<PAGE> 1
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the three month period ended June 30, 1999 Commission File Number: 333-04254
---------
BAR TECHNOLOGIES INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-3753384
- ------------------------------------------- -------------------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
3770 EMBASSY PARKWAY
AKRON, OHIO 44333 (330) 670-3000
- ------------------------------------------- -------------------------------
(Address of principal executive offices) (Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
X Yes No
----- -----
Number of shares outstanding of common stock as of June 30, 1999:
CLASS A COMMON STOCK, $0.001 PAR VALUE 204,458 SHARES
CLASS B COMMON STOCK, $0.001 PAR VALUE 536,829 SHARES
CLASS C COMMON STOCK, $0.001 PAR VALUE 536,865 SHARES
1
<PAGE> 2
BAR TECHNOLOGIES INC.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
------------------------------
<TABLE>
<CAPTION>
Item 1. Financial Statements
<S> <C>
Consolidated Statements of Operations (Unaudited) for the three and six month
periods ended June 30, 1999 and July 4, 1998.............................................3
Consolidated Balance Sheets as of June 30, 1999 (Unaudited) and
January 2, 1999........................................................................4-5
Consolidated Statements of Stockholders' Equity (Deficit) for the year ended January 2,
1999 and the six month period ended June 30, 1999 (Unaudited)............................6
Consolidated Statements of Cash Flows (Unaudited) for the six month
periods ended June 30, 1999 and July 4, 1998.............................................7
Notes to Consolidated Financial Statements............................................8-14
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........................................14-19
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings.......................................................................20
Item 2. Changes in Securities...................................................................20
Item 3. Defaults Upon Senior Securities.........................................................20
Item 4. Submission of Matters to a Vote of Security Holders.....................................20
Item 5. Other Information.......................................................................20
Item 6. Exhibits and Reports on Form 8-K........................................................20
Signatures..............................................................................21
</TABLE>
2
<PAGE> 3
Bar Technologies Inc. and Subsidiaries
Consolidated Statements of Operations
For the Three and Six Month Periods Ended
June 30, 1999 and July 4, 1998
(In thousands of dollars, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------------- ---------------------------
June 30, July 4, June 30, July 4,
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 76,592 $ 79,946 $ 136,369 $ 161,589
Cost of sales 75,009 72,000 131,778 150,986
Depreciation and amortization 1,683 1,491 2,930 2,918
Selling, general and administrative
expenses 3,484 5,020 6,407 9,920
--------- --------- --------- ---------
Income (loss) from operations (3,584) 1,435 (4,746) (2,235)
Interest expense, net 6,590 7,013 12,635 13,187
Other expense (income) 492 (191) 454 (268)
--------- --------- --------- ---------
Loss before provision for income taxes (10,666) (5,387) (17,835) (15,154)
Provision (benefit) for income taxes 283 (104) 376 59
--------- --------- --------- ---------
Net loss (10,949) (5,283) (18,211) (15,213)
Preferred stock dividends 96 96 192 192
--------- --------- --------- ---------
Net loss applicable to common shares $ (11,045) $ (5,379) $ (18,403) $ (15,405)
========= ========= ========= =========
Net loss per share - basic and diluted $ (8.64) $ (4.21) $ (14.40) $ (12.05)
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
Bar Technologies Inc. and Subsidiaries
Consolidated Balance Sheets
As of June 30, 1999 and January 2, 1999
(In thousands of dollars)
<TABLE>
<CAPTION>
June 30, 1999 January 2, 1999
------------- ---------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,883 $ 2,188
Accounts receivable, less allowances of $1,111 and
$1,104, respectively 29,163 26,152
Amounts due from affiliates 12,863 1,935
Inventories 73,048 74,168
Other current assets 3,024 2,676
--------- ---------
Total current assets 120,981 107,119
Property, plant and equipment:
Land and improvements 2,629 2,580
Buildings and improvements 20,042 19,944
Machinery and equipment 78,702 72,162
Construction in-progress 6,659 8,396
--------- ---------
Total property, plant and equipment 108,032 103,082
Accumulated depreciation (15,812) (12,983)
--------- ---------
Net property, plant and equipment 92,220 90,099
Goodwill, net of accumulated amortization of $1,053 and
$891, respectively 11,807 11,969
Restricted debt service fund 1,551 1,551
Other assets 10,834 11,763
--------- ---------
Total assets $ 237,393 $ 222,501
