10-Q 1 a2073649z10-q.txt 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 January 31, 2002. ----------------- 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 Note: The Registrant files pursuant to an indenture but is not otherwise subject to Section 13 or 15(d) filing requirements. As of March 18, 2002, 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 --------------------------------

~~July~~Page ~~31,~~No. ~~October~~-------- ~~31,~~PART ~~2001~~I ~~2000~~FINANCIAL INFORMATION ----------- ------------------------ ~~(Unaudited)~~Item ~~ASSETS~~1. ~~Current~~Financial ~~assets~~Statements ~~Cash~~of ~~and~~Renco ~~cash~~Steel ~~equivalents~~Holdings, Inc.~~.....................~~ $Consolidated ~~49,216~~Balance $Sheets ~~90,607~~as ~~Other~~of ~~investments~~January ~~..............................~~31, --2002 ~~7,514~~and ~~Accounts~~October ~~receivable~~31, ~~less~~2001. ~~allowances~~3 ~~for~~Consolidated ~~doubtful~~Statements ~~accounts~~ of ~~$3,200~~Operations ~~and~~for ~~$750,~~the ~~respectively~~three ~~.................................~~months ~~52,393~~ended ~~47,599~~January ~~Inventories .................................... 91~~31,~~705~~ ~~97,021~~2002 ~~Prepaid~~and ~~expenses~~ 2001.~~..............................~~ ~~643~~4 ~~1,076~~Consolidated ~~---------~~Statements ~~---------~~of ~~Total~~Cash ~~current~~Flows ~~assets~~for ~~......................~~the ~~193,957~~three ~~243,817~~months ~~Property,~~ended ~~plant~~January ~~and equipment~~31, ~~net~~2002 and 2001.~~..............~~ ~~233,568~~5 ~~245,454~~Notes ~~Excess~~to ofConsolidated ~~cost~~Financial ~~over~~Statements. ~~acquired~~6 ~~net~~Financial ~~assets,~~Statements ~~net~~of ~~.....~~WCI 10Steel,~~951~~ ~~11,357~~Inc. ~~Intangible~~Consolidated ~~pension~~Balance ~~asset,~~Sheets ~~net~~as ~~....................~~of ~~17,734~~January 2231,~~283~~ ~~Other~~2002 ~~assets,~~and ~~net~~October ~~................................ 8~~31,~~287~~ ~~18,259~~2001. ~~---------~~10 ~~---------~~Consolidated ~~Total~~Statements ~~assets~~of ~~..............................~~Operations $for ~~464,497~~the $three ~~541,170~~months ~~=========~~ended ~~=========~~January ~~LIABILITIES~~31, 2002 and ~~SHAREHOLDER'S~~2001. ~~DEFICIT~~11 ~~Current~~Consolidated ~~liabilities~~Statements ~~Current portion~~ of ~~long-term~~Cash ~~debt~~Flows ~~..............~~for $the ~~181~~three $months ~~128~~ended ~~Accounts~~January ~~payable ............................... 48~~31,~~517~~ ~~47,199~~2002 ~~Accrued~~and ~~liabilities~~ 2001.~~...........................~~ ~~71,548~~12 ~~54,138~~Notes ~~---------~~to ~~---------~~Consolidated ~~Total~~Financial ~~current~~Statements. ~~liabilities~~13 Item 2.~~................~~ ~~120,246~~Management's ~~101,465~~Discussion ~~Long-term~~and ~~debt,~~Analysis ~~excluding~~of ~~current~~Financial ~~portion~~Condition ~~........~~and ~~421,156~~Results ~~420,988~~of ~~Postretirement~~Operations ~~health~~18 ~~care~~Item ~~benefits~~ 3.~~.............~~ ~~116,605~~Quantitative ~~112,130~~and ~~Pension~~Qualitative ~~benefits,~~Disclosure ~~excluding~~About ~~current~~Market ~~portion~~Risk ~~......~~26 ~~18,924~~PART ~~36,381~~II ~~Other~~OTHER ~~liabilities~~INFORMATION ~~................................ 12,214 11,756~~ --------- --------- ~~Total liabilities ......................... 689,145 682,720~~ --------- --------- ~~Shareholder's~~Item ~~deficit Common stock, no par value, stated value $~~1.01 ~~per~~Legal ~~share,~~Proceedings ~~850~~27 ~~shares~~Item ~~authorized, 100 shares issued and outstanding~~ 4.~~...........~~ --Submission --of ~~Additional~~Matters ~~paid-in~~to ~~capital~~a ~~.....................~~Vote ~~3,505~~of ~~280~~Security ~~Accumulated~~Holders ~~deficit~~27 ~~............................~~Item ~~(228,153) (141,830) --------- --------- Total shareholder's deficit~~ 6.~~..............~~ ~~(224,648)~~Exhibits ~~(141,550) Commitments~~ and ~~contingencies~~Reports ~~....................~~on --Form 8--K ~~---------~~27 ~~---------~~Signatures ~~Total~~28 ~~liabilities~~Exhibit ~~and~~Index ~~shareholder's deficit ................... $ 464,497 $ 541,170 ========= =========~~29

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

~~Three~~January ~~months Nine months ended July~~ 31, ~~ended~~October ~~July~~ 31, ~~2001~~2002 ~~2000~~ 2001 ~~2000~~ ---------------------- ---------~~-------------~~ ~~Net~~(Unaudited) ~~sales~~ASSETS Current assets Cash and cash equivalents......................~~...~~ $ ~~109,989~~8 $ ~~140,726~~25 $Restricted ~~307,448~~cash $and ~~438~~cash equivalents .......... 1,~~087~~816 ~~Operating~~32,244 ~~costs~~Accounts ~~and~~receivable, ~~expenses~~less ~~Cost~~allowance offor ~~products~~doubtful ~~sold~~accounts of $3,100.................. ~~112~~44,~~755~~972 ~~122~~48,~~185~~875 ~~315~~Inventories.................................... 94,~~677~~367 ~~372~~87,~~430~~847 ~~Depreciation~~Prepaid ~~and amortization~~ expenses............................... 5,~~709~~371 61,~~738~~049 18--------- --------- Total current assets....................... 146,~~864~~534 20170,~~186~~040 ~~Selling~~Property, ~~general~~plant and ~~administrative~~equipment, ~~expenses~~ net............... 3231,~~628~~961 4233,~~074~~267 ~~13,207~~Intangible 12pension asset,~~684~~ ~~Asset~~net.................... ~~impairment~~34,954 ~~and~~36,470 ~~related~~Other ~~charges~~assets, ~~(note 9)~~ net................................ --5,773 ~~-- 3~~6,~~909~~127 -- --------- --------- ~~---------~~Total ~~---------~~assets............................... ~~122,092~~$ ~~132~~419,~~997~~222 ~~351,657~~$ ~~405~~445,~~300~~904 ~~---------~~========= ~~---------~~========= ~~---------~~LIABILITIES and SHAREHOLDER'S DEFICIT Current liabilities Current portion of long-~~--------~~term ~~Operating~~debt.............. ~~(loss)~~$ ~~income~~121,173 $ 120,334 Accounts payable............................... ~~(12~~42,~~103)~~475 745,~~729~~939 ~~(44~~Accrued liabilities............................ 79,~~209)~~299 3279,~~787~~607 ~~---------~~Due ~~---------~~to related party........................... 1,149 1,125 --------- --------- ~~Other~~Total ~~income~~current ~~(expense) Interest expense~~ liabilities.................. ~~(11~~244,~~418)~~096 ~~(11~~247,~~395)~~005 ~~(34~~Long-term debt,~~213)~~ ~~(34~~excluding current portion........ 310,~~200)~~447 ~~Interest~~301,111 ~~investment~~Postretirement ~~and~~health ~~other~~care ~~income~~benefits.............. ~~(expense)~~120,368 ~~net~~118,214 Pension benefits, excluding current portion...... ~~556~~28,666 235,~~154~~062 (7Other liabilities................................ 10,~~901)~~042 810,~~712~~063 --------- --------- Total liabilities.......................... 713,619 711,455 --------- --------- ~~(10~~Shareholder's deficit Common stock,~~862)~~ (9no par value,~~241)~~ ~~(42~~stated value $.01 per share,~~114)~~ ~~(25~~850 shares authorized,~~488)~~ 100 shares issued and outstanding ........... - -~~-------~~ Additional paid-~~--------~~in capital..................... 6,731 5,118 Accumulated deficit............................ (301,128) (270,669) --------- --------- ~~(Loss)~~Total ~~income~~shareholder's ~~before income taxes~~ deficit................ (22294,~~965~~397) (1265,~~512~~551) ~~(86,323)~~Commitments ~~7,299~~and ~~Income tax benefit~~ contingencies.................... -- -- -- -- -----~~----~~ --------- ~~---------~~Total ~~---------~~liabilities ~~Net~~and ~~(loss)~~shareholder's ~~income~~ deficit.................. $ ~~(22~~419,~~965)~~222 $ (1445,~~512)~~904 ~~$ (86,323) $ 7,299~~ ========= ========= ~~========= =========~~

