10-Q 1 a2025596z10-q.txt FORM 10-Q PAGE 1 -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 31, 2000. ----------------- or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 333-48245 -------------------- RENCO STEEL HOLDINGS, INC. (Exact name of registrant as specified in its charter) Ohio 34-1854775 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1040 Pine Ave., S.E., Warren, Ohio 44483-6528 (Address of principal executive offices) (Zip Code) (330) 399-6884 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [ ] Yes [X] No As of September 14, 2000, the registrant had 100 shares of its common stock, no par value, $.01 stated value, outstanding. -------------------------------------------------------------------------------- PAGE 2 RENCO STEEL HOLDINGS, INC. AND SUBSIDIARIES INDEX --------------------------------

~~April~~Page ~~30, Oct~~No. ~~31, 2000 1999~~ --------- PART I FINANCIAL INFORMATION --------- (Unaudited) ASSETS Current assets Cash and cash equivalents ...................... $ 9,570 $ 3,830 Restricted cash and cash equivalents ........... 90,406 76,174 Other investments .............................. 7,071 10,238 Accounts receivable, less allowances ........... 61,397 57,846 Inventories .................................... 87,876 84,174 Prepaid expenses ............................... 2,815 6,236 --------- --------------- ~~Total~~Item ~~current assets~~ 1.~~......................~~ ~~259,135~~FINANCIAL ~~238,498~~STATEMENTS ~~Property,~~OF ~~plant~~RENCO ~~and~~STEEL ~~equipment~~HOLDINGS, ~~net~~ INC.~~..............~~ ~~247,702~~Condensed ~~254,416~~Consolidated ~~Excess~~Balance ofSheets ~~cost~~as ~~over~~of ~~acquired~~July ~~net assets~~31, ~~net~~2000 ~~.....~~and ~~11,627~~October 1131,~~898~~ ~~Intangible~~1999. ~~pension~~3 ~~assets,~~Condensed ~~net~~Consolidated ~~...................~~Statements ~~25,159~~of ~~28,192~~Operations ~~Other~~for ~~assets,~~the ~~net~~three ~~................................~~and ~~21,765~~nine ~~18,749~~months ~~---------~~ended ~~---------~~July ~~Total~~31, ~~assets~~2000 and 1999.~~........................~~ $4 ~~565,388~~Condensed $Consolidated ~~551,753~~Statements ~~=========~~of ~~=========~~Cash ~~LIABILITIES~~Flows ~~and~~for ~~SHAREHOLDER'S~~the ~~DEFICIT~~nine ~~Current~~months ~~liabilities~~ended ~~Current~~July ~~portion~~31, of2000 ~~long-term~~and ~~debt~~ 1999.~~.............~~ $5 ~~125~~Notes $to ~~122~~Condensed ~~Accounts~~Consolidated ~~payable~~Financial Statements.~~..............................~~ ~~53,371~~6 ~~59,730~~FINANCIAL ~~Accrued~~STATEMENTS ~~liabilities~~OF ~~............................~~WCI 57STEEL,~~506~~ ~~51,916~~INC. ~~---------~~Condensed ~~---------~~Consolidated ~~Total~~Balance ~~current~~Sheets ~~liabilities~~as ~~..................~~of ~~111,002~~July ~~111~~31,~~768~~ ~~Long-term~~2000 ~~debt,~~and ~~excluding~~October ~~current~~31, ~~portion~~ 1999.~~.......~~ ~~421,022~~10 ~~421,054~~Condensed ~~Postretirement~~Consolidated ~~health~~Statements ~~care~~of ~~benefits~~Income ~~..............~~for ~~105,562~~the ~~100,301~~three ~~Pension~~months ~~benefits~~and ~~.................................~~nine ~~38,421~~months ~~38,709~~ended ~~Other~~July ~~liabilities ................................ 14~~31,~~386~~ ~~13,738~~2000 ~~---------~~and ~~---------~~1999. ~~Total~~11 ~~liabilities~~Condensed ~~....................~~Consolidated ~~690,393~~Statements ~~685,570~~of ~~---------~~Cash ~~---------~~Flows ~~Shareholder's~~for ~~deficit~~the ~~Common~~nine ~~stock,~~months noended ~~par~~July ~~value~~31, ~~stated~~2000 ~~value~~and $1999.01 ~~per~~12 ~~share,~~Notes ~~850~~to ~~shares~~Condensed ~~authorized,~~Consolidated ~~100~~Financial ~~shares~~Statements. ~~issued~~13 ~~and~~Item ~~outstanding~~ 2.~~...........~~ --Management's --Discussion ~~Additional~~and ~~paid-in~~Analysis ~~capital~~of ~~.....................~~Financial ~~280~~Condition ~~280~~and ~~Accumulated~~Results ~~deficit~~of ~~............................~~Operations ~~(125,285)~~16 ~~(134,097)~~PART ~~---------~~II OTHER INFORMATION --------- ~~Total shareholder's deficit .......... (125,005) (133,817) Commitments and contingencies ....................~~ -- -- --------- --------- ~~Total~~Item ~~liabilities~~1. ~~and~~Legal ~~shareholder's~~Proceedings ~~deficit~~21 Item 6.~~.............~~ $Exhibits ~~565,388~~and $Reports ~~551,753~~on ~~=========~~Form ~~=========~~8-K 21 Signatures 22 Exhibit Index 23

PAGE 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS RENCO STEEL HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share amounts)

