting and do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or
to amounts and classification of liabilities that may be necessary should the
Company be unable to continue as a going concern. The Company's liquidity
position has been negatively impacted by unplanned outages during January and
June of 2003 at the Lorain #3 blast furnace resulting from property damage, as
well as greater than expected increases in the cost of natural gas. The
Company's performance improved in the second quarter as compared to the first
quarter of 2003 despite sustaining the additional unplanned #3 blast furnace
outage in June 2003. However, the Company's overall performance for the first
half of 2003 was below expectations, negatively affecting liquidity. The
Company's net availability on its revolving credit facility at August 8, 2003
was $17.0 million. These factors raise substantial doubt about the Company's
ability to continue as a going concern and, therefore, the Company may be unable
to realize its assets and discharge its liabilities in the normal course of
business.
Management has sought to improve the Company's liquidity position by
taking a number of actions. The Company has reduced its planned capital
expenditures from $20 million to $6 million for 2003. Additional financing of
$5.0 million was obtained from the State of Ohio (Note 5). The Company sought
reimbursement from business interruption and property insurance due to damage
incurred to the #3 blast furnace at the Lorain facility. In July 2003, the
insurance company issued a partial payment of $5.0 million against this claim.
Accordingly, the Company included a receivable of $5.0 million and a
corresponding reduction to operating costs in its June
27
30, 2003 financial statements. Also, on May 15, 2003, the Company obtained an
extension of the contractual reductions in borrowing capacity under its senior
revolving credit facility (See Note 5). Notwithstanding these efforts, the
Company may need to obtain additional financing to meet its cash flow
requirements, including financing through the sale of additional debt or equity
securities. In light of the Company's liquidity, its ability to raise additional
capital is negatively impacted. Restrictive covenants included in the revolving
credit facility and senior secured notes limit the Company's ability to incur
additional indebtedness or sell assets (all of which are pledged), and may
otherwise limit the operational and financial flexibility of the Company.
Liquidity
Our company's sources of liquidity include cash and cash equivalents,
cash from operations and amounts available under our credit facility. Our
primary liquidity needs relate to working capital and capital expenditures.
Capital Expenditures
Republic invested $1.8 million in capital expenditures during the six
months ended June 30, 2003 and Republic Technologies invested $4.1 million in
capital expenditures during the six months ended June 30, 2002. The Company's
current planned capital expenditures for 2003 are $6.0 million, and are expected
to be funded using cash from operations, borrowings under the credit facility,
and borrowing under loans from the State of Ohio. Capital expenditures are
limited under our credit facility to $9.0 million in 2003 and $20.0 million
thereafter.
Debt Service Requirements
We incurred an aggregate of $381.9 million of debt obligations in
connection with the acquisition of the assets of Republic Technologies,
including $301.9 million of borrowings under our credit facility and the
issuance of $80.0 million of notes. We have significant debt repayment
obligations under our credit facility and our notes.
We entered into a credit facility with Fleet Capital Corporation and
other lenders on August 16, 2002. Prior to the amendment discussed below, our
credit facility consisted of a senior revolving credit facility with a
commitment of up to $336.0 million. We borrowed a total of $301.9 million upon
the closing of the acquisition transaction and immediately paid down the
outstanding amount to $269.7 million. At June 30, 2003, we had $282.8 million
outstanding under the credit facility. Under the original facility, the total
commitment of $336.0 million was to automatically reduce by $5.0 million on the
first day of each quarter commencing the fiscal quarter that begins on July 1,
2003 until such time as the total commitment was reduced to $275.0 million. We
are entitled to draw amounts under the credit facility to finance working
capital and capital expenditures and for other general corporate purposes.
Our borrowings under our credit facility are secured by a first
priority perfected security interest in the capital stock and other equity
interests of each direct and indirect subsidiary of Republic Holdings, other
than 2011448 Ontario Limited, which collateral also secures our senior secured
notes on an equal and ratable basis, and all presently owned and subsequently
acquired inventory, accounts, intellectual property and related assets of
Republic and the guarantors (other than Republic Holdings) and the real estate
and fixed assets comprising, and the intellectual property relating to, our
Canton, Ohio Caster and Continuing Rolling Facility ("Canton CR(TM)"). The
obligations under the credit facility are secured and are unconditionally and
irrevocably guaranteed jointly and severally by Republic Holdings and each of
Republic's subsidiaries other
28
than 2011448 Ontario Limited. Republic Holdings' guarantee is limited in
recourse to all of Republic's membership interests owned by Republic Holdings,
which have been pledged to secure the guarantee.