See accompanying notes to consolidated financial statements. PAGE 4 RENCO STEEL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands) (Unaudited)

~~Nine~~Three months ended ~~July~~January 31, 2002 2001 ~~2000~~ ------------------------------------ ~~Cash flows from operating activities~~ Net ~~(loss) income~~ sales..............................~~.....~~ $~~(86~~ 89,~~323)~~604 $ 798,~~299~~191 ~~Adjustments~~Operating tocosts ~~reconcile net (loss) income to net cash provided by operating activities Depreciation~~ and ~~amortization~~expenses ~~..............~~Cost ~~17,362 17,980 Amortization~~ of ~~deferred~~products ~~maintenance costs~~ sold. ~~1,502 2,206 Amortization of financing costs~~ ............ ~~1,431 1,421 Postretirement health care benefits~~ ....~~....~~ 9100,~~875~~136 8101,~~832~~969 ~~Pension~~Depreciation ~~benefits ........................... 2,938 3,817 Provision for losses on accounts receivable 2,450 -- Deferred income taxes ...................... -- (243) Asset impairment~~ and ~~other charges~~ amortization......... 145,~~745~~477 ~~-- Gain on other investments .................. (204) (1~~6,~~807)~~606 ~~Other ...................................... 93 1~~Selling,~~150~~ ~~Cash~~general ~~provided (used) by changes in certain assets~~ and ~~liabilities~~administrative ~~Accounts receivable~~ expenses..............~~..........~~ (73,~~244)~~401 ~~4,920 Inventories ................................~~ 5,316 (10,330) Prepaid expenses and other assets .......... (3,319) 419 Accounts payable ........................... 1,316 (7,670) Accrued liabilities ........................ (4,760) (1,326) Other liabilities .......................... 458 828 --------- --------- ~~Net cash (used) provided by operating activities ...................... (44~~109,~~364)~~014 27114,~~496~~403 --------- -------- ~~Cash flows from investing activities Additions to property, plant and equipment .......... (8,248) (12,404) Gross proceeds from the sale of assets .............. 105~~ -- ~~Other~~Operating ~~investments, net~~ loss.........................~~.....~~ ~~7,717 4,752 -------- -------- Net cash used by investing activities ......~~ (~~426~~19,410) (716,~~652~~212) --------- --------- ~~Cash~~Other ~~flows~~income ~~from~~(expense) ~~financing~~Interest ~~activities Net change in long-term debt~~ expense........................ ~~174~~(11,489) (9011,398) ~~Dividends~~Interest, ~~paid~~investment ~~......................................~~and --other income (~~3,250~~expense), ~~Capital Contribution~~ net......~~..........................~~ 3440 (9,~~225~~324) -- -------- --------- ~~Net cash provided~~ (~~used~~11,049) ~~by financing activities ................................ 3,399~~ (320,~~340~~722) --------- --------- ~~Net~~Loss ~~(decrease)~~before ~~increase~~income ~~in cash and cash equivalents~~ taxes...............~~.........................~~ (4130,~~391~~459) 16(36,~~504~~934) ~~Total~~Income ~~cash~~tax ~~and~~(benefit) ~~cash equivalents at beginning of period~~ expense...........~~..............................~~ ~~90,607~~- ~~80,004~~- --------- --------- ~~Total~~Net ~~cash~~loss ~~and cash equivalents at end of period~~ ............................ $ 49(30,~~216~~459) $ 96(36,~~508~~934) ========= ======== ~~Supplemental disclosure of cash flow information Cash paid for interest .............................. $ 37,014 $ 37,008 Cash paid for income taxes .......................... -- 21~~=

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

~~July~~Three ~~31,~~months ~~October~~ended January 31, 2002 2001 ~~2000 (Unaudited)~~ ----------- ------------------------- ~~(Dollars~~CASH inFLOWS ~~thousands)~~FROM ~~Raw~~OPERATING ~~materials~~ACTIVITIES Net loss........................................... $31 (30,~~154~~459) $38 (36,~~873~~934) ~~Finished~~Adjustments to reconcile net loss to net cash used by operating activities Depreciation and ~~semi~~amortization............... 5,477 5,867 Amortization of deferred maintenance costs.. -~~finished~~ ~~product~~739 Amortization of financing costs............. 489 473 Postretirement health care benefits......... 622,~~122~~254 602,~~785~~935 ~~Supplies~~Pension benefits............................ 1,394 1,941 Provision for losses on accounts receivable. - 2,050 Gain on other investments................... ~~122~~- 74(140) Other....................................... 33 32 Impairment of other assets.................. - 10,836 Cash provided (used) by changes in certain assets and liabilities Accounts receivable......................... 3,903 428 Inventories................................. (6,519) (783) Prepaid expenses and other assets .......... (4,474) (3,152) Accounts payable............................ (3,464) (3,520) Accrued liabilities......................... (6,682) (3,584) Other liabilities........................... (21) 581 Due to parent............................... 25 - --------- --------- 93Net cash used by operating activities....... (38,~~398~~044) 99(22,~~732~~231) ~~Less~~--------- ~~LIFO~~--------- ~~reserve~~CASH FLOWS FROM INVESTING ACTIVITIES Additions to property, plant and equipment......... (4,173) (2,197) Other investments, net............................. - 5,800 --------- --------- Net cash (used) provided by investing activities....................... (4,173) 3,603 --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Net change in long-term debt....................... 10,159 (31) Capital contribution by parent..................... 1,~~693~~613 2- --------- --------- Net cash provided (used) by financing activities....................... 11,~~711~~772 (31) --------- --------- Net decrease in cash and cash equivalents............ (30,445) (18,659) Total cash and cash equivalents at beginning of period................................. 32,269 90,607 --------- --------- Total cash and cash equivalents at end of period....................................... $91 1,~~705~~824 $97 71,~~021~~948 ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for interest............................. 15,208 $ 15,155 Cash paid for income taxes......................... - -

The accompanying notes are an integral part of these consolidated financial statements. PAGE 6 RENCO STEEL HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Three months ended January 31, 2002 and 2001 ( Unaudited ) NOTE 1: BASIS OF PRESENTATION Renco Steel Holdings, Inc. (Renco Steel) is a holding company incorporated in the state of Ohio on January 20, 1998 and 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 subsidiary 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 three months ended January 31, 2002 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, 2001. NOTE 2: CASH AND CASH EQUIVALENTS Cash and cash equivalents of Renco Steel and WCI include cash on hand and short-term investments with maturities of three months or less from the date of acquisition. Renco Steel is generally restricted from utilizing the cash and cash equivalents of WCI under the terms of the indenture governing WCI's 10% Senior Secured Notes due 2004, except as permitted for the distribution of dividends to Renco Steel. 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 January 31, 2002 and October 31, 2001 was as follows:

~~Three~~January ~~months ended Nine months ended July~~ 31, ~~July~~2002 October 31, ~~2001~~(Unaudited) ~~2000~~ 2001 ~~2000~~ -------- ---~~-----~~ --------- -~~--------~~ ~~WCI~~(Dollars in thousands) Raw materials......................... $~~(18~~ 33,~~730)~~887 $ 233,~~400~~710 ~~$(73,448)~~Finished $and 18semi-finished product.... 60,~~008~~386 ~~Other~~54,042 Supplies.............................. ~~(4,235)~~94 ~~(3,912)~~95 ~~(12,875) (10,709)~~ ----------- ---------- 94,367 87,847 Less LIFO reserve..................... - - ----------- ---------- ~~Total consolidated net (loss) income...~~ $~~(22,965)~~ ~~$ (1~~94,~~512)~~367 $~~(86,323)~~ ~~$ 7~~87,~~299~~847 ======== ===~~=====~~ ======== ==~~======~~

PAGE 7 NOTE 4: RELATED PARTY TRANSACTIONS On February 27, 2002, Renco Steel borrowed $3.4 million from Renco under terms of a promissory note. On July 30, 2001, Renco Steel also borrowed $1.1 million from Renco under the terms of a promissory note. Renco's right to payment under both loans is contractually subordinated to Renco Steel's 10 7/8% Senior Secured Notes due 2005 ("Senior Secured Notes"). Both loans bear interest at a rate of 8.75% and are payable upon demand. The loans and accrued interest thereon are reflected as Due to related party on the Consolidated Balance Sheet at January 31, 2002. As of January 31, 2002 and the date hereof, Renco owns $59,320,000 principal amount of Renco Steel's Senior Secured Notes. Renco has irrevocably waived its right to receive interest in regard to its ownership of the Senior Secured Notes from February 1, 2001 to and including Janaury 31, 2002. Accordingly, a capital contribution of $1.6 million has been recorded in the three months ended January 31, 2002 and interest expense of the same amount was recorded in the Company's Statement of Operations for the same period. NOTE 5: 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 a consent decree as a result of a civil action instituted by the Department of Justice (DOJ), on behalf of the Environmental Protection Agency (EPA). The consent decree requires WCI to complete certain supplemental environmental projects estimated to cost $1.8 million that will be expended by late 2002. These projects include sediment removal from the Mahoning River at an estimated remaining cost of $0.8 million and the installation of a liner for a surface impoundment estimated to cost $1.0 million. The consent decree also provides 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 and the EPA agreed that additional sampling would be required to complete a full RFI which is expected to be completed by the end of 2003. The RFI workplan identifies thirteen historical solid waste PAGE 8 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. On October 9, 2000 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. The Federal Appeals Court has scheduled oral arguments for April 23, 2002. In addition to the above-described 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 quarter 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 6: SEGMENT REPORTING The Company applies Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information," which requires 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 basis for the three months ended January 31, 2002 and January 31, 2001, respectively. PAGE 9 All revenues are generated by WCI. Geographic revenues are based on the region in which the customer invoice was generated and all revenue was generated within the United States. The Company measures segment profit for internal reporting purposes as net income (loss). A reconciliation of segment loss to consolidated net loss is presented below for the three months ended January 31, 2002 and 2001:

~~July~~Three ~~31,~~months ~~Oct.~~ended January 31, 2002 2001 ~~2000~~ --------- --------- ~~(Unaudited) ASSETS Current assets Cash and cash equivalents~~ WCI................................ $ 45,862 $ 89,478 Accounts receivable, less allowance for doubtful accounts of $3,200 and $750, respectively ............................................ 52,393 47,599 Inventories .............................................. 90,913 96,171 Prepaid expenses and other current assets ................ 643 1,076 --------- --------- Total current assets ............................. 189,811 234,324 Property, plant and equipment, net ......................... 192,988 202,578 Intangible pension asset, net .............................. 20,897 (25,~~677~~556) ~~Other assets, net .......................................... 6,386 15,597 --------- --------- Total assets .....................................~~ $ ~~410~~(32,~~082~~510) $ 478,176 ========= ========= LIABILITIES and SHAREHOLDER'S EQUITY Current liabilities Current portion of long-term debt ........................ $ 181 $ 128 Accounts payable ......................................... 48,517 47,201 Accrued liabilities ...................................... 66,915 50,571 --------- --------- Total current liabilities ........................ 115,613 97,900 Long-term debt, excluding current portion .................. 301,374 301,252 Postretirement health care benefits ........................ 116,097 111,584 Pension benefits ........................................... 18,861 36,313 Other ~~liabilities~~ ..............................~~............~~ ~~12,214 11,756 --------- --------- Total liabilities ................................ 564,159 558,805 Shareholder's equity~~ (~~deficit) Preferred stock~~4, par value $1,000 per share, 5,000 shares authorized, none issued .................... -- -- Common stock, no par value, stated value $.01 per share, 40,000,000 shares authorized, 100 shares issued and outstanding ............................................. -- -- Additional paid-in capital ............................... 279 279 Accumulated deficit ...................................... (154,356903) (804,~~908~~424) --------- --------- Total ~~shareholder's~~consolidated ~~equity~~net ~~(deficit)~~ loss............. ~~(154,077) (80,629) Commitments and contingencies~~ ........~~......................~~ --$ ~~-- --------- --------- Total liabilities and shareholder's equity~~ (~~deficit~~30,459) ~~.................~~ $ ~~410~~(36,~~082~~934) ~~$ 478,176~~ ========= =========

NOTE 7: OTHER MATTERS Renco Steel did not pay interest on the Senior Secured Notes on February 1, 2002, the scheduled interest payment date, due to insufficient liquidity. On February 28, 2002, Renco Steel paid the overdue interest plus interest on the overdue interest to all holders other than Renco. Such payment was within the grace period afforded under the terms of the Senior Secured Notes indenture. Renco previously irrevocably waived its right to collect interest on the Senior Secured Notes it owns for the period from August 1, 2001 to January 31, 2002. Funding for the February 28, 2002 interest payment was provided by a loan from Renco of $3.4 million (see Note 4: Related Party Transaction). Further, Renco continues to seek additional Senior Secured Notes to purchase. Renco Steel's sole source of liquidity has become advances and contributions from its parent, Renco, since its two former primary sources are no longer available. Renco Steel's investments in limited partnership investments were liquidated in 2001 and dividend payments from WCI are currently prohibited under the terms of the indenture governing the Senior Secured Notes of WCI due to WCI's significant cumulative losses, as defined. WCI is required to earn in excess of its cumulative losses before it is permitted to resume dividend payments to Renco Steel. At January 31, 2002, cumulative losses were $134.2 million and are expected to increase further in 2002 based upon WCI's outlook (see Note 5 to the consolidated financial statements of WCI). It is not anticipated that WCI will be able to generate earnings in excess of its cumulative losses in the foreseeable future and therefore, Renco Steel does not expect to receive any dividends from WCI. Support from Renco will be necessary for Renco Steel to meet its debt service, and to a much lesser extent, its administrative requirements. As of January 31, 2002, Renco has provided loans amounting to $4.5 million and has irrevocably waived its right to collect interest on the Senior Secured Notes it owns resulting in a cash flow savings to Renco Steel of $6.5 million in the aggregate. Renco may make future advances or contributions to Renco Steel and may waive its right to future interest payments on the Senior Secured Notes it owns, however, Renco has no obligation to do so. PAGE 10 WCI STEEL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share amount)