~~Three~~July ~~months Six months ended April 30~~31, ~~ended~~Oct. ~~April 30~~31, 2000 1999 ~~2000 1999~~ ---------------------- --~~--------------------~~ ~~Net~~(Unaudited) ~~sales~~ASSETS Current assets Cash and cash equivalents ......................~~...~~ $ ~~156~~7,~~149~~649 $ ~~139~~3,~~115~~830 $Restricted ~~297,361~~cash $and ~~249,392~~cash ~~Operating~~equivalents ~~costs~~........... ~~and~~88,859 ~~expenses~~76,174 ~~Cost~~Other ofinvestments ~~products sold~~ .............................. ~~131~~7,~~137~~293 ~~121~~10,~~787~~238 ~~250,245~~Accounts ~~223~~receivable,~~583~~ ~~Depreciation~~less ~~and~~allowances ~~amortization~~ ........... 652,~~703~~926 657,~~732~~846 ~~13,448~~Inventories 13.................................... 94,~~436~~504 ~~Selling~~84,174 ~~general~~Prepaid ~~and administrative~~ expenses ............................... ~~4,261~~306 ~~3,549 8,609~~ 6,~~850~~236 --------- --------- ~~---------~~Total ~~---------~~current ~~142~~assets ....................... 251,~~101~~537 ~~132~~238,~~068~~498 ~~272~~Property,~~302~~ ~~243~~plant and equipment,~~869~~ ~~---------~~net ~~---------~~............... ~~---------~~248,097 ~~---------~~254,416 ~~Operating~~Excess ~~income~~of cost over acquired net assets, net ..... 11,492 11,898 Intangible pension assets, net ................... 1423,~~048~~643 728,~~047~~192 25Other assets,~~059~~ 5net ................................ 20,~~523~~678 18,749 --------- --------- Total assets ......................... $ 555,447 $ 551,753 ========= ========= LIABILITIES and SHAREHOLDER'S DEFICIT Current liabilities Current portion of long-term debt .............. $ 127 $ 122 Accounts payable ............................... 52,060 59,730 Accrued liabilities ............................ 51,516 51,916 --------- --------- ~~Other~~Total ~~income~~current ~~(expense)~~liabilities ~~Interest expense~~ .................. ~~(11~~103,~~395)~~703 ~~(11~~111,~~419)~~768 ~~(22~~Long-term debt,~~804)~~ ~~(22~~excluding current portion ........ 421,~~833)~~006 ~~Interest~~421,054 ~~investment~~Postretirement ~~and~~health ~~other~~care ~~income~~benefits .............. 109,133 ~~net~~100,301 Pension benefits ................................. 136,~~365~~808 238,~~243~~709 6Other liabilities ................................ 14,~~557~~565 413,~~210~~738 --------- --------- Total liabilities .................... 685,215 685,570 --------- --------- ~~(10~~Shareholder's deficit Common stock,~~030)~~ (9no par value,~~176)~~ ~~(16~~stated value $.01 per share,~~247)~~ ~~(18~~850 shares authorized,~~623)~~ 100 shares issued and outstanding ............ -- --~~-----~~ Additional paid-~~--------~~in capital ..................... 280 280 Accumulated deficit ............................ (130,048) (134,097) --------- --------- ~~Income~~Total ~~(loss)~~shareholder's ~~before~~deficit ~~income taxes~~ .......... ~~4,018~~ (2,129,768) ~~8,812~~ (13133,~~100~~817) ~~Income~~Commitments ~~tax~~and ~~benefit~~contingencies .................... -- -- -- ~~(21,477)~~ --------- --------- ~~---------~~Total ~~---------~~liabilities ~~Net~~and ~~income~~shareholder's ~~(loss)~~deficit ............... $ 4555,~~018~~447 $ (2551,~~129)~~753 ~~$ 8,812 $ 8,377~~ ========= ========= ~~========= =========~~

The accompanying notes are an integral part of these condensed consolidated financial statements. PAGE 4 RENCO STEEL HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands) (Unaudited)

~~Six~~Three months Nine months ended ~~April~~July 3031, ended July 31, 2000 1999 2000 1999 ---------------------- ---------------------- ~~Cash flows from operating activities:~~ Net ~~income~~sales ........................~~...............~~ $ 8140,~~812~~726 $ 8143,~~377~~086 ~~Adjustments~~$ to438,087 ~~reconcile~~$ ~~net~~392,478 ~~income~~Operating tocosts ~~net~~and ~~cash~~expenses ~~provided~~Cost byof ~~operating~~products ~~activities~~sold ~~Depreciation and amortization~~ ...........~~...~~ 11122,~~980~~185 11119,~~971~~329 ~~Amortization~~372,430 of342,912 ~~deferred~~Depreciation ~~maintenance~~and ~~costs~~amortization ... 16,~~468~~738 16,~~465~~756 ~~Amortization~~20,186 of20,192 ~~financing~~Selling, ~~costs~~general ~~............~~and ~~948~~administrative ~~948~~expenses ~~Postretirement health care benefits~~ ........ 54,~~261~~074 34,~~321~~105 ~~Pension benefits ........................... 3~~12,~~961~~684 (110,~~788)~~955 ~~Deferred~~--------- ~~income~~--------- ~~taxes~~--------- ~~......................~~--------- ~~(243)~~132,997 ~~(21~~130,~~677)~~190 ~~Gain~~405,300 on374,059 ~~other~~--------- ~~investments~~--------- ~~..................~~--------- ~~(1,584)~~--------- ~~(2,724)~~Operating ~~Other~~income .................~~.....................~~ 17,~~105~~729 5412,896 ~~Cash~~32,787 ~~provided~~18,419 ~~(used)~~--------- by--------- ~~changes~~--------- in--------- ~~certain~~Other ~~assets~~income ~~and~~(expense) ~~liabilities~~Interest ~~Accounts~~expense ~~receivable~~ ................~~........~~ (311,~~551~~395) (411,~~997~~445) ~~Inventories ................................~~ (334,~~702~~200) ~~15,243 Accounts payable ...........................~~ (634,~~359~~278) 6Interest,~~309~~ ~~Accrued~~investment ~~liabilities~~and ~~........................~~other 4income,~~617~~ ~~(498) Other assets and liabilities,~~ net .......... (2,154 1,~~331)~~119 ~~(584)~~8,712 5,329 --------- --------- ~~Net cash provided by operating activities .. 21,382 15,420~~ --------- --------- ~~Cash flows from investing activities: Additions to property~~(9,241) ~~plant and equipment .......~~ (610,~~103~~326) (525,~~639~~488) ~~Other investments~~(28,949) ~~net ........................... 4,753 2,482~~ --------- --------- ~~Net cash used by investing activities ................................ (1,350) (3,157)~~ --------- --------- ~~Cash~~(Loss) ~~flows~~income ~~from~~before ~~financing~~income ~~activities:~~taxes ~~Principal~~(1,512) ~~payments~~2,570 on7,299 ~~long-term~~(10,530) ~~debt~~Income tax benefit ............... -- (6012) -- (5721,489) --------- --------- ~~Net cash used by financing activities ...... (60) (57)~~ --------- --------- Net ~~increase~~(loss) inincome ~~cash and cash equivalents~~ .............. ~~19,972~~$ 12(1,~~206~~512) ~~Total~~$ ~~cash and cash equivalents at beginning of period ................................... 80~~2,~~004~~582 ~~67,152 -------- -------- Total cash and cash equivalents at end of period .......~~ $ 997,~~976~~299 $ 7910,~~358~~959 ========= ========= ~~Supplemental~~========= ~~disclosure of cash flow information Cash paid for interest ........................... $ 21,856 $ 21,885 Cash paid for income taxes ....................... 21 365~~=========