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
Bar Technologies Inc. and Subsidiaries
Consolidated Balance Sheets
As of June 30, 1999 and January 2, 1999
(In thousands of dollars, except per share data)
<TABLE>
<CAPTION>
June 30, 1999 January 2, 1999
------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) (Unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 42,818 $ 44,791
Amounts due to affiliates 63,121 16,401
Accrued interest 4,474 4,885
Other accrued liabilities 16,008 19,687
Current maturities of long-term debt 3,614 3,805
Revolving credit facility 69,372 79,000
--------- ---------
Total current liabilities 199,407 168,569
Long-term debt 128,229 128,962
Deferred income taxes 5,031 5,001
Amounts due to affiliates, long-term 221 531
Other long-term liabilities 8,392 5,377
--------- ---------
Total liabilities 341,280 308,440
Redeemable stock:
Series A preferred stock $0.001 par value
Authorized 1,100 shares
Issued and outstanding, 1,100 shares 5,500 5,500
Commitments and contingencies
Stockholders' equity (deficit):
Series B preferred stock $0.001 par value
Authorized, issued and outstanding, 1 share -- --
Class A common stock, $0.001 par value
Authorized, 1,000,000 shares
Issued and outstanding, 204,458 shares -- --
Class B common stock, $0.001 par value
Authorized, 600,000 shares
Issued and outstanding, 536,829 shares 1 1
Class C common stock, non-voting, $0.001 par value,
Authorized, 600,000 shares
Issued and outstanding, 536,865 shares 1 1
Additional paid-in capital 63,055 63,055
Warrants outstanding 5,119 5,119
Accumulated deficit (176,827) (158,424)
Accumulated other comprehensive loss (736) (1,191)
--------- ---------
Total stockholders' equity (deficit) (109,387) (91,439)
--------- ---------
Total liabilities and stockholders' equity (deficit) $ 237,393 $ 222,501
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
<TABLE>
<CAPTION>
Bar Technologies Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity (Deficit)
For the Year Ended January 2, 1999 and Six Month Period Ended June 30, 1999 (Unaudited)
(In thousands of dollars)
Additional
Class A Class B Class C Paid-in Warrants
Common Stock Common Stock Common Stock Capital Outstanding
--------------- -------------- --------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Balance, January 3, 1998 $ - $ 1 $ 1 $ 63,055 $ 5,119
Net loss
Preferred stock dividend
Other comprehensive
income - foreign currency
translation adjustments
--------------- -------------- --------------- -------------- ------------
Balance, January 2, 1999 - 1 1 63,055 5,119
Net loss
Preferred stock dividend
Other comprehensive
income - foreign currency
translation adjustments
--------------- -------------- --------------- -------------- ------------
Balance, June 30, 1999 $ - $ 1 $ 1 $ 63,055 $ 5,119
=============== ============== =============== ============== ============
<CAPTION>
Accumulated
Other Total
Accumulated Comprehensive Comprehensive Stockholders'
Deficit Income (Loss) Income (Loss) Equity (Deficit)
------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Balance, January 3, 1998 $ (116,061) $ (494) $ (48,379)
Net loss (41,978) $ (41,978) (41,978)
Preferred stock dividend (385) (385)
Other comprehensive
income - foreign currency
translation adjustments (697) (697) (697)
-------------- ----------------- ----------------- ----------------
Balance, January 2, 1999 (158,424) (1,191) $ (42,675) (91,439)
=================
Net loss (18,211) $ (18,211) (18,211)
Preferred stock dividend (192) (192)
Other comprehensive
income - foreign currency
translation adjustments 455 455 455
-------------- ----------------- ----------------- ----------------
Balance, June 30, 1999 $ (176,827) $ (736) $ (17,756) $ (109,387)
============== ================= ================= ================
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 7
Bar Technologies Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Six Month Periods Ended June 30, 1999 and July 4, 1998
(In thousands of dollars)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, July 4,
1999 1998
--------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities
Net loss $(18,211) $(15,213)
Adjustments to reconcile net cash provided by
(used in) operating activities:
Depreciation and amortization 2,930 2,918
Amortization of original issue discount 772 673
Amortization of deferred financing cost 1,343 1,224
Increase in accounts receivable (4,590) (8,066)
(Increase) decrease in inventory 1,442 (2,617)
Increase in other current assets (375) (471)
Increase (decrease) in accounts payable (1,037) 1,908
Increase in due to affiliates, net 35,482 ---
Increase (decrease) in other current liabilities (3,856) 5,916
Other 3,112 (220)
-------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 17,012 (13,948)
-------- --------
Cash flows from investing activities
Capital expenditures (4,689) (8,585)
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (4,689) (8,585)
-------- --------
Cash flows from financing activities