~~Three~~January ~~months Nine months ended July~~ 31, ~~ended~~October ~~July~~ 31, ~~2001~~2002 ~~2000~~ 2001 ~~2000~~ ----------~~------------~~ ----------~~------------~~ ~~Net~~(Unaudited) ~~sales~~ASSETS Current assets Cash and cash equivalents....................~~....~~ $ ~~109~~1,~~988~~816 $ ~~140~~32,~~726~~244 $Accounts ~~307~~receivable,~~448~~ $less ~~438,087~~allowance ~~Operating~~for ~~costs~~doubtful ~~and~~accounts ~~expenses Cost~~ of ~~products sold~~ $3,100............. ~~112~~44,~~827~~972 ~~122~~48,~~258~~875 ~~315~~Inventories.................................. 94,~~893~~367 ~~372~~87,~~646~~075 ~~Depreciation~~Prepaid expenses and ~~amortization~~other ~~4,808~~current assets.... 5,~~837~~371 161,~~160~~049 ~~17,482~~--------- ~~Selling,~~--------- ~~general~~Total ~~and~~current ~~administrative expenses~~ assets.................. 3146,~~619~~526 4169,~~060~~243 13Property,~~163~~ ~~12,637~~plant ~~Asset~~and ~~impairment~~equipment, ~~and~~net............. ~~related~~192,913 ~~charges~~193,453 ~~(note~~Intangible 5)pension asset, net.................. --37,962 --39,556 3Other assets,~~909~~ --net.............................. ~~---------~~4,144 ~~---------~~4,361 --------- --------- ~~121,254~~Total ~~132,155~~assets.......................... ~~349~~$ 381,~~125~~545 ~~402~~$ 406,~~765~~613 ~~---------~~========= ~~---------~~========= ~~---------~~LIABILITIES and SHAREHOLDER'S EQUITY Current liabilities Current portion of long-~~--------~~term ~~Operating~~debt............ ~~income~~$ ~~(loss)~~1,359 $ 536 Accounts payable............................. ~~(11~~42,~~266)~~475 845,~~571~~939 ~~(41~~Accrued liabilities.......................... 75,~~677)~~721 3577,~~322~~679 --------- --------- ~~---------~~Total ~~---------~~current ~~Other income (expense) Interest expense~~ liabilities.............. (8119,~~004)~~555 (7124,~~983)~~154 ~~(23~~Long-term debt,~~972)~~ ~~(23~~excluding current portion...... 310,~~959)~~447 ~~Interest~~301,111 ~~and~~Postretirement ~~other~~health ~~income~~care ~~(expense)~~benefits............ 119,885 ~~net~~117,719 Pension benefits............................... ~~540~~28,606 135,~~812~~000 (7Other liabilities.............................. 10,~~799)~~042 610,~~645~~063 --------- --------- ~~---------~~Total ~~---------~~liabilities.............................. (7588,~~464)~~535 (6588,~~171)~~047 Shareholder's equity (~~31,771~~deficit) ~~(17~~Preferred stock,~~314)~~ ~~---------~~par ~~---------~~value $1,000 per share, 5,000 shares authorized, none issued....... -~~--------~~ -~~--------~~ ~~Income~~Common ~~(loss)~~stock, ~~before~~no ~~income~~par ~~taxes~~value, stated value $.01 per share, 40,000,000 shares authorized, 100 shares issued and outstanding................................ ~~(18,730)~~- ~~2,400~~- ~~(73,448)~~Additional ~~18,008~~paid-in ~~Income~~capital................... ~~tax~~279 ~~(benefit)~~279 ~~expense~~Accumulated deficit.......................... --(207,269) --(181,713) -- -- ----- ---- ----- Total shareholder's equity (deficit).. (206,990) (181,434) Commitments and contingencies.................. - --- --------- --------- ~~Net~~Total ~~income~~liabilities and shareholder's equity (~~loss~~deficit) ......~~........~~ $ ~~(18~~381,~~730)~~545 $ 2406,~~400~~613 ~~$ (73,448) $ 18,008~~ ========= ========= ~~========= =========~~

See accompanying notes to consolidated financial statements. PAGE 11 WCI STEEL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands) (Unaudited)

~~Nine~~Three months ended ~~July~~January 31, 2002 2001 ~~2000~~ --------- ---------~~---~~ ~~CASH FLOWS FROM OPERATING ACTIVITIES:~~ Net ~~income (loss)~~ sales...............................~~....~~ $~~(73~~ 89,~~448)~~604 $ 1898,~~008~~191 ~~Adjustments~~Operating tocosts ~~reconcile net income (loss) to net cash provided (used) by operating activities: Depreciation~~ and ~~amortization~~expenses ~~.....................~~Cost ~~14,658 15,276 Amortization~~ of ~~deferred~~products ~~maintenance costs~~ sold........ ~~1,502 2,206 Amortization of financing costs~~ .......~~............~~ ~~977 968 Postretirement health care benefits ............... 9~~99,~~913~~454 8102,~~869~~040 ~~Pension~~Depreciation ~~benefits .................................. 3,174 4,053 Provision for losses on accounts receivable ....... 2,450 -- Asset impairment~~ and ~~other charges~~ amortization.......~~.........~~ ~~14,393 -- Other ............................................. 93 1,150 Cash provided (used) by changes in certain assets and liabilities Accounts receivable ............................... (7,244)~~ 4,~~920~~711 ~~Inventories .......................................~~ 5,~~258~~705 ~~(10~~Selling,~~388)~~ ~~Prepaid~~general ~~expenses~~ and ~~other~~administrative ~~assets~~ expenses............~~.....~~ (3,~~319)~~384 ~~770 Accounts payable .................................. 1,316 (7,670) Accrued liabilities ............................... (~~5,~~829)~~821 ~~(4,765)~~Unusual ~~Other liabilities~~ charges.....................~~............~~ ~~458~~- ~~807~~- --------- --------- ~~Net cash (used) provided by operating activities .............................. (35~~107,~~648)~~549 34113,~~204~~566 --------- --------- ~~CASH~~Operating ~~FLOWS~~income ~~FROM INVESTING ACTIVITIES: Additions to property, plant and equipment ..........~~ (~~8,248~~loss) ~~(12,404) Gross proceeds from the sale of assets~~ .............. ~~105 -- -------- -------- Net cash used by investing activities~~ ...~~........~~ (817,~~143~~945) (1215,~~404~~375) --------- --------- ~~CASH~~Other ~~FLOWS~~income ~~FROM~~(expense) ~~FINANCING~~Interest ~~ACTIVITIES: Net change in long-term debt~~ expense........................ ~~175~~(8,051) (907,985) ~~Dividends~~Interest ~~paid~~income and other income (expense), net...............~~.......................~~ --440 (9,~~200~~150) --------- --------- ~~Net cash provided~~ (~~used~~7,611) ~~by financing activities ..................................... 175~~ (917,~~290~~135) --------- --------- ~~Net~~Income ~~increase~~ (~~decrease~~loss) inbefore ~~cash~~income ~~and cash equivalents~~ taxes.......~~.................................~~ (4325,~~616~~556) 12(32,510) ~~Cash~~Income ~~and~~tax ~~cash~~(benefit) ~~equivalents at beginning of period~~ expense............~~....................~~ ~~89,478~~- ~~76,349~~- --------- --------- ~~Cash~~Net ~~and~~income ~~cash equivalents at end of period~~ (loss)..............~~...~~ $ 45(25,~~862~~556) $ 88(32,~~859~~510) ========= ======== ~~Supplemental disclosure of cash flow information Cash paid for interest .............................. $ 30,489 $ 30,483 Cash paid for income taxes .......................... -- 21~~=

See accompanying notes to consolidated financial statements. PAGE 12 WCI STEEL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Dollars in thousands) (Unaudited)

~~July~~Three ~~31,~~months ~~October~~ended January 31, 2002 2001 ~~2000 (Unaudited)~~ ----------- ------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (~~Dollars~~loss).................................. in$ ~~thousands~~(25,556) ~~Raw~~$ ~~materials~~(32,510) Adjustment to reconcile net income (loss) to net cash provided (used) by operating activities: Depreciation and amortization............... 4,711 4,966 Amortization of deferred maintenance costs.. - 739 Amortization of financing costs............. 338 323 Postretirement health care benefits......... 2,166 2,948 Pension benefits............................ ~~$31~~1,~~154~~473 ~~$38~~2,~~873~~019 ~~Finished~~Provision for losses on accounts receivable................................. - 2,050 Asset impairment and ~~semi~~other charges.......... -~~finished~~ ~~product~~10,484 Other....................................... 6233 32 Cash provided (used) by changes in certain assets and liabilities Accounts receivable......................... 3,~~122~~903 60428 Inventories................................. (7,~~785~~292) ~~Supplies~~(802) Prepaid expenses and other assets........... (4,474) (3,152) Accounts payable............................ (3,464) (3,520) Accrued liabilities......................... ~~122~~(8,231) 74(6,784) Other liabilities........................... (21) 580 --------- --------- 93Net cash provided (used) by operating activities....................... (36,~~398~~414) 99(22,~~732~~199) ~~Less~~--------- ~~LIFO~~--------- ~~reserve~~CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant and equipment......... (4,173) (2,197) --------- --------- Net cash used by investing activities....... (4,173) (2,197) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net change in long-term debt....................... 210,~~485~~159 3(31) --------- --------- Net cash provided (used) by financing activities....................... 10,~~561~~159 (31) --------- --------- Net increase (decrease) in cash and cash equivalents....................................... (30,428) (24,427) Cash and cash equivalents at beginning of year........................................... 32,244 89,478 --------- --------- Cash and cash equivalents at end of period......... $90 1,~~913~~816 $96 65,~~171~~051 ========= ========= Supplemental disclosure of cash flow information Cash paid for interest...................... $ 15,208 $ 15,155 Cash paid for income taxes.................. - -