The accompanying notes are an integral part of these condensed consolidated financial statements. PAGE 5 RENCO STEEL HOLDINGS, INC. AND SUBSIDIARIES AND PREDECESSOR CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited)

~~April~~Nine ~~30,~~months ~~October~~ended July 31, 2000 1999 ~~(Unaudited)~~ ------- --------------------- ~~(Dollars~~Cash inflows ~~thousands)~~from ~~Raw~~operating ~~materials~~activities Net income ....................................... $20 7,~~431~~299 $ 3310,~~811~~959 ~~Finished~~Adjustments to reconcile net income to net cash provided by operating activities Depreciation and ~~semi-finished~~amortization ~~product~~.............. 17,980 17,994 Amortization of deferred maintenance costs . 2,206 2,198 Amortization of financing costs ............ 671,~~443~~421 491,~~386~~450 ~~Supplies~~Postretirement health care benefits ........ 8,832 5,007 Pension benefits ........................... 3,817 (2,732) Deferred income taxes ...................... ~~114~~(243) 50(21,689) Gain on other investments .................. (1,807) (3,047) Other ...................................... 1,150 102 Cash provided (used) by changes in certain assets and liabilities Accounts receivable ........................ 4,920 (12,653) Inventories ................................ (10,330) 949 Accounts payable ........................... (7,670) 8,291 Accrued liabilities ........................ (1,326) (5,058) Other assets and liabilities, net .......... 1,247 (346) -------- -------- 87Net cash provided by operating activities .. 27,~~988~~496 831,~~247~~425 ~~Less~~-------- ~~LIFO~~-------- ~~reserve~~Cash flows from investing activities Additions to property, plant and equipment ....... (12,404) (7,970) Other investments, net ........................... ~~112~~4,752 8,488 -------- -------- Net cash (~~927~~used) provided by investing activities ................................ (7,652) 518 -------- -------- $Cash flows from financing activities Principal payments on long-term debt ............. (90) (87) Dividends paid ................................... (3,~~876~~250) -- -------- -------- Net cash used by financing activities ................................ (3,340) (87) -------- -------- Net increase in cash and cash equivalents .............. 16,504 1,856 Total cash and cash equivalents at beginning of period ................................... 80,004 67,152 -------- -------- Total cash and cash equivalents at end of period ....... $ 8496,~~174~~508 $ 69,008 ======== ======== Supplemental disclosure of cash flow information Cash paid for interest ........................... 37,008 $ 37,058 Cash paid (refunds) for income taxes ............. 21 519

The accompanying notes are an integral part of these condensed consolidated financial statements. PAGE 6 RENCO STEEL HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Three and nine months ended July 31, 2000 and 1999 ( Unaudited ) NOTE 1 : BASIS OF PRESENTATION Renco Steel Holdings, Inc. (Renco Steel), a holding company incorporated in the state of Ohio on January 20, 1998, is a wholly owned subsidiary of The Renco Group, Inc. (Renco). On January 29, 1998, Renco contributed to Renco Steel its interest in its wholly owned subsidary WCI Steel, Inc. (WCI). Accordingly the accompanying financial statements include the accounts of Renco Steel and WCI (collectively, the Company). The financial information included herein is unaudited; however, such information reflects all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of results for the interim periods. The results of operations for the nine months ended July 31, 2000 are not necessarily indicative of the results to be expected for the full year. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Form 10-K for the fiscal year ended October 31, 1999. NOTE 2 : OTHER INVESTMENTS The Company has from time to time invested in various limited partnerships which invest in a variety of financial assets, including equity, debt, and derivative securities. The Company was invested in one such limited partership on July 31, 2000. Because of the nature of the underlying investments, the Company's investment is subject to a high degree of risk, including, but not limited to, credit risk, interest rate risk, foreign currency exchange risk, and equity price risk. The Company does not have any off balance sheet risk with respect to this investment, and thus its risk is limited to the amount of this investment. The limited partnership permits annual withdrawal on December 31 of any year, upon 45 days notice. Accordingly, this investment has been classified as a current asset in the accompanying balance sheet as of July 31, 2000. This investment is held for trading purposes and is recorded at fair value for financial reporting purposes. The Company's condensed consolidated statements of income include unrealized gains of $0.6 million and $2.0 million for the nine months ended July 31, 2000 and July 31, 1999, respectively, and $0.2 million and $0.1 million for the three months ended July 31, 2000 and July 31, 1999 respectively. PAGE 7 NOTE 3 : INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined by the last-in, first-out (LIFO) method. The composition of inventories at July 31, 2000 and October 31, 1999 was as follows:

~~Six~~July ~~months~~31, ~~ended~~October ~~April 30~~31, 2000 1999 (Unaudited) ----------- ----------- ~~WCI~~(Dollars in thousands) Raw materials ....................~~............~~ $ 1525,~~608~~934 $ (233,~~768)~~811 ~~Other~~Finished and semi-finished product 69,113 49,386 Supplies .........................~~.....~~ ~~(6,796)~~89 ~~11,145~~50 --------- --------- ~~Total~~95,136 ~~Consolidated~~83,247 Less LIFO reserve ................ 632 (927) -------- -------- $ 894,~~812~~504 $ 884,~~377~~174 ========= =========