Net receipts (payments) under revolving credit agreement (9,628) 25,350
Repayments of debt (1,696) (1,022)
Preferred stock dividends (192) (192)
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (11,516) 24,136
-------- --------
Effect of exchange rate changes on cash (112) (276)
NET INCREASE IN CASH AND CASH EQUIVALENTS 695 1,327
Cash and cash equivalents-beginning of period 2,188 3,391
-------- --------
Cash and cash equivalents-end of period $ 2,883 $ 4,718
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 11,140 $ 9,086
======== ========
Cash paid for income taxes, net $ 156 $ 165
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE> 8
BAR TECHNOLOGIES INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands of dollars, except share information)
1. NATURE OF OPERATIONS AND CONCENTRATION OF RISK
Bar Technologies Inc. a Delaware corporation ("Bar Tech" or, the "Company"),
manufactures and markets special bar quality ("SBQ") steel bar products. SBQ
steel bar products are high quality hot rolled and cold finished carbon and
alloy steel bars used primarily in critical applications in the automotive and
industrial equipment industries.
The Company's principal owners, Blackstone Capital Partners II Merchant Banking
Fund L. P. and its affiliates (together, "Blackstone") and Veritas Capital
Management, L.L.C. ("Veritas"), serving as general partners for limited
partnerships, acquired Republic Engineered Steels, Inc. ("Republic") in
September 1998 with the intent to combine the Company and Republic. In March
1999, Blackstone and Veritas announced their intention to combine the
steelmaking and bar producing assets of the USS/Kobe Steel Company ("USS/Kobe")
with those of Bar Tech and Republic (the "Combination"). The Combination was
completed August 13, 1999.
During fiscal 1999, the Company and Republic have shared common management and
continue to perform certain sales, marketing and administrative functions on a
combined basis. These functions include marketing both companies' steel products
jointly under the combined brand name "Republic Technologies International"
using a single sales force. The costs of joint functions have been borne ratably
by the Company and Republic based upon relative sales volumes achieved. The
Company also participates in an inventory purchasing arrangement with Republic.
Under the terms of this arrangement, Republic purchases materials on behalf of
both companies and bills the Company for its respective purchases, plus an
administrative fee.
As of January 4, 1999, Republic Technologies International Marketing, LLC
("Marketing JV") was formed to formalize the relationship between the Company
and Republic to jointly market, advertise, promote and sell both companies'
steel products to each company's existing and potential customers. The Marketing
JV is owned by the Company and Republic in equal proportions and will fill
purchase orders for steel products by purchasing such steel products from the
Company and/or Republic, as appropriate for a particular order, and allocating
such purchase orders to the Company or Republic and receiving a sales commission
designed to cover the Marketing JV's operating expenses. The Company and
Republic are reimbursed for expenses they incur on behalf of the Marketing JV,
including compensation costs of employees of the Company and Republic who
perform sales and marketing functions for the Marketing JV.
On August 13, 1999, management completed the Combination by combining USS/Kobe's
steelmaking and bar producing assets with those of the Company and Republic. The
combined company was named Republic Technologies International, LLC ("RTI").
Effective with the Combination, the Company and Republic terminated the limited
liability company agreement of the Marketing JV. (See Note 10.)
Since its formation, the Company has incurred substantial losses as a result of
the ongoing start-up activities of its facilities and its general and
administrative expenses. Any substantial delay in achieving or a failure to
bring the facilities up to commercial volumes and productivity levels, or to
sell its products in its target markets could have a material adverse effect on
the Company's financial condition and results of operations. A substantial delay
in integrating the operations of the Company, Republic and USS/Kobe could have a
material adverse effect on the Company's financial condition and results of
operations. In the event of the above, the Company may need to borrow additional
funds under its revolving credit agreement or, to the extent that the funds are
not available thereunder, to obtain additional financing to meet its cash flow
requirements. The Company is highly leveraged. Restrictive covenants included in
the indenture and other debt obligations may have the effect of limiting the
Company's ability to incur additional indebtedness, sell assets, or acquire
other entities and may otherwise limit the operational and financial flexibility
of the Company.