Borrowings under the credit facility bear interest, at our option, at
either a base rate equal to the higher of the "prime rate" announced from time
to time by Fleet National Bank at its office in Boston, Massachusetts or the
weighted average of rates on overnight federal funds transactions with members
of the Federal Reserve System arranged by federal funds brokers, plus the
applicable margin; or a Eurodollar rate on deposits for one, two, three or six
month periods, plus the applicable margin. The applicable margin on base rate
loans initially is 1.25% and on Eurodollar loans is 3.00%. The amendment to our
credit facility discussed below increased these applicable margins by 1.0% each.
The applicable margin on base rate and Eurodollar loans may be reduced to as low
as 0.25% and 2.00%, respectively, if we achieve specified reduced leverage
ratios. As of June 30, 2003, borrowings under the credit facility are accruing
interest at the rate of 6.25% per year for base rate loans and 5.21% per year
for Eurodollar loans.
Our credit facility contains negative covenants and provisions that
restrict, among other things, our ability to incur additional indebtedness or
guarantee the obligations of others, grant liens, make investments, pay
dividends, repurchase stock or make other forms of restricted payments, merge,
consolidate and acquire assets or stock, engage in sale and leaseback
transactions or dispose of assets, make capital expenditures in excess of
specified annual amounts, engage in transactions with our affiliates, and prepay
or amend our senior secured notes. The credit facility also requires us and our
subsidiaries to meet financial covenants and ratios, particularly a minimum
fixed charge coverage ratio based on operating cash flow to total debt service
to be tested quarterly commencing on March 31, 2004.
On May 15, 2003, our credit facility was amended. Under the terms of
the amendment, the maturity date was accelerated to June 30, 2006 and the total
commitment was reduced to $315.0 million with the total commitment being reduced
by $5.0 million on the first day of each fiscal quarter, commencing with the
fiscal quarter beginning January 1, 2004 until the total commitment is reduced
to $275.0 million. Consistent with the original credit facility, availability
under the amended credit facility is limited to a borrowing base, however, the
components of the borrowing base have been amended to delay the June 30, 2003
reduction of the advance rate for eligible inventory from 70% of the net book
value to 60% until January 1, 2004. In addition, the reduction in the eligible
fixed asset component of the borrowing base originally scheduled to occur on
July 1, 2003 has been restructured so that the reduction occurs ratably over a
twelve-month period ending June 29, 2004. The amount available under the credit
facility was approximately $17.0 million on August 8, 2003. Finally, the
amendment requires us to maintain minimum cumulative EBITDA (as defined in the
amendment) levels and limits the amount of capital expenditures the Company may
incur to $9 million in 2003 and $20 million thereafter.
We issued $80.0 million aggregate principal amount of our notes to
Republic Technologies as partial consideration for the assets acquired. Republic
Technologies directed our company to issue the notes to the Republic Liquidating
Trust, a trust established by Republic Technologies for the benefit of the
holders of Republic Technologies' 13 3/4% senior secured notes. Interest on the
notes accrues at the rate of 10% per annum and is payable quarterly in cash on
each March 31, June 30, September 30, and December 31, commencing September 30,
2002.