NOTE 4 : ENVIRONMENTAL MATTERS and OTHER CONTINGENCIES In common with much of the steel industry, WCI's facilities are located on sites that have been used for heavy industrial purposes for decades. WCI is and will continue to be subject to numerous federal, state and local environmental laws and regulations governing, among other things, air emissions, waste water discharge and solid and hazardous waste management. WCI has made and intends to continue to make the necessary expenditures for environmental remediation and compliance with environmental laws and regulations. Environmental laws and regulations continue to change and have generally become more stringent, and WCI may be subject to more stringent environmental laws and regulations in the future. Compliance with more stringent environmental laws and regulations could have a material adverse effect on WCI's financial condition and results of operations. WCI is subject to consent decrees as a result of two civil actions instituted by the Department of Justice (DOJ), on behalf of the Environmental Protection Agency (EPA). These consent decrees require WCI to complete certain supplemental environmental projects estimated to cost between $1.7 million and $2.2 million that will be expended by late 2001. The largest of the projects to be undertaken as part of the settlement involves sediment removal from the Mahoning River at an estimated cost of $750,000 but not to exceed $1 million. The consent decrees also provide for stipulated penalties in the event of noncompliance which WCI does not believe will be material. As a condition of a previous Resource Conservation and Recovery Act (RCRA) operating permit, WCI is required to undertake a corrective action program with respect to historical material handling practices at the Warren facility. WCI has completed the initial phase of the first investigation step of the corrective action program, the RCRA Facility Investigation (RFI), and has submitted its PAGE 8 report to the EPA. WCI believes that additional sampling will be required to complete a full RFI and will negotiate the extent of the second phase with the EPA. The RFI workplan identifies thirteen historical solid waste management units to be investigated. The final scope of corrective action required to remediate any contamination that may be present at or emanating from the Warren facility is dependent upon the completion and findings of the RFI and the development and approval of a corrective action program. Accordingly, WCI is unable at this time to estimate the final cost of the corrective action program or the period over which such costs may be incurred and there can be no assurance that any such corrective action program would not have a material adverse effect on the operating results or financial condition of WCI. On January 23, 1996, two retired employees instituted an action against WCI and the United Steelworkers of America (USWA) in the United States District Court for the Northern District of Ohio alleging in substance that certain distributions made by WCI to employees and benefit plans violated certain agreements, the Employee Retirement Income Security Act (ERISA), the National Labor Relations Act (NLRA) and common law. On July 31, 1997, the court granted WCI's motion to dismiss this action and entered judgement in favor of WCI and the USWA. The Plaintiffs filed an appeal regarding the court's decision to dismiss, which was heard in June 1998. In March 1999, the appellate court upheld the dismissal of the claims under ERISA and common law, but reversed the dismissal of the NLRA claim and remanded to the district court for further proceedings. Discovery regarding the NLRA claim is in process. In addition to the above matters, WCI is contingently liable with respect to lawsuits and other claims incidental to the ordinary course of its business. A liability has been established for an amount, which WCI believes is adequate, based on information currently available, to cover the costs to resolve the above described matters, including remediation, if any, except for any costs of corrective action that may result from the RFI for which no estimate can currently be made. The outcome of the above described matters could have a material adverse effect on the future operating results of WCI in a particular quarterly or annual period; however, WCI believes that the effect of such matters will not have a material adverse effect on WCI's consolidated financial position. NOTE 5: SEGMENT REPORTING Effective for the year ended October 31, 1999, the Company adopted Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information," requiring that companies disclose segment data based on how management makes resource allocation decisions and evaluates segment operating performance. In applying the Statement, the Company considered its operating and management structure and the types of information subject to regular review by its "chief operating decision maker." On this basis, the Company's only reportable segment is WCI. The segment disclosure is presented on this new basis for the nine months ended July 31, 2000 and July 31, 1999, respectively. PAGE 9 All sales are generated by WCI. Geographic sales are based on the region in which the customer invoice was generated and all sales were generated within the United States. The Company measures segment profit for internal reporting purposes as net income (loss). A reconciliation of segment income to consolidated net income is presented below:

~~April~~Nine ~~30,~~months ~~Oct.~~ended July 31, 2000 1999 --------- --------- ~~(Unaudited)~~WCI ~~ASSETS Current assets Cash and cash equivalents~~ ....................~~....~~ $ 93,084 $ 76,349 Accounts receivable, less allowances ............. 61,397 57,846 Inventories ...................................... 86,988 83,247 Prepaid expenses ................................. 2,815 6,236 --------- --------- Total current assets .......................... 244,284 223,678 Property, plant and equipment, net ................. 203,295 208,477 Intangible pension assets, net ..................... 28,708 31,895 Other assets, net .................................. 18,~~830~~008 ~~15,894 --------- --------- Total assets ...........................~~ $ ~~495~~3,~~117~~723 $ 479,944 ========= ========= LIABILITIES and SHAREHOLDER'S EQUITY (DEFICIT) Current liabilities Current portion of long-term debt ................ $ 125 $ 122 Accounts payable ................................. 53,371 59,730 Accrued liabilities .............................. 53,999 48,364 --------- --------- Total current liabilities .................... 107,495 108,216 Long-term debt, excluding current portion .......... 301,317 301,380 Postretirement health care benefits ................ 104,992 99,706 Pension benefits ................................... 38,350 38,635 Other ~~liabilities~~ ..................~~................~~ ~~14,386 13,738 --------- --------- Total liabilities ...................... 566,540 561,675 --------- --------- Shareholder's equity~~ (~~deficit) Preferred stock~~10, par value $1,000 per share, 5,000 shares authorized, none issued ........... -- -- Common stock, no par value, stated value $.01 per share, 40 million shares authorized, 100 shares issued and outstanding .............. -- -- Additional paid-in capital ....................... 279 279 Accumulated deficit .............................. (71,702709) ~~(82~~7,~~010)~~236 --------- --------- Total ~~shareholder's~~Consolidated ~~equity (deficit) ... (71,423) (81,731) Commitments and contingencies ...................... -- -- --------- --------- Total liabilities and shareholder's equity (deficit) ........~~ $ ~~495~~7,~~117~~299 ~~$ 479~~10,~~944~~959 ========= =========

NOTE 6: SUBSEQUENT EVENT On September 8, 2000 Acme Metals Incorporated filed a motion in U.S. Bankruptcy Court, Delaware District, seeking approval of expense reimbursement and bidding procedures including provisions for a break-up fee and minimum overbid in certain circumstances relating to a potential sale of certain assets of its wholly-owned subsidiary, Acme Steel Co., to WCI. Acme Metals Incorporated filed for bankruptcy court protection on September 28, 1998. The motion seeks approval for the reimbursement of expenses related to the completion of due diligence by WCI. This will permit WCI to continue with its due diligence related to the evaluation of environmental, operational and information systems as well as other matters. Included with the motion is a non-binding term sheet, which includes the significant terms of a potential purchase agreement by WCI. Acme and WCI intend to negotiate toward a definitive purchase agreement subject to the completion of due diligence. Acme Steel is an integrated steelmaker producing hot-rolled sheet and strip steel to customers in the tube, agricultural equipment, industrial equipment, industrial fastener, processor, service center and tool manufacturing industries. Acme's facilities are located in Chicago and Riverdale, Ill. PAGE 10 WCI STEEL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share amounts)