8
<PAGE> 9
The Company and Republic presently perform certain functions on a combined
basis and intend to further integrate operations with USS/Kobe in 1999
subsequent to the Combination. Following the Combination, the capital resources
and liquidity of the Company, Republic and USS/Kobe will be managed on a
combined basis. Management has prepared fiscal 1999 financial and operational
plans on a combined basis for the companies. Based on these plans, management
believes that the aggregate of cash flows from combined operations and available
funds under its new and existing credit agreements will be sufficient in 1999 to
enable the companies to meet their debt service requirements when due and to
fund their capital expenditures, working capital and general corporate
requirements, although there can be no assurances with respect thereto.
The Company operates in two reportable segments: hot-rolled and cold-finished.
The Company manages the reportable segments as separate strategic business
units. Differences between the segments include manufacturing techniques and
equipment, competition, and end-users.
2. BASIS OF PRESENTATION
The consolidated financial statements and other financial information included
herein have been prepared by Bar Technologies Inc. ("Bar Tech") and are
unaudited. Certain information and footnote disclosures normally prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC"). Although management believes that all adjustments, including
normal recurring adjustments, necessary for a fair presentation have been made,
interim periods are not necessarily indicative of the results of operations for
a full year. As such, these financial statements should be read in conjunction
with the audited financial statements and notes thereto for the fiscal year
ended January 2, 1999, included in the Company's Form 10-K, filed with the SEC.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The consolidated financial statements include the accounts of Bar Tech and its
wholly owned subsidiary, Bliss & Laughlin Industries Inc. ("BLI"). All
significant intercompany accounts and transactions have been eliminated.
Certain previously reported amounts have been reclassified to conform to the
current presentation.
3. FISCAL YEAR CHANGE
Effective with its reporting for fiscal 1999, the Company changed its fiscal
year from a 4/4/5 week fiscal quarter basis ending the Saturday closest to
December 31 to a calendar quarter basis with the fiscal year ending on December
31. Accordingly, under the new fiscal year calendar, the Company's quarters will
each be comprised of three calendar months ending March 31, June 30, September
30 and December 31. Previously, each of the Company's quarters were comprised of
thirteen weeks.
4. NET LOSS PER SHARE
Basic earnings per share are computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding for the
period. Diluted earnings per share reflect the potential dilution that could
occur if common stock equivalents (i.e., warrants and stock options) were
exercised and then shared in the earnings of the Company. For the three and six
month periods ended June 30, 1999 and July 4, 1998, the reported basic and
diluted earnings per share were the same; however, securities totaling 91,609
and 137,416, respectively, were excluded from the diluted earnings per share
calculations due to their antidilutive effect. The weighted average number of
common shares used in the calculation of net loss per common share was 1,278,152
for both the three and six month periods ended June 30, 1999 and July 4, 1998.
9
<PAGE> 10
5. INVENTORIES
The components of inventory were as follows:
<TABLE>
<CAPTION>
(in thousands)
June 30, 1999 January 2, 1999
------------------------- -------------------------
<S> <C> <C>
Raw materials $ 9,808 $ 13,965
Work-in-process 21,796 21,812
Finished goods 41,444 38,391
------------------------- -------------------------
Total $ 73,048 $ 74,168
========================= =========================
</TABLE>
6. OTHER ASSETS
Other assets consisted of the following:
<TABLE>
<CAPTION>
(in thousands)
June 30, 1999 January 2, 1999
------------------------- -------------------------
<S> <C> <C>
Deferred financing costs, net of accumulated
amortization of $8,513 and $7,170 $ 5,214 $ 6,557
Deferred income taxes 1,214 1,214
Other 4,406 3,992
------------------------- -------------------------
Total $ 10,834 $ 11,763
========================= =========================
</TABLE>
7. DEBT
The Company's 13 1/2% Senior Notes due April 1, 2001,consisting of $91.6 million
in aggregate principal amount at June 30, 1999, (the "Existing Senior Notes")
are fully and unconditionally guaranteed on a senior basis, jointly and
severally, by the Company's wholly-owned subsidiary, BLI and its wholly-owned
subsidiary, CDSC. The subsidiary guarantors comprise all of the direct and
indirect subsidiaries of the Company.