Our notes were issued under an indenture dated as of August 16, 2002
among Republic and Blue Steel Capital Corp., as issuers, N&T Railway Company LLC
and Blue Bar, L.P., as guarantors, and LaSalle Bank National Association, as
trustee. As described in Note 12, the
29
indenture was amended pursuant to the First Supplemental Indenture among
Republic, Blue Steel Capital Corp., N&T Railway Company LLC, Republic Holdings
and LaSalle Bank National Association. The indenture governing the notes
requires us to redeem the notes with certain proceeds from asset sales of any
collateral that secures the notes and contains significant affirmative and
negative covenants including separate provisions imposing restrictions on
additional borrowings, certain investments, certain payments, sale or disposal
of assets, payment of dividends and change of control provisions, in each case,
subject to certain exceptions. The notes are secured, subject to exceptions and
limitations, by (1) a first priority lien on, and security interest in,
substantially all of the existing assets of Republic and its subsidiaries other
than the Canton CR(TM) facility, inventory, accounts receivable and intellectual
property and related assets, and (2) a first priority interest in the capital
stock and other equity interests of each direct and indirect subsidiary of
Republic Holdings, other than 2011448 Ontario Limited. Each of Republic Holdings
and N&T Railway Company LLC has jointly and severally guaranteed the notes on a
senior secured basis, and each guarantee is full and unconditional. 2011448
Ontario Limited does not currently guarantee the notes, but it must become a
guarantor of the notes in order to exercise its option to acquire the assets and
properties associated with the Hamilton, Ontario cold-finishing plant owned by
Canadian Drawn Steel Company, Inc., a subsidiary of Republic Technologies. Any
domestic subsidiary that Republic may form or acquire in the future will
guarantee the notes on a joint and several and full and unconditional basis.
On June 6, 2003, the Company obtained a $5.0 million loan from the Ohio
Department of Development. This loan is secured by the 20" mill at the Lorain
facility and accrues interest at the rate of 3% per annum payable on the first
day of each calendar month until the loan matures in July 2008.
Tax Distributions
Republic is a limited liability company treated as a partnership for
income tax purposes and, accordingly, is not an income tax-paying entity.
Republic Holdings is also a limited liability company and therefore is also not
an income tax-paying entity. Pursuant to the amended and restated limited
liability company agreement of Republic Holdings, we are required to make cash
distributions to our members to the extent necessary to satisfy tax obligations
regarding their investment in our company. To the extent that Republic Holdings
is required to make tax distributions to its members, Republic will be required
to make equivalent cash distributions to its parent company, Republic Holdings.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements, in conformity with accounting
principles generally accepted in the United States of America, requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Accounting estimates are an integral part
of the financial statements prepared by management and are based on management's
current judgments. Those judgments are based on knowledge and experience about
past and current events and on assumptions about future events.
We believe the following to be our critical accounting policies because
they are both important to the portrayal of our financial condition and results
of operations and they require critical management judgments and estimates about
matters that are uncertain. If actual results or events differ materially from
those contemplated by us in making these estimates, our report of operations for
future periods could be materially affected.
30
Acquisition
We are required to allocate the purchase price of the acquisition of
assets from Republic Technologies to the tangible and intangible assets acquired
and liabilities assumed based on their estimated fair values. We engaged a
third-party appraisal firm to assist us in determining the fair values of the
property, plant and equipment acquired. Such valuations and the determination of
the fair values of other tangible and intangible assets acquired and liabilities
assumed require management to make significant estimates and assumptions. Our
assessment of the purchased intangible assets, including the option to purchase
the assets and properties associated with Republic Technologies' Hamilton,
Ontario cold-finishing facility as well as patented and unpatented technology,
customer contracts and trademarks, is that they have no fair value separate from
goodwill. If the option to acquire the Canadian Drawn Steel Company is
exercised, goodwill will be adjusted based on the fair market value of the
assets acquired.
Revenue Recognition
Sales are recognized upon shipment where there is a contract or
purchase order, the sales price is fixed or determinable and collectability of
the resulting receivable is reasonably assured. Sales are made with no rights to
return product, other than for defective materials. Reserves for rebates,
relating to marketing programs entered into with our customers, are recorded as
direct reductions of revenue and accounts receivable based on the terms of the
customer contracts. A claims reserve is also established for returns of
defective materials. This reserve is recorded as a percentage of sales based on
historical experience. The adequacy of reserve estimates are periodically
reviewed by comparison to actual experience. Rebates, claims and other sales
allowances in any future period could differ from our estimates, which would
impact the net revenue we report.