~~Three~~July ~~months Six months ended April 30~~31, ~~ended~~Oct. ~~April 30~~31, 2000 1999 ~~2000 1999~~ --------- -~~--------~~ --------- ~~---------~~(Unaudited) ~~Net~~ASSETS ~~sales~~Current assets Cash and cash equivalents ....................~~......~~ $ ~~156~~88,~~149~~859 $ ~~139~~76,~~115~~349 $Accounts ~~297~~receivable,~~361~~ $less ~~249,392~~allowances ~~Operating~~......... ~~costs~~52,926 ~~and~~57,846 ~~expenses~~Inventories ~~Cost~~.................................. of93,635 ~~products~~83,247 ~~sold~~Prepaid expenses ............................. ~~131,208~~306 ~~121~~6,~~852~~236 ~~250,388~~--------- ~~223,716~~--------- ~~Depreciation~~Total ~~and~~current ~~amortization~~assets ...................... 5235,~~801~~726 5223,~~831~~678 11Property,~~645~~ 11plant and equipment,~~633~~ ~~Selling~~net ............. 204,455 ~~general~~208,477 ~~and~~Intangible ~~administrative~~pension ~~expenses~~asset, net .................. 427,~~232~~115 331,~~517~~895 8Other assets,~~577~~ 6net .............................. 17,~~741~~880 ~~---------~~15,894 --------- --------- ~~---------~~Total ~~141,241~~assets ~~131,200~~....................... ~~270~~$ 485,~~610~~176 ~~242~~$ 479,~~090~~944 ~~---------~~========= ~~---------~~========= ~~---------~~LIABILITIES and SHAREHOLDER'S EQUITY (DEFICIT) Current liabilities Current portion of long-~~--------~~term ~~Operating~~debt ~~income~~............ $ 127 $ 122 Accounts payable ............................. 1452,~~908~~060 759,~~915~~730 26Accrued liabilities .......................... 44,~~751~~747 748,~~302~~364 --------- --------- ~~---------~~Total ~~---------~~current ~~Other~~liabilities ~~income (expense) Interest expense~~ ................ (796,~~981)~~934 (8108,~~006)~~216 ~~(15,976)~~Long-term ~~(16~~debt,~~016)~~ ~~Interest~~excluding ~~and~~current ~~other~~portion ~~income~~...... 301,285 ~~net~~301,380 Postretirement health care benefits ............ 1108,~~095~~575 99,706 4Pension benefits ............................... 36,~~833~~739 138,~~388~~635 Other liabilities .............................. 14,566 13,738 --------- --------- Total liabilities .................. 558,099 561,675 --------- --------- Shareholder's equity (~~6,886~~deficit) (7Preferred stock,~~300)~~ ~~(11~~par value $1,~~143)~~000 ~~(14~~per share,~~628)~~ 5,000 shares authorized, none issued ....... -- -- Common stock, no par value, stated value $.01 per share, 40 million shares authorized, 100 shares issued and outstanding .......... -- --- Additional paid-~~--------~~in capital ................... 279 279 Accumulated deficit .......................... (73,202) (82,010) --------- --------- ~~Income~~Total shareholder's equity (~~loss~~deficit) ~~before income taxes 8~~(72,~~022~~923) ~~615 15,608~~ (781,~~326~~731) ~~Income~~Commitments ~~tax~~and ~~benefit~~contingencies .................. -- -- -- ~~(4,558)~~ --------- --------- ~~---------~~Total ~~---------~~liabilities ~~Net~~and ~~income~~shareholder's equity (~~loss~~deficit) ....~~............~~ $ 8485,~~022~~176 $ ~~615 $ 15~~479,~~608~~944 ~~$ (2,768)~~ ========= ========= ~~========= =========~~

The accompanying notes are an integral part of these condensed consolidated financial statements. PAGE 11 WCI STEEL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands) (Unaudited)

~~Six~~Three months Nine months ended ~~April~~July 3031, ended July 31, 2000 1999 2000 1999 ---------------------- ---------------------- ~~Cash flows from operating activities:~~ Net ~~income~~sales ~~(loss)~~ ..........................~~......~~ $ 15140,~~608~~726 $ (2143,~~768)~~086 ~~Adjustments~~$ to438,087 ~~reconcile~~$ ~~net~~392,478 ~~income~~Operating ~~(loss)~~costs toand ~~net~~expenses ~~cash~~Cost ~~provided~~of byproducts ~~operating~~sold ~~activities Depreciation and amortization~~ ...........~~...~~ 10122,~~177~~258 10119,~~168~~395 ~~Amortization~~372,646 of343,111 ~~deferred~~Depreciation ~~maintenance~~and ~~costs~~amortization ... 15,~~468~~837 15,~~465~~855 ~~Amortization~~17,482 of17,488 ~~financing~~Selling, ~~costs~~general ~~............~~and ~~645~~administrative ~~656~~expenses ~~Postretirement health care benefits~~ ........ 54,~~286~~060 34,~~343~~076 ~~Pension~~12,637 ~~benefits~~10,817 ~~...........................~~--------- 4--------- --------- --------- 132,~~118~~155 (1129,~~643)~~326 ~~Deferred~~402,765 ~~income~~371,416 ~~taxes~~--------- ~~......................~~--------- --------- ~~(4,758)~~--------- ~~Other~~Operating income .................~~.....................~~ 18,~~108~~571 5413,760 ~~Cash~~35,322 ~~provided~~21,062 ~~(used)~~--------- by--------- ~~changes~~--------- in--------- ~~certain~~Other ~~assets~~income ~~and~~(expense) ~~liabilities~~Interest ~~Accounts~~expense ~~receivable~~ ................~~........~~ (37,~~551~~983) (48,~~997~~031) ~~Inventories ................................~~ (323,~~741~~959) 15(24,~~208~~047) ~~Accounts~~Interest ~~payable~~and ~~...........................~~other (6income,~~359)~~ ~~6,309~~net ~~Accrued liabilities~~ ..~~......................~~ 41,~~419~~812 ~~(628)~~762 ~~Other~~6,645 ~~assets and liabilities~~2,150 ~~net .......... (980) (677)~~ --------- --------- ~~Net cash provided by operating activities .. 28,198 21,732~~ --------- --------- ~~Cash~~(6,171) ~~flows from investing activities: Additions to property~~(7,269) ~~plant and equipment .......~~ (617,~~103~~314) (521,~~639~~897) --------- --------- ~~Cash~~--------- ~~flows~~--------- ~~from~~Income ~~financing~~(loss) ~~activities:~~before ~~Principal~~income ~~payments~~taxes on2,400 ~~long-term~~6,491 ~~debt~~18,008 ~~.............~~ (60835) Income tax (57benefit) ~~Dividends paid~~ .............~~......................~~ -- -- -- (54,~~300~~558) -- -------- --------- ~~Net cash used by financing activities ...... (5,360) (57)~~ --------- --------- Net ~~increase~~income ~~in cash and cash equivalents~~ .............. ~~16,735 16,036 Cash and cash equivalents at beginning of period~~ ......... ~~76,349~~$ 622,~~195~~400 ~~--------~~$ ~~--------~~6,491 ~~Cash and cash equivalents at end of period .............~~ $ 9318,~~084~~008 $ 783,~~231~~723 ========= ========= ~~Supplemental~~========= ~~disclosure of cash flow information Cash paid for interest ........................... $ 15,331 $ 15,360 Cash paid for income taxes ....................... 21 769~~=========