The following is the condensed information of the subsidiary guarantors on a
combined basis. The separate financial statements and other disclosures
concerning the subsidiary guarantors are not presented because management does
not believe they would be material to investors. The following information is as
of and for the periods described below:
<TABLE>
<CAPTION>
(in thousands)
June 30, January 2,
AT THE PERIOD ENDED: 1999 1999
------------------------- -------------------------
<S> <C> <C>
Current assets $ 54,980 $ 48,465
Noncurrent assets 37,531 37,745
Current liabilities 39,911 33,152
Noncurrent liabilities 14,261 13,979
</TABLE>
<TABLE>
<CAPTION>
(in thousands)
Three Months Three Months Six Months Six Months
Ended June 30, Ended July 4, Ended June 30, Ended July 4,
1999 1998 1999 1998
--------------------- ----------------- ----------------- -------------------
<S> <C> <C> <C> <C>
Net sales $ 34,224 $ 41,072 $ 67,205 $ 88,796
Gross profit 2,137 5,276 4,328 10,721
Operating income (loss) (782) 2,181 (820) 4,401
Net income (loss) (649) 1,619 (1,196) 3,225
</TABLE>
10
<PAGE> 11
As a result of the Combination, the Company initiated a call to purchase any
and all of the Existing Senior Notes at a purchase price of 106.75% of their
principal amount, plus accrued and unpaid interest (the "Call"). The Call will
expire on September 13, 1999.
In connection with the Existing Senior Notes, warrants were issued which
entitled the holders thereof to acquire an aggregate of 91,609 shares of Class A
Common Stock. The warrants can be exercised at a price of $0.01 per share of
common stock on or after July 1, 1996 and after the occurrence of certain other
events. The warrants will become exercisable and are expected to remain
outstanding subsequent to the Combination and the warrants will expire on
April 1, 2001.
Concurrent with the Combination, RTI issued $425.0 million in aggregate
principal amount 13 3/4 % Senior Notes due 2009 (the "New Senior Notes") and
entered into a new revolving credit agreement that permits borrowings up to
$425.0 million which are secured by certain assets of RTI. The Call will be
funded by proceeds from the issuance of the New Senior Notes and a combined
equity investment in RTI of $155.0 million by Blackstone, Veritas, FirstEnergy
Corp., USX Corporation, Kobe Steel, Ltd. and certain other investors. (See Note
10 for further discussion of the Combination.)
The Company has a revolving credit agreement with a group of banks with The
Chase Manhattan Bank as agent which originally provided the Company with
borrowings in an aggregate principal amount of up to $90.0 million, of which
$5.4 million was in the form of letters of credit. This revolving credit
agreement was subsequently amended in September 1997 to provide for the addition
of a new revolving sub-facility ("Sub-Facility") and amended certain portions of
the original revolving credit agreement. The Sub-Facility component of the
amended agreement provided the Company with up to $15.0 million of additional
borrowing capacity based on a higher receivable and inventory advance rate than
in the revolving credit agreement.
On May 5, 1999, the Company further amended its revolving credit agreement
("Amended Agreement") in conjunction with the formation of Marketing JV (See
Note 9). The Amended Agreement provides for a reduction in the Company's
borrowing capacity at June 30, 1999 to $77.0 million, of which $5.3 million is
in the form of letters of credit. In addition, amounts available under the
Company's Sub-Facility were reduced to $2.0 million with this Amended Agreement.
By July 31, 1999, amounts available under the Amended Agreement were further
reduced to $71.5 million and amounts were no longer available under the
Company's Sub-Facility. The maturity date of the Amended Agreement remains April
2, 2000 and is secured by certain assets and stock of the Company.
Borrowings under the Amended Agreement bear interest at a rate per annum equal
to, at the Company's option, either a prime rate plus 2.0% or adjusted LIBOR
plus 3.0%, subject to upward adjustment in certain circumstances. Sub-Facility
borrowings bear interest at a rate per annum equal to, at the Company's option,
either a prime rate plus 3.5% or LIBOR plus 4.5%. Borrowings outstanding under
the Amended Agreement including the Sub-Facility were $69.4 million at June 30,
1999 and $79.0 million at January 2, 1999, respectively. Based on the applicable
borrowing base, the Company's borrowings under its Amended Agreement were $4.9
million in excess of its availability at June 30, 1999. The Company has
subsequently repaid their excess borrowings. Weighted-average interest rates on
borrowings under the Amended Agreement and the Sub-Facility were 8.56% and
11.25%, respectively at June 30, 1999 and 8.79% and 11.50%, respectively, at
January 2, 1999.