See accompanying notes to consolidated financial statements. PAGE 13 WCI STEEL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Three months ended January 31, 2002 and 2001 (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 months ended January 31, 2002 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, 2001. NOTE 2: INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined by the last-in, first-out (LIFO) method. Market value is determined based on expected selling price of each product. Inventories consist of the following:

~~Net~~January ~~Tons Shipped Percent of Total ------------------ ------------------ Three Months Ended Three Months Ended July~~ 31, ~~July~~October 31, ~~------------------~~2002 ~~------------------~~ 2001 ~~2000 2001 2000~~ ------- ----~~---~~ ------- ---~~----~~ ~~CUSTOM~~(Unaudited) ~~PRODUCTS:~~(Dollars ~~Hot~~in ~~Rolled~~Thousands) Raw materials......................... 75$ 33,~~747~~887 93$ 33,~~700~~542 ~~27.2%~~Finished 30and semi-finished product.3%... ~~Cold~~60,386 ~~Rolled~~53,438 Supplies.............. ~~5,193 5,856 1~~.~~9% 1~~.~~9% Coated products~~ .......... ~~64,899 68,116 23~~.~~3% 22~~.1%.. 94 95 ------- --~~-----~~ ------- --~~-----~~ ~~Total~~94,367 ~~Custom~~87,075 ~~Products~~Less LIFO reserve....... ~~145,839 167,672 52~~.~~4% 54~~.~~3% Total Commodity Products~~ .... ~~132,713 141,240 47~~.~~6% 45~~.7%...... - - ----- ----~~---~~ ------- --~~-----~~ ~~Total~~$ ~~Steel~~94,367 ~~Products~~$ ~~........ 278~~87,~~552~~075 ~~308,912 100.0% 100.0%~~ ======= ==~~=====~~ ======= ==~~=====~~

PAGE 14 NOTE 3: LONG-TERM DEBT Long-term debt consists of the following:

~~Three~~January ~~Months~~31, ~~Ended~~October ~~July~~ 31, ~~CUSTOMER~~2002 ~~CATEGORY~~ 2001 ~~2000~~ -----------~~-------------------------------~~ -----------~~----~~ ~~Conversion/further~~(Unaudited) ~~processing~~(Dollars ~~............~~in ~~51.6%~~Thousands) ~~43.2%~~Senior ~~Steel~~Secured ~~service~~Notes ~~centers~~with ~~....................~~interest ~~16.5%~~at ~~26.6~~10% ~~Construction~~payable semi- annually, due 2004..................~~...........~~ ~~18.2%~~$ ~~15.0%~~300,000 ~~Electrical~~$ ~~equipment~~300,000 ~~.....................~~Revolving ~~4.4%~~Credit ~~5.0%~~Facility ~~Direct~~(Revolver) ~~automotive~~with ~~........................~~interest 4at prime rate plus 1.85% (6.225% ~~Other~~at January 31, 2002) payable monthly...........~~.........................~~ ~~4.5%~~10,209 ~~4.0%~~- Other.................................~~........~~ 1,597 1,647 --------- --------- ~~Total~~311,806 301,647 Less current portion of long-term debt......................~~.....~~ ~~100.0%~~1,359 ~~100.0%~~536 --------- --------- $ 310,447 $ 301,111 ========= =========