The accompanying notes are an integral part of these condensed consolidated financial statements. PAGE 12 WCI STEEL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited)

~~April~~Nine ~~30,~~months ~~October~~ended July 31, 2000 1999 -------- ------------- ~~(Unaudited)~~Cash ~~(Dollars~~flows infrom ~~thousands)~~operating ~~Raw~~activities ~~materials~~Net income ....................................... $ 2018,~~431~~008 $33 3,~~811~~723 ~~Finished~~Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and ~~semi~~amortization .............. 15,276 15,290 Amortization of deferred maintenance costs . 2,206 2,198 Amortization of financing costs ............ 968 1,006 Postretirement health care benefits ........ 8,869 5,039 Pension benefits ............................. 4,053 (2,514) Deferred income taxes ........................ -~~finished~~- ~~product~~(4,758) Other ...................................... 671,~~443~~150 49103 Cash provided (used) by changes in certain assets and liabilities Accounts receivable ........................ 4,~~386~~920 ~~Supplies~~(12,653) Inventories ................................ (10,388) 895 Accounts payable ........................... ~~114~~(7,670) 508,291 Accrued liabilities .................................... (4,786) (8,513) Other assets and liabilities, net .......... 1,598 (436) -------- -------- 87Net cash provided by operating activities .. 34,~~988~~204 837,~~247~~671 ~~Less~~-------- ~~LIFO~~-------- ~~reserve~~Cash flows from investing activities: Additions to property, plant and equipment ....... (12,404) (7,970) -------- -------- Cash flows from financing activities: Principal payments on long-term debt ............. (90) (87) Dividends paid ................................... (19,~~000~~200) -- -------- -------- Net cash used by financing activities .... (9,290) (87) -------- -------- Net increase (decrease) in cash and cash equivalents ..................................... 12,510 (386) Cash and cash equivalents at beginning of period . 76,349 62,195 -------- -------- Cash and cash equivalents at end of period ............. $ 8688,~~988~~859 $83 61,~~247~~809 ======== ======== Supplemental disclosure of cash flow information Cash paid for interest ........................... $ 30,483 $ 30,533 Cash paid for income taxes ....................... 21 971

The accompanying notes are an integral part of these condensed consolidated financial statements. PAGE 13 WCI STEEL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Three months and nine months ended July 31, 2000 and 1999 ( Unaudited ) NOTE 1 : BASIS OF PRESENTATION WCI Steel, Inc. (Company or WCI) is a wholly-owned subsidiary of Renco Steel Holdings, Inc. (Renco Steel) and an indirect wholly-owned subsidiary of The Renco Group, Inc. (Renco). The financial information included herein is unaudited; however, such information reflects all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of results for the interim periods. The results of operations for the three and nine months ended July 31, 2000 are not necessarily indicative of the results to be expected for the full year. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Form 10-K for the fiscal year ended October 31, 1999. NOTE 2 : INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined by the last-in, first-out (LIFO) method. The composition of inventories at July 31, 2000 and October 31, 1999 was as follows:

PAGE 14 NOTE 3 : ENVIRONMENTAL MATTERS and OTHER CONTINGENCIES In common with much of the steel industry, WCI's facilities are located on sites that have been used for heavy industrial purposes for decades. WCI is and will continue to be subject to numerous federal, state and local environmental laws and regulations governing, among other things, air emissions, waste water discharge and solid and hazardous waste management. WCI has made and intends to continue to make the necessary expenditures for environmental remediation and compliance with environmental laws and regulations. Environmental laws and regulations continue to change and have generally become more stringent, and WCI may be subject to more stringent environmental laws and regulations in the future. Compliance with more stringent environmental laws and regulations could have a material adverse effect on WCI's financial condition and results of operations. WCI is subject to consent decrees as a result of two civil actions instituted by the Department of Justice (DOJ), on behalf of the Environmental Protection Agency (EPA). These consent decrees require WCI to complete certain supplemental environmental projects estimated to cost between $1.7 million and $2.2 million that will be expended by late 2001. The largest of the projects to be undertaken as part of the settlement involves sediment removal from the Mahoning River at an estimated cost of $750,000 but not to exceed $1 million. The consent decrees also provide for stipulated penalties in the event of noncompliance which WCI does not believe will be material. As a condition of a previous Resource Conservation and Recovery Act (RCRA) operating permit, WCI is required to undertake a corrective action program with respect to historical material handling practices at the Warren facility. WCI has completed the initial phase of the first investigation step of the corrective action program, the RCRA Facility Investigation (RFI), and has submitted its report to the EPA. WCI believes that additional sampling will be required to complete a full RFI and will negotiate the extent of the second phase with the EPA. The RFI workplan identifies thirteen historical solid waste management units to be investigated. The final scope of corrective action required to remediate any contamination that may be present at or emanating from the Warren facility is dependent upon the completion and findings of the RFI and the development and approval of a corrective action program. Accordingly, WCI is unable at this time to estimate the final cost of the corrective action program or the period over which such costs may be incurred and there can be no assurance that any such corrective action program would not have a material adverse effect on the operating results or financial condition of WCI. On January 23, 1996, two retired employees instituted an action against WCI and the United Steelworkers of America (USWA) in the United States District Court for the Northern District of Ohio alleging in substance that certain distributions made by WCI to employees and benefit plans violated certain agreements, the Employee Retirement Income Security Act (ERISA), the National Labor Relations Act (NLRA) and common law. PAGE 15 On July 31, 1997, the court granted WCI's motion to dismiss this action and entered judgement in favor of WCI and the USWA. The Plaintiffs filed an appeal regarding the court's decision to dismiss, which was heard in June 1998. In March 1999, the appellate court upheld the dismissal of the claims under ERISA and common law, but reversed the dismissal of the NLRA claim and remanded to the district court for further proceedings. Discovery regarding the NLRA claim is in process. In addition to the above matters, WCI is contingently liable with respect to lawsuits and other claims incidental to the ordinary course of its business. A liability has been established for an amount, which WCI believes is adequate, based on information currently available, to cover the costs to resolve the above described matters, including remediation, if any, except for any costs of corrective action that may result from the RFI for which no estimate can currently be made. The outcome of the above described matters could have a material adverse effect on the future operating results of WCI in a particular quarterly or annual period; however, WCI believes that the effect of such matters will not have a material adverse effect on WCI's consolidated financial position. PAGE 16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Three Months Ended July 31, 2000 Compared to Three Months Ended July 31, 1999. Net sales for the three months ended July 31, 2000 were $140.7 million on 308,912 tons shipped, representing a 1.6% decrease in net sales and a 5.9% decrease in tons shipped compared to the three months ended July 31, 1999. Shipping volume for the 2000 period was lower due primarily to customers reducing the level of their inventories. Net sales per ton shipped increased 4.6% to $456 in the 2000 period compared to $436 for the 1999 period, primarily as a result of price increases which became effective January 1, 2000 and to a lesser extent price increases which became effective April 1, 2000. Shipments of custom carbon, alloy and electrical steels accounted for 62.3% of total shipments for the three months ended July 31, 2000 compared to 66.6% in the comparable period of 1999. Gross margin (sales less cost of goods sold) was $18.5 million for the three months ended July 31, 2000 compared to $23.8 million for the three months ended July 31, 1999. The decrease in gross margin reflects the lower shipping volume discussed above and increased production costs as a result of planned maintenance at the company's hot strip mill and other operating units and the effect of lower production volume offset somewhat by increased selling prices. Operating income was $7.7 million, or $25 per ton, for the three months ended July 31, 2000 compared to operating income of $12.9 million, or $39 per ton, for the three months ended July 31, 1999. The decreased operating income for the 2000 period reflects the lower gross margin discussed above. Interest, investment and other income, net was $2.1 million for the three months ended July 31, 2000 compared to $1.1 million for the three months ended July 31, 1999. This increase is due primarily to higher cash balances at WCI generating increased interest income in the 2000 quarter compared to 1999. As a result of the items discussed above, the Company had a loss before taxes of $1.5 million for the three months ended July 31, 2000 compared to income of $2.6 million for the three months ended July 31, 1999. Effective November 1, 1998, the Company was designated as a qualified subchapter S subsidiary by Renco. Accordingly, the Company is generally not subject to income taxes. Nine Months Ended July 31, 2000 Compared to Nine Months Ended July 31, 1999 Net sales for the nine months ended July 31, 2000 were $438.1 million on 984,700 tons shipped, representing a 11.6% increase in net sales and a 10.8% increase in tons shipped compared to the nine months ended July 31, 1999. The 1999 period was adversely affected by a surge of imports that began in late 1998 and continued to affect the market until late in the second fiscal quarter of 1999. Net sales per ton shipped increased 1.0% to $445 in the 2000 period compared to $441 for PAGE 17 the 1999 period, primarily as a result of price increases which became effective January 1, 2000 and, to a lesser extent, April 1, 2000, offset somewhat by a lower custom product mix. Shipments of custom carbon, alloy and electrical steels accounted for 60.1% of total shipments for the nine months ended July 31, 2000 compared to 66.7% in the comparable period of 1999. Gross margin (sales less cost of goods sold) was $65.7 million for the nine months ended July 31, 2000 compared to $49.6 million for the nine months ended July 31, 1999. The increase in gross margin reflects the higher shipping volume and prices discussed above. Operating income was $32.8 million, or $33 per ton, for the nine months ended July 31, 2000 compared to operating income of $18.4 million, or $21 per ton, for the nine months ended July 31, 1999. The increased operating income for the 2000 period reflects the higher gross margin discussed above partially offset by increased selling, general and administrative expenses primarily due to higher variable compensation costs. Interest, investment and other income, net was $8.7 million for the nine months ended July 31, 2000 compared to $5.3 million for the nine months ended July 31, 1999. Interest and investment income increased by $0.2 million to $5.5 million in the nine months ended July 31, 2000 compared to the nine months ended July 31, 1999 due to higher interest income at WCI of $1.3 million, partially offset by lower investment income at Renco Steel of $1.1 million. During the first quarter of 2000, a gain of $2.8 million was recorded as a result of an agreement with the United Steelworkers of America which permitted WCI to pay certain medical benefits from assets in a trust previously restricted to other benefits. As a result of the items discussed above, the Company had income before taxes of $7.3 million for the nine months ended July 31, 2000 compared to a loss of $10.5 million for the nine months ended July 31, 1999. Effective November 1, 1998, the Company was designated as a qualified subchapter S subsidiary by Renco. Accordingly, the Company is generally not subject to income taxes. For the 1999 period, the Company recognized an income tax benefit of $21.5 million during the three months ended January 31, 1999 which included the elimination of net deferred tax liabilities recorded as of October 31, 1998. LIQUIDITY AND CAPITAL