The Amended Agreement contains a number of covenants that, among other things,
require the Company to maintain a minimum consolidated interest coverage ratio.
As of June 30, 1999, the Company did not comply with the consolidated interest
coverage ratio covenant. The Company has received a waiver for this
noncompliance. Furthermore, total amounts outstanding under the Company's
Amended Agreement were repaid from proceeds obtained in the Combination on
August 13, 1999.
8. SEGMENT INFORMATION
The Company operates in two reportable segments: hot-rolled and cold-finished.
The Company manages the reportable segments as separate strategic business
units. Differences between the segments include manufacturing techniques and
equipment, competition, and end-users. The Company measures segment performance
based on earnings before interest, taxes, depreciation and amortization
("EBITDA").
11
<PAGE> 12
Hot-rolled accounts for intersegment sales at current market prices as if the
transaction had taken place with a third party.
<TABLE>
<CAPTION>
For the Three Months Ended June 30, 1999
(in thousands)
--------------------------------------------------------------------------------------
Inter
Cold- Total Segment
Hot-Rolled Finished Segments Eliminations Consolidated
------------- ------------- ------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Net sales $ 47,631 $ 34,224 $ 81,855 $ (5,263) $ 76,592
Depreciation and amortization 1,143 540 1,683 --- 1,683
Segment profit (EBITDA) (2,905) 512 (2,393) --- (2,393)
Capital expenditures 2,219 216 2,435 --- 2,435
</TABLE>
<TABLE>
<CAPTION>
For the Three Months Ended July 4, 1998
(in thousands)
--------------------------------------------------------------------------------------
Inter
Cold- Total Segment
Hot-Rolled Finished Segments Eliminations Consolidated
------------- ------------- ------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Net sales $ 53,202 $ 41,072 $ 94,274 $ (14,328) $ 79,946
Depreciation and amortization 850 641 1,491 --- 1,491
Segment profit (EBITDA) 295 2,821 3,116 --- 3,116
Capital expenditures 4,621 669 5,290 --- 5,290
</TABLE>
<TABLE>
<CAPTION>
For the Six Months Ended June 30, 1999
(in thousands)
--------------------------------------------------------------------------------------
Inter
Cold- Total Segment
Hot-Rolled Finished Segments Eliminations Consolidated
------------- ------------- ------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Net sales $ 83,459 $ 67,205 $ 150,664 $ (14,295) $ 136,369
Depreciation and amortization 1,832 1,098 2,930 --- 2,930
Segment profit (EBITDA) (3,221) 951 (2,270) --- (2,270)
Segment assets 163,802 88,344 252,146 (14,753) 237,393
Capital expenditures 4,294 395 4,689 --- 4,689
</TABLE>
<TABLE>
<CAPTION>
For the Six Months Ended July 4, 1998
(in thousands)
--------------------------------------------------------------------------------------
Inter
Cold- Total Segment
Hot-Rolled Finished Segments Eliminations Consolidated
------------- ------------- ------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Net sales $ 101,520 $ 88,796 $ 190,316 $ (28,727) $ 161,589
Depreciation and amortization 1,636 1,282 2,918 --- 2,918
Segment profit (EBITDA) (4,731) 5,682 951 --- 951
Segment assets 151,799 95,572 247,371 (24,472) 222,899
Capital expenditures 7,452 1,133 8,585 --- 8,585
</TABLE>
9. RELATED PARTY TRANSACTIONS
Affiliates of Blackstone and Veritas provide certain management and financial
monitoring services to the Company pursuant to an agreement between the
respective parties for which the Company pays an annual advisory fee of $0.9
million plus reimbursement of certain out-of-pocket expenses.
At January 1, 1999, certain salaried employees of the Company became employees
of Republic. Under the terms of an employee leasing and overhead allocation
agreement, the Company and Republic share the costs of common expenses
including, but not limited to sales and marketing services, administrative
services, plant overhead and costs for certain common facilities. The Company's
allocation of these net costs, which was based on approximate
12
<PAGE> 13
share of combined trade volumes, was $2.0 and $3.7 million for the three and
six month periods ended June 30, 1999, respectively, and is included in selling,
general and administrative expense.
The Company participates in an inventory purchasing arrangement with Republic.