The $300 million 10% Senior Secured Notes due 2004 (Senior Secured Notes) are secured by a second priority lien on substantially all of the existing property, plant and equipment of the Company which will become a first priority lien when all of the 10.5% Senior Notes due 2002 (Senior Notes) are extinguished ($0.3 million currently outstanding). A Voluntary Employee Beneficiaries Association trust fund, established to hold Company contributions to fund postretirement health care and life insurance obligations for the benefit of hourly employees, also holds a second priority lien on the security for the Senior Secured Notes, which lien will remain a second priority lien even if the lien in favor of the Senior Secured Notes becomes a first priority lien. The Company has a $100,000,000 Revolver secured by inventories and receivables and subject to eligibility requirements, as defined, reduced by any outstanding letters of credit. The Revolver is subject to a monthly service fee of $15,000 and an annual commitment fee of 0.5% of the unused balance up to $60,000,000 payable monthly. There were borrowings of $10,209,000 outstanding under the Revolver as of January 31, 2002. The Revolver, which expires December 29, 2003, also provides for up to an aggregate amount of $20,000,000 in letters of credit. The Company had borrowing availability of $64,785,000 based on eligible inventory and receivables net of $10,209,000 borrowings outstanding and $14,900,000 in letters of credit outstanding or committed at January 31, 2002 and subject to a $25 million minimum borrowing availability covenant as discussed below. The Revolver is subject to a penalty of $250,000 if terminated before October 31, 2003. The Company's Revolver and Senior Secured Notes contain certain financial and other covenants, including maintenance of specified levels of net worth as defined, working capital, and debt service and limitations on capital expenditures. Additional covenants limit the incurrence of additional indebtedness, payments affecting subsidiaries, transactions with affiliates, sale/leaseback transactions, impairment PAGE 15 of security interest, consolidations, mergers and transfer of the Company's assets. On January 25, 2002 the Company and its lenders under the Revolver agreed to amend the loan agreement to require the Company to maintain a minimum net worth, as defined, of not less than the following for each period indicated: negative $225 million through January 31, 2002, negative $240 million from February 1, 2002 through April 30, 2002, negative $255 million from May 1, 2002 through July 31, 2002, and negative $260 million on August 1, 2002 and thereafter. In addition, the Company is required to maintain minimum borrowing availability under the Revolver of $25 million. This amendment also changes the interest charged from prime rate to prime rate plus 1.5% which is currently 6.25%. The Company is permitted to declare and pay dividends, and make other transactions with affiliates provided no condition of default exists or will exist, and the accumulated amount of such transactions is no greater than fifty percent (50%) of the consolidated net income as defined (less 100% of any consolidated net loss) earned for periods subsequent to October 31, 1996 when taken as a single accounting period less management fees paid to Renco in excess of $1,200,000 annually for the same period. Under these agreements, there were no amounts available for dividends and other transactions with affiliates at January 31, 2002. NOTE 4: ENVIRONMENTAL MATTERS and OTHER CONTINGENCIES In common with much of the steel industry, the Company's facilities are located on sites that have been used for heavy industrial purposes for decades. The Company is and will continue to be subject to numerous federal, state and local environmental laws and regulations governing, among other things, air emissions, waste water discharge and solid and hazardous waste management. The Company has made and intends to continue to make the necessary expenditures for environmental remediation and compliance with environmental laws and regulations. Environmental laws and regulations continue to change and have generally become more stringent, and the Company may be subject to more stringent environmental laws and regulations in the future. Compliance with more stringent environmental laws and regulations could have a material adverse effect on the Company's financial condition and results of operations. The Company is subject to a consent decree as a result of a civil action instituted by the Department of Justice (DOJ), on behalf of the Environmental Protection Agency (EPA). The consent decree requires the Company to complete certain supplemental environmental projects estimated to cost $1.8 million that will be expended by late 2002. These projects include sediment removal from the Mahoning River at an estimated remaining cost of $0.8 million and the installation of a liner for a surface impoundment estimated to cost approximately $1.0 million. The consent decree also provides for stipulated penalties in the event of noncompliance which the Company does not believe will be material. As a condition of a previous Resource Conservation and Recovery Act (RCRA) operating permit, the Company is required to undertake a corrective action program with respect to historical material handling practices at the Warren facility. The Company has completed the initial phase of the first investigation step of the corrective action program, the RCRA Facility Investigation (RFI), and has submitted its PAGE 16 report to the EPA. The Company and the EPA agreed that additional sampling would be required to complete a full RFI which is expected to be completed by the end of 2003. The RFI workplan identifies thirteen historical solid waste management units to be investigated. The final scope of corrective action required to remediate any contamination that may be present at or emanating from the Warren facility is dependent upon the completion and findings of the RFI and the development and approval of a corrective action program. Accordingly, the Company is unable at this time to estimate the final cost of the corrective action program or the period over which such costs may be incurred and there can be no assurance that any such corrective action program would not have a material adverse effect on the operating results or financial condition of the Company. On January 23, 1996, two retired employees instituted an action against the Company and the United Steelworkers of America (USWA) in the United States District Court for the Northern District of Ohio alleging in substance that certain distributions made by the Company to employees and benefit plans violated certain agreements, the Employee Retirement Income Security Act (ERISA), the National Labor Relations Act (NLRA) and common law. On July 31, 1997, the court granted the Company's motion to dismiss this action and entered judgement in favor of the Company and the USWA. 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. On October 9, 2000 the court granted the Company's motion to dismiss this action and entered judgement in favor of the Company and the USWA. The plaintiffs filed an appeal regarding the court's decision to dismiss. The Federal Appeals Court has scheduled oral arguments for April 23, 2002. In addition to the above-described matters, the Company is contingently liable with respect to lawsuits and other claims incidental to the ordinary course of its business. A liability has been established for an amount, which the Company believes is adequate, based on information currently available, to cover the costs to resolve the above described matters, including remediation, if any, except for any costs of corrective action that may result from the RFI for which no estimate can currently be made. The outcome of the above described matters could have a material adverse effect on the future operating results of the Company in a particular quarter or annual period; however, the Company believes that the effect of such matters will not have a material adverse effect on the Company's consolidated financial position. NOTE 5: OTHER MATTERS WCI has experienced a significant increase in its order intake rate and backlog beginning in December 2001 which has resulted from the expectation of lower imports due to the pending Section 201 investigation, the recent closure of a competitor, a conclusion to inventory reductions by customers and the beginning of an economic recovery. WCI's order backlog was approximately 250,000 tons at January 31, 2002 compared to 135,000 tons at October 31, 2001. With the increasing order entry rate and backlog, the Company and most other PAGE 17 flat rolled steel producers announced price increases effective during the second calendar quarter 2002 totaling $50 per ton on hot-rolled, $30 per ton on cold-rolled, and $20 per ton on galvanized products. Due to these factors, the Company expects shipping volume in the second quarter 2002 to be approximately 315,000 tons and the third quarter 2002 to be approximately 330,000 tons. WCI expects net sales per ton shipped to be flat in the second quarter compared to the first quarter with net selling prices rising and being offset by lower revenue from steam sales to the LTV coke plant adjacent to WCI's facility. Net sales per ton shipped are expected to increase by approximately $25 in the third quarter compared to the second quarter. In addition, WCI expects cost of products sold per ton to decline approximately 7% in the second quarter compared to the first quarter as capacity utilization increases and inventory valuation reserves are reduced. Despite these improvements, WCI expects to incur a significant net loss during fiscal 2002 for which WCI believes it has adequate availability of cash resources to maintain operations through at least fiscal 2002. However, if the volume or price increases expected to be realized during the second and third quarters of fiscal 2002 are not realized or sustained for the balance of fiscal 2002, it is likely that WCI will not have adequate availability under its existing financing arrangements and will require additional sources of financing. WCI cannot assure that it has the ability to obtain such additional financing, or what the terms of any additional financing might be. Failure to obtain additional financing in these circumstances would likely have a material adverse effect on WCI's operations. For periods beyond fiscal 2002, further price improvements will be necessary for the Company to have sufficient cash resources to maintain its operations. PAGE 18 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATION Three months ended January 31, 2002 compared to Three months ended January 31, 2001 Net sales for the three months ended January 31, 2002 were $89.6 million on 244,818 tons shipped, representing an 8.7% decrease in net sales and a 3.3% increase in tons shipped compared to the three months ended January 31, 2001. Shipping volume for the three months ended January 31, 2002 was slightly higher than the comparable period in 2001 but was 13.9% lower when compared to the prior quarter ended October 31, 2001 as the steel market continued to suffer from the effects of a weak economy. Net sales per ton shipped decreased 11.6% to $366 for the three months ended January 31, 2002 compared to $414 for the three months ended January 31, 2001, with net selling prices down 8.5%. Shipments of custom carbon, alloy and electrical steels accounted for 46.4% of total shipments for the three months ended January 31, 2002 compared to 52.3% the three months ended January 31, 2001. The table below shows WCI's product mix for the three months ended January 31, 2002 and January 31, 2001.

Net Tons Shipped Percent of Total ---------------------- ---------------------- ~~Nine~~Three Months Ended ~~Nine~~Three Months Ended ~~July~~January 31, ~~July~~January 31, 2002 2001 ~~2000~~2002 2001 ~~2000~~ -------- ------- ------- ------- CUSTOM PRODUCTS: Hot Rolled ................. ~~229~~69,~~557~~744 ~~312~~76,~~283~~963 3028.35% 3132.75% Cold Rolled ................ 136,~~567~~061 144,~~561~~049 12.85% 1.57% Coated products ............ ~~163~~37,~~392~~670 ~~188~~42,~~595~~883 2115.64% 1918.21% ------- ------- ------- ------- Total Custom Products .......... ~~406~~113,~~516~~475 ~~515~~123,~~439~~895 5346.74% 52.43% Total Commodity Products ....... ~~350~~131,~~190~~343 ~~469~~113,~~261~~128 4653.36% 47.67% ------- ------- ------- ------- Total Steel Products ........... ~~756~~244,~~706~~818 ~~984~~237,~~700~~023 100.0% 100.0% ======= ======= ======= =======

PAGE 19 The following table sets forth the percentage of WCI's net tons shipped to various markets for the three months ended January 31, 2002 and January 31, 2001.

~~Nine~~Three Months Ended ~~July~~January 31, CUSTOMER CATEGORY 2002 2001 ~~2000~~ ----------------------------------------- ------ ------~~----~~ Conversion / further processing ........... 5057.38% 4952.41% Steel service centers ................... 1914.73% 2522.32% Construction ............................ 1512.42% 11.84% Electrical equipment .................... 4.96% 54.09% Direct automotive ....................... 5.02% 45.91% Other ................................... 45.79% 34.63% ------ ------ Total ................................. 100.0% 100.0% ====== ======