RESOURCES Renco Steel In February 1998, Renco Steel issued the $120.0 million 10 7/8% Senior Secured Notes due 2005 (Senior Secured Notes) which are secured by the stock of WCI. Interest on the Senior Secured Notes is payable semi-annually in arrears on February 1, and August 1 of each year. Renco Steel's liquidity requirements result from its debt service obligations related to the Senior Secured Notes, as well as to a nominal extent, general corporate overhead. Renco Steel has met these requirements from existing cash balances and through distributions from PAGE 18 WCI, as permitted under the terms of WCI's outstanding indebtedness. At July 31, 2000, Renco Steel had available cash and investment balances of $8.4 million net of cash appropriated for the August 1st interest payment. Renco may also make contributions or advances to Renco Steel to meet its debt service obligations, however, Renco has no obligation to do so. The ability of Renco Steel to meet its debt service obligations is dependent upon WCI's operating performance and financial results and the performance of Renco Steel's investments, other than in WCI (Other Investments). WCI's operating performance and financial results will be subject to financial, economic, political, competitive and other factors affecting WCI, many of which are beyond WCI's control. WCI generated a profit of $18.0 million in the nine months of 2000 but it is not expected that such results will be indicative of results in the coming three to six months (see "Outlook"). Under the terms of the indenture governing WCI's 10% Senior Secured Notes due 2004 (Senior Secured Notes of WCI) dividends of $9.2 million were paid to Renco Steel during 2000. At July 31, 2000, WCI had no remaining availability for dividends. Such dividends are generally limited to 50% of WCI's cumulative earnings since October 31, 1996. The indenture governing the Senior Secured Notes contains numerous covenants and prohibitions that limit the financial activities of Renco Steel, including, among others, limitations on the incurrence of additional indebtedness and additional liens and the ability to pay dividends. The ability of Renco Steel to comply with such covenants will be dependent upon WCI's future performance. Cash provided by operating activities was $27.5 million and $1.4 million for the nine months ended July 31, 2000 and July 31, 1999, respectively. The higher operating cash flow in 2000 compared to 1999 resulted primarily from an increase in income before taxes and non-cash post-retirement benefits offset somewhat by changes in working capital. Cash used by investing activities was $7.7 million during the first nine months of 2000, compared with cash provided by investing activities of $0.5 million in the first nine months of 1999. WCI's capital expenditures in the nine months ended July 31, 2000 were $12.4 million compared to $8.0 million in the nine months ended July 31, 1999. Renco Steel's proceeds from the sale of Other Investments, net of purchases, decreased by $3.7 million from the comparable 1999 period. WCI's capital expenditures in fiscal 2000 are expected to be $16.0 million. Capital expenditures in 2000 and 1999 have been funded from existing cash balances and cash provided by operations. At July 31, 2000, WCI had commitments for capital expenditures of approximately $3.6 million. During the first nine months of 2000, Renco Steel paid dividends of $3.3 million. At July 31, 2000, Renco Steel was not permitted to pay dividends under the terms of the Senior Secured Notes indenture. PAGE 19 WCI WCI's liquidity requirements result from capital investments, working capital requirements, postretirement healthcare and pension funding, and interest expense. WCI has met these requirements in each fiscal year since 1992 from cash balances and cash provided by operating activities. WCI's primary sources of liquidity as of July 31, 2000 consisted of cash and cash equivalents of $88.9 million and available borrowing under its $100 million revolving credit facility (Revolving Credit Facility of WCI). The Revolving Credit Facility of WCI has a maximum borrowing limit of $100 million, and is secured by eligible receivables and inventories, as defined therein, and expires on December 29, 2003. As of July 31, 2000, WCI had no borrowings outstanding under the Revolving Credit Facility of WCI, with a borrowing limit of $93.9 million based on eligible receivables and inventories, net of $6.1 million in outstanding letters of credit. Cash provided by operating activities was $34.2 million for the nine months ended July 31, 2000 compared to $7.7 million for the 1999 period. The higher operating cash flow in 2000 compared to 1999 resulted primarily from an increase in income before taxes and non-cash postretirement benefits offset somewhat by changes in working capital. Capital expenditures were $12.4 million and $8.0 million during the nine months ended July 31, 2000 and 1999 respectively, and are expected to be approximately $16 million for all of fiscal 2000. Management has funded capital expenditures in 2000 and 1999 through cash balances and cash provided by operating activities. At July 31, 2000, WCI had commitments for capital expenditures of approximately $3.6 million. The Revolving Credit Facility of WCI and the indenture governing the Senior Secured Notes of WCI contain numerous covenants and prohibitions that limit the financial activities of WCI, including requirements that WCI satisfy certain financial ratios which limit the incurrence of additional indebtedness. The ability of WCI to meet its debt service requirements and to comply with such covenants will be dependent upon future operating performance and financial results of WCI, which will be subject to financial, economic, political, competitive and other factors affecting WCI, many of which are beyond its control. WCI paid dividends of $9.2 million during the nine months ended July 31, 2000 and, under the terms of the indenture governing the Senior Secured Notes of WCI, there was no remaining availability for dividends at July 31, 2000. PAGE 20 Outlook While the U.S. economy remains strong, some evidence of slowing growth is appearing. The slowing growth is expected to reduce steel consumption in the second half of calendar year 2000. This, in conjunction with customers reduction in inventory levels and continued high levels of steel imports, has resulted in significant declines in market prices for the third calendar quarter of 2000. Imports are entering the domestic market at near record levels, approaching the levels during the 1998 crisis, on an annualized basis. WCI expects shipments in the fourth quarter to be slightly lower compared to the third quarter of 2000 at reduced transaction prices. WCI's order backlog declined to 187,467 tons at July 31, 2000 compared to 283,306 tons at October 31, 1999 and 254,903 tons at July 31, 1999 reflecting the weakening demand, customer inventory reductions and continued high levels of imports. As a result of these conditions, the Company expects to incur a loss in the fourth quarter of fiscal 2000. Forward-Looking Statements This report includes "forward-looking statements" which involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of the Company to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Such risks, uncertainties and other important factors include, among others: general economic and business conditions; increasing industry capacity and levels of imports of steel or steel products; industry trends, including product pricing; competition; currency fluctuations; the loss of any significant customers; availability of qualified personnel; major equipment failures; changes in, or the failure or inability to comply with, government regulation, including, without limitation, environmental regulations; and the outcome of legal matters and the performance of the Other Investments. These forward-looking statements speak only as of the date of this report. The Company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in the Company's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. PAGE 21 PART II - OTHER INFORMATION RENCO STEEL HOLDINGS, INC. ITEM 1. LEGAL PROCEEDINGS For information as to the environmental matters and as to the employee litigation described in the Company's Form 10-K for the year ended October 31, 1999, see Part I, Note 4 to Item 1, Financial Statements. UNITED STATES DEPARTMENT OF JUSTICE V. WCI STEEL, INC. Reference is made to the description of this action contained in the Company's annual report on Form 10-K for the year ended October 31, 1999. As reported in the Company's quarterly report on Form 10-Q for the quarter ended January 31, 2000, with respect to the action instituted by DOJ May 11, 1998 under RCRA, the period for appealing the court's ruling expired with no appeal being filed. ITEM 6. EXHIBITS and REPORTS ON FORM 8-K (a) Exhibits: A list of the exhibits required to be filed as part of this Report on Form 10-Q is set forth in the "Exhibit Index" which immediately precedes such exhibits, and is incorporated herein by reference. (b) Reports on Form 8-K: No report on Form 8-K was filed during the quarter ended July 31, 2000. PAGE 22 RENCO STEEL HOLDINGS, INC. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. RENCO STEEL HOLDINGS, INC. (registrant) Date: September 14, 2000 /S/ JAMES N. CHAPMAN ------------------------------ James N. Chapman President (principal executive officer) /S/ ROGER L. FAY ------------------------------ Roger L. Fay Vice President and Chief Financial Officer (principal financial and accounting officer) PAGE 23 RENCO STEEL HOLDINGS, INC. EXHIBIT INDEX Exhibit Number Description -------------- ----------- 27. Financial Data Schedule

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