Under the terms of this arrangement, Republic purchases materials on behalf of
both companies and bills the Company for its respective purchases plus an
administrative fee. During the three and six month periods ended June 30, 1999,
the Company purchased approximately $18.9 and $43.3 million, respectively, of
materials from Republic. A similar arrangement is in place with regard to
insurance. Republic purchased insurance coverage for the combined company for
which the costs are borne ratably by the Company and Republic based on their
respective share of coverage. The Company purchased $8.0 and $9.8 million of
billet and bar products, at market prices, from Republic during the three and
six month periods ended June 30, 1999, respectively.
As of January 4, 1999, Marketing JV was formed to formalize prior efforts of the
Company and Republic to jointly market, advertise, promote and sell both
companies' steel products to each company's existing and potential customers.
The Marketing JV is owned by the Company and Republic in equal proportions and
fills purchase orders for steel products by purchasing such steel products from
the Company and/or Republic, as appropriate for a particular order. The
Marketing JV allocates such purchase orders to the Company or Republic and
receives sales commission designed to cover the Marketing JV's operating
expenses. The Company and Republic are reimbursed for expenses they incur on
behalf of the Marketing JV, including compensation costs of employees of the
Company and Republic who perform sales and marketing functions for the Marketing
JV. Effective with the Combination, the Company and Republic terminated the
Marketing JV (see Note 10).
The following information is the result of the Company's transactions with its
affiliates as described above. The following information is as of and for the
periods described below:
<TABLE>
<CAPTION>
(in thousands)
AS OF: June 30, 1999 January 2, 1999
------------------- --------------------
<S> <C> <C>
Amounts due from affiliates:
Republic Engineered Steels, Inc. $ 3,107 $ 1,935
Republic Technologies International Marketing, LLC 9,756 --
------------------- --------------------
$ 12,863 $ 1,935
=================== ====================
Amounts due to affiliates:
Republic Engineered Steels, Inc. $ 57,906 $ 15,526
Blackstone Capital Partners II Merchant Banking Fund L.P.
and its affiliates 1,313 875
Republic Technologies International Marketing, LLC 3,902 --
------------------- --------------------
$ 63,121 $ 16,401
=================== ====================
Amounts due to affiliates, long-term:
Republic Engineered Steels, Inc. $ 221 $ 531
------------------- --------------------
$ 221 $ 531
=================== ====================
FOR THE THREE MONTH PERIOD ENDED: June 30, 1999 July 4, 1998
------------------- --------------------
Net sales to affiliates:
Republic Engineered Steels, Inc. $ 13,463 $ --
Republic Technologies International Marketing, LLC 43,338 --
------------------- --------------------
$ 56,801 $ --
=================== ====================
FOR THE SIX MONTH PERIOD ENDED: June 30, 1999 July 4, 1998
------------------- --------------------
Net sales to affiliates:
Republic Engineered Steels, Inc. $ 22,176 $ --
Republic Technologies International Marketing, LLC 47,485 --
------------------- --------------------
$ 69,661 $ --
=================== ====================
</TABLE>
13
<PAGE> 14
10. SUBSEQUENT EVENT
On August 13, 1999, management of the Company completed the Combination of Bar
Tech, Republic and the steelmaking and bar producing assets of USS/Kobe. The
Combination was completed through a series of mergers, asset transfers, and
related steps as set forth in the Master Restructuring Agreement among the
Company, Republic and USS/Kobe and various of their affiliates. The newly formed
operating company was named Republic Technologies International, L.L.C.
As a result of the Combination, the Company initiated a call to purchase any and
all of the $91.6 million of Existing Senior Notes at a purchase price of 106.75%
of their principal amount, plus accrued and unpaid interest (the "Call"). The
Call will expire on September 13, 1999. Concurrent with the Combination, RTI
issued $425.0 million in aggregate principal amount New Senior Notes due 2009
and entered into a new revolving credit agreement that permits borrowings up to
$425.0 million and is secured by certain assets of RTI. The Call will be funded
by proceeds from the issuance of the New Senior Notes and a combined equity
investment of $155.0 million by Blackstone, Veritas, FirstEnergy Corp., USX
Corporation, Kobe Steel, Ltd. and certain other investors.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- -------------------------------------------------------------------------------
OF OPERATIONS
- -------------
OVERVIEW
See Note 1 to the Consolidated Financial Statements for a description of the
Company's operations and a discussion of its relationship with Republic, the
Marketing JV and the Combination.