Allowances for Doubtful Accounts
We evaluate the collectability of our receivables based on a
combination of factors. We regularly analyze our significant customer accounts,
and, when we become aware of a specific customer's inability to meet its
financial obligations to us, such as in the case of bankruptcy filings or
deterioration in the customer's operating results or financial position, we
record a specific reserve for bad debts to reduce the related receivable to the
amount we reasonably believe is collectible. We also record reserves for bad
debts for all other customers based on a variety of factors including the length
of time the receivables are past due, the financial health of the customer and
historical experience. If circumstances related to specific customers change,
our estimates of the recoverability of receivables could be further adjusted.
Inventories
Our company establishes obsolescence reserves for slow-moving and
inactive inventories. Obsolescence reserves reduce the carrying value of
slow-moving and inactive inventories to their estimated net realizable value,
which generally approximates the recoverable scrap value. Our company also
periodically evaluates its inventory carrying value to ensure that the amounts
are stated at the lower of cost or market. Our company values its inventory at
the lower of cost or market applied on a first-in, first-out (FIFO) method for
finished and semi-finished goods, and a weighted-average method for raw
materials. Inventory standards are set based on this methodology and
periodically reviewed to verify that the standards approximate actual costs. If
actual market conditions are less favorable than those projected by management,
additional inventory write-downs may be required.
31
Goodwill
Goodwill has arisen from the acquisition of a substantial portion of
the operating assets of Republic Technologies. Goodwill is not amortized, but is
periodically reviewed for impairment. Our company is required to test goodwill
for impairment on an annual basis and whenever changes in circumstances indicate
that the carrying amount of goodwill may be impaired. Impairment charges are
recorded, if necessary, based on management's review and analysis of the
estimated fair value as compared to the carrying amount of goodwill. The Company
intends to use July 1 (first day of the third quarter) as its annual measurement
date. If our company's anticipated operating results or economic outlook
declines, our assessment of the carrying amount of goodwill may change.
Impairment of Long-Lived Assets
We evaluate long-lived assets used in operations, consisting of
property, plant and equipment and intangible assets, when indicators of
impairment, such as reductions in demand or significant economic factors are
present. A review is performed to determine whether the carrying value of an
asset is impaired based on a comparison to the undiscounted estimated future
cash flows from the asset. If the comparison indicates that there is impairment,
the impaired asset is written down to fair value, which is typically calculated
using estimated future cash flows and a discount rate based upon our weighted
average cost of capital. Impairment is based on the excess of the carrying
amount over the fair value of those assets. Significant management judgment is
required in the forecast of future operating results that is used in the
preparation of discounted estimated future cash flows. It is reasonably
foreseeable that actual future net revenues and the remaining estimated economic
life of the assets could differ from the estimates used to assess the
recoverability of these assets. In that event, additional impairment charges or
shortened useful lives of certain long-lived assets could be required.
Environmental Costs
Our company and other steel companies have in recent years become
subject to increasingly stringent environmental laws and regulations. It is the
policy of our company to endeavor to comply with applicable environmental laws
and regulations. Our company established a liability for an amount which
management believes is adequate, based on information currently available, to
cover costs of remedial actions it will likely be required to take to comply
with existing environmental laws and regulations.
The recorded amounts represent an estimate of the environmental
remediation costs associated with future events triggering or confirming the
costs that, in management's judgment, are likely to occur. This estimate is
based on currently available facts, existing technology, and presently enacted
laws and regulations, and it takes into consideration the likely effects of
inflation and other societal and economic factors. The precise timing of such
events cannot be reliably determined at this time due to the absence of any
deadlines for remediation under the applicable environmental laws and
regulations pursuant to which such remediation costs will be expended. No claims
for recovery are netted against the stated amount. It is reasonably possible
that actual future environmental costs could differ from the estimates used to
establish our recorded liability. Additional liabilities may be recorded if this
situation arises.
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FORWARD LOOKING STATEMENTS
All statements other than statements of historical fact included in
this report, including statements under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Quantitative and Qualitative
Disclosures About Market Risk," regarding our future financial position, results
of operations, business strategy, budgets, projected costs and plans and
objectives for future operations, are forward-looking statements. In addition,
these forward-looking statements generally can be identified by the use of
forward-looking terms such as "may," "will," "expect," "intend," "estimate,"
"anticipate," "foresee," "project," "plan" or "believe" or the negative of these
words or variations on these words or similar phrases. We have based these
forward-looking statements on our current assumptions, expectations and
projections about future events, which are subject to risks and uncertainties.