Gross margin (loss) (sales less cost of products sold) was ($10.5) million for the three months ended January 31, 2002 compared to gross margin (loss) of ($3.8) million for the three months ended January 31, 2001. The decrease in gross margin reflects the lower transaction prices discussed above partially offset by lower production costs resulting from a higher production volume and its effect on fixed operating costs per ton. Production volume for the three months ended January 31, 2002 was approximately 77% of operating capacity compared to approximately 63% for the three months ended January 31, 2001. Operating income (loss) was ($19.4) million, or ($79) per ton, for the three months ended January 31, 2002 compared to operating income (loss) of ($16.2) million, or ($68) per ton, for the three months ended January 31, 2001. The increase in operating loss reflects the lower gross margin discussed above offset somewhat by lower depreciation expense and bad debt expense. The operating loss for the 2001 period included a charge of $2.1 million to establish a reserve for amounts due from a financially distressed steel company. Excluding this charge, the operating loss was ($14.1) million, or ($59) per ton for the three months ended January 31, 2001. Interest, investment and other income (expense), net was $0.4 million for the three months ended January 31, 2002 compared to ($9.3) million for the three months ended January 31, 2001. In the 2001 period the Company recorded a charge of $10.8 million to write down the carrying value of Acme Metals, Inc. 10.875% Senior Unsecured Notes predominantly owned by WCI and, to a much lesser extent, by Renco Steel. Interest income was $46,000 for the three months ended January 31, 2002 compared to interest income of $1.2 million for the three months ended January 31, 2001. The decrease in interest income was due primarily to lower cash balances for the three months ended January 31, 2002 compared to the three months ended January 31, 2001. As a result of the items discussed above, the Company had a loss before taxes of $30.5 million for the three months ended January 31, 2002 compared to a loss before taxes of $36.9 million for the three months ended January 31, 2001. PAGE 20 Effective November 1, 1998, the Company was designated as a qualified subchapter S subsidiary by Renco. Accordingly, the Company is generally not subject to income taxes. LIQUIDITY AND CAPITAL RESOURCES Renco Steel In February 1998, Renco Steel issued $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 did not make the interest payment that was due on February 1, 2002 on the Senior Secured Notes due to insufficient liquidity. On February 28, 2002, Renco Steel paid the overdue interest and interest on the overdue interest to all holders other than Renco, which was within the grace period afforded under the terms of the Senior Secured Notes indenture. Funding for the February 28, 2002 payment was provided by a loan of $3.4 million from Renco. As of January 31, 2002, and the date hereof, Renco owns $59,320,000 face value of Renco Steel's Senior Secured Notes. Renco continues to seek additional Senior Secured Notes to purchase. Renco is entitled to receive interest payments from Renco Steel in accordance with the terms of the indenture governing the Senior Secured Notes, however, Renco irrevocably waived its right to collect interest for the payment that was due on February 1, 2002. This waiver has been recorded as a capital contribution of $1.6 million in the three months ended January 31, 2002 and interest expense of the same amount was also recorded in the Company's statement of operations for the same three month period. As of January 31, 2002, in the aggregate, Renco has waived a total of $6.5 million of interest. 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. In the past, Renco Steel has met these requirements through distributions from WCI, from its cash and limited partnership investments, and from Renco support in the form of a loan and waiver of its right to collect certain interest (from February 1, 2001 to January 31, 2002) on the Senior Secured Notes it owns. Due to significant losses incurred by WCI in the last five quarters, WCI does not expect to pay dividends to Renco Steel in the foreseeable future. WCI's ability to pay dividends to Renco Steel is restricted by the terms of the indenture governing WCI's 10% Senior Secured Notes due 2004 (Senior Secured Notes of WCI). Pursuant to the indenture, dividends are generally limited to 50% of WCI's cumulative earnings since October 31, 1996 (Dividend Basket). As of January 31, 2002, WCI had a negative Dividend Basket of $134.2 million, therefore, WCI will not be permitted to pay dividends to Renco Steel until its earnings exceed such amount. Other than allowable dividends, WCI's assets may not be utilized by Renco Steel. Renco Steel's ability to meet its debt service and working capital needs, given WCI's inability to provide dividends in the foreseeable future, will be completely dependent upon future support from Renco. Renco may make future advances or contributions to Renco Steel and may waive its right to PAGE 21 future interest payments on the Senior Secured Notes, however, Renco has no obligation to do so. 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. The ability of Renco Steel to comply with such covenants will be completely dependent upon future support from Renco. The limitation on the incurrence of additional indebtedness is $15.0 million from a related party and $15.0 million from other sources that may include related parties. Based upon the outstanding principal and accrued interest of the two Renco loans, approximately $25.5 million is available for future borrowing. At January 31, 2002 Renco Steel was in compliance with the terms of the indenture governing the Senior Secured Notes. The Senior Secured Notes have been classified as a current liability on the Company's consolidated balance sheet as of January 31, 2002 and October 31, 2001 due to Renco Steel's insufficient liquidity position. Renco Steel's ability to meet its debt service and working capital obligations is completely dependent upon support from Renco. Failure to receive such support will have a material adverse effect on Renco Steel's financial condition and liquidity position. Cash used by operating activities was $38.0 million for the three months ended January 31, 2002 compared to $22.2 million for the 2000 period. The decreased operating cash flow in the 2001 period compared to the 2000 period resulted primarily from a decrease in income before taxes (after adjusting the 2001 period loss to exclude non recurring, non-cash charges) and changes in working capital. Cash used by investing activities was $4.2 million in the three months ended January 31, 2002 compared to cash provided by investing activities of $3.6 million in the 2001 period. Capital expenditures of $4.2 million in 2002 were $2.0 million higher than the comparable 2001 period. In 2001, Renco Steel redeemed a portion of its investment in a limited partnership investment and received proceeds of $5.8 million. Cash provided by financing activities was $10.2 million in the three months ended January 31, 2002 due to borrowing by WCI under its $100 million revolving credit agreement (WCI Revolver). WCI did not borrow under the WCI Revolver in 2001. Renco Steel paid no dividends and was not permitted to do so under the Senior Secured Notes indenture during the three months ended January 31, 2002. WCI WCI's liquidity requirements result from capital investments, working capital requirements, postretirement health care and pension funding, interest expense and, to a lesser extent, principal payments on its indebtedness. WCI's primary sources of liquidity as of January 31, 2002 consisted of cash and cash equivalents of $1.8 million and available borrowing under the WCI Revolver. PAGE 22 The WCI Revolver has a maximum borrowing limit of $100 million, is secured by inventories and receivables and subject to eligibility requirements, as defined therein, and expires on December 29, 2003. As of January 31, 2002, WCI had borrowing availability of $65.5 million based on eligible inventories and receivables net of $10.2 million borrowings outstanding and $14.9 million in letters of credit outstanding or committed and subject to a $25 million minimum borrowing availability covenant. Cash from Operations Cash provided (used) by WCI's operating activities was ($36.4) million for the three months ended January 31, 2002 compared to ($22.2) million for the three months ended January 31, 2001. The decreased operating cash flow for the 2002 period compared to the 2001 period resulted primarily from a decrease in income before taxes (after adjusting the 2001 period loss to exclude non-recurring, non-cash charges) and changes in working capital. Capital Expenditures Capital expenditures were $4.2 million and $2.2 million for the three months ended January 31, 2002 and January 31, 2001, respectively. Capital expenditures are expected to be approximately $9 million for all of fiscal 2002. At January 31, 2002, WCI had commitments for capital expenditures of approximately $1.8 million. Debt Covenants The WCI Revolver 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 and limitations on the incurrence of additional indebtedness. On January 25, 2002 WCI and its lenders under the WCI Revolver agreed to amend the loan agreement to require WCI to maintain a minimum net worth, as defined, of not less than the following for each period indicated: negative $225 million through January 31, 2002, negative $240 million from February 1, 2002 through April 30, 2002, negative $255 million from May 1, 2002 through July 31, 2002, and negative $260 million on August 1, 2002 and thereafter. In addition, WCI is required to maintain minimum availability under the WCI Revolver of $25 million. 