We caution you that a variety of factors could cause business conditions and
results to differ materially from what is contained in the forward-looking
statements, including the following:
- We are a new enterprise, and the financial information regarding
our predecessor's business may be limited and may not be fully
comparable.
- Delays and disruptions in the implementation of our business plan
will reduce cash flow and may harm customer relationships.
- If we are unable to obtain or maintain quality certifications for
our facilities, we may lose existing customers and be hampered in
our efforts to attract new customers.
- We operate only in the steel industry, and we are substantially
dependent upon the automotive industry; both these industries are
cyclical in nature, and continue to be adversely affected by
general economic conditions, weak demand, foreign competition,
lack of consumer confidence and other factors beyond our control.
- The continued operation of our Lackawanna, New York facility
depends upon our ability to finalize an agreement continuing a
complex interrelationship of shared systems, equipment and rights.
- Our environmental compliance costs could be greater than presently
anticipated.
- Raw materials and energy costs continue to be volatile, and higher
costs often cannot be recaptured through price surcharges to our
customers.
- Our credit facility and indenture impose significant operating and
financial restrictions.
Ownership of our notes is subject to risks relating to our ability to
service our debt, possibly inadequate collateral and priority in any bankruptcy,
lack of liquidity and other risks.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our interest expense is sensitive to changes in the general level of
interest rates in the United States. At June 30, 2003, we had $80.0 million
aggregate principal amount of the notes outstanding, $5.0 million outstanding
principal to the Ohio Department of Development, and $282.8 million outstanding
under our credit facility. Our notes bear interest at a fixed rate of 10%
33
per year, our loan from the Ohio Department of Development bears interest at a
fixed rate of 3% per year, and the interest rate on borrowings under our credit
facility may vary. As a result, our primary exposure to market risks for changes
in interest rates relates to our credit facility. Borrowings under the credit
facility bear interest, at our option, at either (1) a base rate equal to the
higher of the "prime rate" announced from time to time by Fleet National Bank at
its office in Boston, Massachusetts or the weighted average of rates on
overnight federal funds transactions with members of the Federal Reserve System
arranged by federal funds brokers, plus the applicable margin; or (2) a
Eurodollar rate on deposits for one, two, three or six month periods, plus the
applicable margin, as discussed in Note 5. As of June 30, 2003, borrowings under
the credit facility are accruing interest at the rate of 6.25% per year for base
rate loans and 5.21% per year for Eurodollar loans.
Almost all of our transactions are denominated in U.S. dollars, and, as
a result, we do not have material exposure to currency exchange-rate risks.
We do not currently engage in any interest rate, foreign currency
exchange rate or commodity price-hedging transactions, although we may do so in
the future.
ITEM 4. CONTROLS AND PROCEDURES
Based on their most recent evaluation, which was completed within 90
days of the filing of this Form 10-Q, the Company's President and Chief
Executive Officer and Chief Financial Officer believe the Company's disclosure
controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) are
effective in timely alerting the Company's management to material information
required to be included in this Form 10-Q and other filings under the Securities
Exchange Act of 1934.
There were no significant changes in the Company's internal controls or
other factors that could significantly affect these controls subsequent to the
date of their evaluation and there were no significant deficiencies or material
weaknesses that required corrective actions.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We 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 these matters will not materially affect our consolidated
financial position, results of operations or cash flows.
In connection with the closing of the asset purchase transaction with
Republic Technologies, the USWA took the position that our new labor agreement
did not apply to the unionized employees employed by Canadian Drawn Steel
Company, Inc., a Canadian subsidiary of Republic Technologies. In light of the
USWA's position and rather than delay consummation of the entire transaction,
the parties negotiated the first amendment to the Asset Purchase Agreement,
which, among various other matters, included the inventory and receivables of
Canadian Drawn Steel in the assets we acquired and gave us a one-year option to
purchase the other assets of Canadian Drawn Steel for nominal additional
consideration, without adjustment to the overall purchase price. Under the
option, if the business of Canadian Drawn Steel is sold to a third party,
Republic Technologies will pay the net proceeds of that sale to us.
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On August 30, 2002, the USWA filed a motion with the Bankruptcy Court
seeking to compel the sale to our company of substantially all of the assets of
Canadian Drawn Steel. On September 17, 2002, we and Republic Technologies filed
separate objections to the USWA's motion, asserting, among other things, that
the USWA had breached the agreement with Republic Technologies with respect to
the unionized employees of Canadian Drawn Steel and was attempting to force our
company to assume additional liabilities for legacy costs which we did not agree
to assume under the Asset Purchase Agreement. In addition, Republic Technologies
asserted various procedural defenses against the USWA and we objected to several
of the factual assumptions underlying the USWA's proposed orders.
The USWA withdrew its motion described above and on October 21, 2002
filed a complaint with the Bankruptcy Court seeking similar relief as in the
motion. The complaint alleged, among other things, that by our company not
purchasing substantially all of the assets of Canadian Drawn Steel, (i) Republic
Technologies breached a shutdown agreement with the USWA, (ii) our company
breached a letter agreement with the USWA, (iii) our company breached the Asset
Purchase Agreement and (iv) our company and Republic Technologies violated an
order of the Bankruptcy Court which approved the sale of assets by Republic
Technologies to our company. In the complaint, the USWA requests the Bankruptcy
Court to compel the sale to our company of substantially all of the assets of
Canadian Drawn Steel. On December 4, 2002, we and Republic Technologies filed
separate answers to the USWA's complaint in which we and Republic Technologies
denied the principal allegations of the USWA and asserted various defenses and
counterclaims. Our company expects to vigorously pursue this litigation.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
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
A report on Form 8-K was filed on July 14, 2003 by the Company
announcing the appointment of the accounting firm of KPMG LLP
as independent accountants to audit its fiscal 2003 financial
statements and the dismissal of Deloitte & Touche LLP, its
previous accountants.
35
(b) Exhibits
31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
for Joseph F. Lapinsky, Chief Executive Officer and Managing Director
of Republic Engineered Products Holdings LLC
31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
for Joseph A. Kaczka, Chief Financial Officer, Vice President, Finance
and Controller and Treasurer of Republic Engineered Products Holdings
LLC
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 for Joseph F.
Lapinsky, Chief Executive Officer and Managing Director of Republic
Engineered Products Holdings LLC
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 for Joseph A. Kaczka,
Chief Financial Officer, Vice President, Finance and Controller and
Treasurer of Republic Engineered Products Holdings LLC
10.15 Loan agreement between the Director of Development of the State of Ohio
and Republic Engineered Products LLC dated as of March 20, 2003
10.16 Amendment and Limited Waiver to Revolving Credit Agreement, dated as of
May 15, 2003, by and among (a) Republic Engineered Products LLC, a
Delaware limited liability company, (b) Republic Engineered Products
Holdings LLC (as successor in interest to Blue Bar, L.P.), a Delaware
limited liability company, (c) Blue Steel Capital Corp., a Delaware
corporation, and N&T Railway Company LLC, a Delaware limited liability
company, (d) Fleet Capital Corporation ("Fleet"), Bank of America, N.A.
("BofA"), JP Morgan Chase Bank ("Chase"), Foothill Capital Corporation
("Foothill"), GE Capital CFE, Inc. ("GE") and the other lending
institutions (the "Lenders"), (e) Fleet as Administrative Agent for
itself and the Lenders, and (f) Fleet, BofA, Chase, Foothill and GE as
Co-Agents for the Lenders.
36
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 ENGINEERED PRODUCTS HOLDINGS LLC AND SUBSIDIARIES
Date: August 12, 2003 By: /s/Joseph F. Lapinsky
--------------------------------------------
Joseph F. Lapinsky
President, Chief Executive Officer and
Managing Director
Date: August 12, 2003 By: /s/Joseph A. Kaczka
--------------------------------------------
Joseph A. Kaczka
Chief Financial Officer, Vice President, Finance
and Controller, Treasurer and Secretary
37