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. Dividends WCI paid no dividends and was not permitted to do so under the Senior Secured Notes of WCI indenture during the three months ended January 31, 2002. WCI does not expect to be permitted to pay dividends for the foreseeable future based on limitations under the Senior Secured Notes of WCI indenture. PAGE 23 Defined Benefit Pension Plan WCI has a defined benefit pension plan (DBP) which covers substantially all bargained for employees. WCI expects to contribute approximately $29.6 million, $26.3 million and $21.1 million to the DBP during 2002, 2003 and 2004, respectively, which is expected to satisfy the minimum funding requirements of ERISA for those periods. This funding reflects the results of the actuarial valuation completed as of November 1, 2001. Due primarily to the reduction in the offset from the frozen defined contribution plan resulting from adverse investment experience and from changes in the status of plan participants different from assumptions WCI's projected benefit obligation increased from $98.7 million as reported in WCI's 10-K as of October 31, 2001 to $114.9 million and caused an increase in the minimum funding. WCI contributed $7.2 million, $4.2 million and $6.7 million to the DBP during the fiscal years ended October 31, 2001, 2000 and 1999, respectively. Outlook During the last four years steel imports into the U.S. have adversely affected shipping volume and has contributed significantly to the depressed pricing environment in the current market. During this period, WCI and the steel industry have filed various trade cases against hot-rolled and cold-rolled carbon steel flat products from various countries (certain of which are pending before the ITC) in response to this increase in imports. While various duties have been imposed on these products from certain countries, to date these duties have been ineffective in reducing overall steel imports to the U.S. As a result of the distortion of steel supply created by the surge of imports of flat rolled steel products and the lower demand for steel products during 2001 due to the slumping economy, competition has intensified in WCI's high carbon and alloy product markets, particularly from minimills. This increased competition has influenced the pricing structure of these products and has reduced the premium WCI is currently able to receive on these products compared to commodity products. In response to the surging imports, in June 2001 the U.S. Trade Representative, at the direction of President Bush, requested an investigation by the International Trade Commission under Section 201 of the Trade Act of 1974 to determine whether steel is being imported into the U.S. in such quantities as to be a substantial cause of serious injury to the U.S. steel industry. This request included the investigation of carbon and alloy flat rolled products among other products. On October 22, 2001 the ITC determined that the requisite injury had been demonstrated related to carbon and alloy slabs, hot-rolled, cold-rolled and coated products. These determinations pertain to imports from all countries except Canada. On December 19, 2001 the ITC forwarded its remedy recommendations to President Bush. On March 5, 2002 President Bush issued his remedy regarding the Section 201 investigation. This remedy includes a tariff rate quota on carbon and alloy slabs of 30% in excess of 5.4 million tons per year adjusting over a three year period to 18% on imports in excess of 6.4 million tons and a 30% tariff on hot-rolled, cold-rolled and coated sheet and strip declining over a three year period to 18%. These PAGE 24 remedies pertain to imports from all countries except Canada, Mexico, Jordan, Israel and certain developing countries and is expected to be effective on or about March 20, 2002. For the longer term, the shipping levels and realized selling prices of WCI products will be influenced by the levels of imported steel, the strength of the manufacturing sector of the domestic economy and production capacity changes by domestic competitors. Domestic flat rolled steel production capacity has been reduced by the closing of seven producers during the past two years with total hot strip mill capacity of 16.7 million tons. This has contributed to the recent increase in order intake discussed below. The impact of this closed capacity may be reversed if the facilities are restarted as has frequently happened with idled steel capacity in the past. WCI has experienced a significant increase in its order intake rate and backlog beginning in December 2001 which resulted from the expectation of lower imports due to the then pending Section 201 investigation, the recent closure of a competitor, a conclusion to inventory reductions by customers and the beginning of an economic recovery. WCI's order backlog was approximately 250,000 tons at January 31, 2002 compared to 135,000 tons at October 31, 2001. With the increasing order entry rate and backlog, WCI and most other flat rolled steel producers announced price increases effective during the second calendar quarter 2002 totaling $50 per ton on hot-rolled, $30 per ton on cold-rolled, and $20 per ton on galvanized products. Due to these factors, WCI expects shipping volume in the second quarter 2002 to be approximately 315,000 tons and the third quarter 2002 to be approximately 330,000 tons. WCI expects net sales per ton shipped to be flat in the second quarter compared to the first quarter with net selling prices rising and being offset by lower revenue from steam sales to the LTV coke plant adjacent to WCI's facility. Net sales per ton shipped are expected to increase by approximately $25 in the third quarter compared to the second quarter. In addition, WCI expects cost of products sold per ton to decline approximately 7% in the second quarter compared to the first quarter as capacity utilization increases and inventory valuation reserves are reduced. Despite these improvements, WCI expects to incur a significant net loss during fiscal 2002 for which WCI believes it has adequate availability of cash resources to maintain operations through at least fiscal 2002. However, if the volume or price increases expected to be realized during the second and third quarters of fiscal 2002 are not realized or sustained for the balance of fiscal 2002, it is likely that WCI will not have adequate availability under its existing financing arrangements and will require additional sources of financing. WCI cannot assure that it has the ability to obtain such additional financing, or what the terms of any additional financing might be. Failure to obtain additional financing in these circumstances would likely have a material adverse effect on WCI's operations. For periods beyond fiscal 2002, further price improvements will be necessary for the Company to have sufficient cash resources to maintain its operations. Renco Steel's sole source of liquidity has become advances and contributions from its parent, Renco, since its two former primary sources are no longer available. Renco Steel's investments in limited partnership investments were liquidated in 2001 and dividend payments from WCI are currently prohibited under the terms of the indenture PAGE 25 governing the Senior Secured Notes of WCI due to WCI's significant cumulative losses, as defined. WCI is required to earn in excess of its cumulative losses before it is permitted to resume dividend payments to Renco Steel. At January 31, 2002, cumulative losses were $134.2 million and are expected to increase further in 2002 based upon WCI's outlook as discussed above. It is not anticipated that WCI will be able to generate earnings in excess of its cumulative losses in the foreseeable future and therefore, Renco Steel does not expect to receive any dividends from WCI. Support from Renco will be necessary for Renco Steel to meet its debt service, and to a much lesser extent, its administrative requirements. As of January 31, 2002, Renco has provided loans amounting to $4.5 million and has irrevocably waived its right to collect interest on the Senior Secured Notes it owns resulting in a cash flow savings to Renco Steel of $6.5 million in the aggregate. Renco may make future advances or contributions to Renco Steel and may waive its right to future interest payments on the Senior Secured Notes it owns, however, Renco has no obligation to do so. Accounting Standards In July 2001, the Financial Accounting Standards Board (FASB) issued Statement No. 142, Goodwill and Other Intangible Assets. Statement 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of Statement 142. The Company adopted Statement 142 effective November 1, 2001. The adoption of Statement 142 did not have a material effect on either financial position or results of operations. In August 2001, the FASB issued Statement No. 143, Accounting for Asset Retirement Obligations. Statement 143 applies to legal obligations associated with the retirement of certain long-lived assets. It requires companies to record the fair value of the liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the company capitalizes a cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, the company either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. Statement 143 is required to be adopted in fiscal years beginning after June 15, 2002. The Company has not yet determined the effect, if any, that adopting Statement 143 will have on future earnings and financial position. In August 2001, the FASB issued Statement No. 144, Accounting for Impairment or Disposal of Long-Lived Assets. This statement establishes a single accounting model for long-lived assets to be disposed of by sale and provides additional implementation guidance for assets to be held and used and assets to be disposed of other than by sale. The Company adopted the Statement effective November 1, 2001. There was no financial implication related to the adoption of Statement No. 144, and the guidance will be applied on a prospective basis. PAGE 26 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; demand for Company products; changes in industry capacity and levels of imports of steel or steel products; after effects of the Section 201 ruling; industry trends, including product pricing; competition; currency fluctuations; the loss of any significant customers; availability of qualified personnel; major equipment failures; future loans from Renco; future waivers of interest by Renco in regard to the Senior Secured Notes it owns; changes in, or the failure or inability to comply with, government regulation, including, without limitation, environmental regulations; and the outcome of legal matters. These forward-looking statements speak only as of the date of this report. The Company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in the Company's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK WCI is exposed to commodity price risk with respect to natural gas and zinc. WCI uses forward purchase contracts to manage the volatility related to the exposure. No contracts are entered into for speculative purposes. WCI's market risk has not changed materially from that reported in the Company's Form 10-K for the fiscal year ended October 31, 2001. PAGE 27 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, 2001, see Part I, Note 5 to Item 1, Financial Statements. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On January 2, 2002, The Renco Group, Inc. as sole shareholder of Renco Steel Holdings, Inc., executed a written consent, in lieu of an annual meeting of shareholders, for the re-election of Ira Leon Rennert as chairman and sole director of Renco Steel Holdings, Inc. 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: The Company filed a Form 8-K, Item 5, Other Events, on January 28, 2002 to disclose the scheduled interest payment, due on February 1, 2002 for the Senior Secured Notes, would not be made on the due date. PAGE 28 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: March 18, 2002 /s/ IRA L. RENNERT ------------------------------------- Ira L. Rennert Chairman of the Board, President and Director (principal executive officer) /s/ ROGER L. FAY ------------------------------------- Roger L. Fay Vice President and Chief Financial Officer (principal financial and accounting officer) PAGE 29 RENCO STEEL HOLDINGS, INC. EXHIBIT INDEX Exhibit Number Description -------------- ----------- 10.1.6 Promissory Note dated February 27, 2002 between Renco Steel Holdings, Inc. and The Renco Group, Inc.

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