During fiscal 1999, the Company and Republic have shared common management and
continue to perform certain sales, marketing and administrative functions on a
combined basis. These functions include marketing both companies' steel products
jointly under the combined brand name "Republic Technologies International"
using a single sales force. The costs of joint functions have been borne ratably
by the Company and Republic based upon relative sales volumes achieved. The
Company also participates in an inventory purchasing arrangement with Republic.
Under the terms of this arrangement, Republic purchases materials on behalf of
both companies and bills the Company for its respective purchases, plus an
administrative fee.
The Company's strategy is to expand its role as a critical supplier to
automotive and original equipment manufacturers and their first tier suppliers.
To successfully penetrate these markets, producers must meet pre-qualification
requirements for certain potential customers. Certain customers in the higher
quality bar segments require their suppliers to be certified to third party
quality systems such as QS-9000 and ISO 9000 before commencing new supplier
trials. The Company obtained QS-9000 certification for its Lackawanna hot rolled
steelmaking operations in August 1998 and is in the process of obtaining such
certification for its Johnstown hot rolled facility with completion scheduled
for third quarter 1999. The Company's Hamilton, Ontario and Harvey, Illinois
cold finishing plants also received QS-9000 certification in 1998. Certification
of the Company's facility in Cartersville, Georgia has begun with expected
completion in the first quarter 2000. As a result of these qualifications, the
Company has accelerated the shift of its product mix from lower to higher
margins and product grades.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 COMPARED WITH THREE MONTHS ENDED JULY 4, 1998
Net sales for the three months ended June 30, 1999 totaled $76.6 million on
shipments of approximately 159,200 net tons compared with net sales of $79.9
million for the three months ended July 4, 1998 on shipments of approximately
158,400 tons. Net sales for the three months ended June 30, 1999 were comprised
of $42.4 million for hot-rolled and $34.2 million for cold-finished, compared
with hot-rolled net sales of $38.9 million and cold-finished net sales of $41.0
million for the three months ended July 4, 1998. The $3.3 million decrease in
net sales is primarily the result of a 12.5% decrease in cold-finished shipping
volumes reflecting the general weakening in demand within the domestic steel. In
addition, there was a 4.9% decrease in average selling prices per ton on
cold-finished products as a reaction to competition and as a result of product
mix. Partially offsetting the decline in the cold-finished net sales results was
an increase in hot-rolled shipping volumes to Republic's cold-finished
operations as management further integrates the operations of the two companies
in anticipation of their combination.
14
<PAGE> 15
Cost of sales totaled $75.0 million, or 97.9% of net sales, for the three months
ended June 30, 1999 compared with cost of sales of $72.0 million, or 90.1% of
net sales, for the similar period ended July 4, 1998. Cost of sales for the
three months ended June 30, 1999 consisted of $42.9 million on hot-rolled
products and $32.1 million on cold-finished products compared with $36.2 million
on hot-rolled products and $35.8 million on cold-finished products for the three
months ended July 4, 1998. The increase in cost of sales as a percentage of
sales was primarily generated by a increase in material and manufacturing costs
on a cost per ton basis for both the Company's hot-rolled and cold-finished
operations.
Selling, general and administrative expenses were $3.5 million, or 4.5% of net
sales, for the three months ended June 30, 1999 compared with $5.0 million, or
6.3% of net sales, for the three months ended July 4, 1998. The decrease in
selling, general and administrative expenses is attributable to certain on-going
cost sharing arrangements begun in the fourth quarter of fiscal 1998 between the
Company and Republic. Under the terms of an employee leasing and overhead
allocation agreement, the Company and Republic share the costs of common
expenses of the combined company including, but not limited to sales and
marketing services, administrative services, plant overhead and costs for
certain common facilities. These costs are allocated according to each company's
approximate share of combined trade volumes. Also a contributing factor to the
decrease in selling, general and administrative expense as a percentage of net
sales are the results of the consolidation plan between the Company and Republic
initiating certain cost reductions in anticipation of the combination.
Net interest expense was $6.6 million for the three months ended June 30, 1999
compared with $7.0 million for the similar period ended July 4, 1998. The $0.4
million decrease in net interest expense was attributable to a decrease in the
average amount outstanding under the revolving credit agreement while average
debt levels on amounts borrowed under long-term arrangements remained relatively
constant during the comparable periods.
The provision for income taxes for the three month period ended June 30, 1999
consisted of currently payable income taxes, primarily foreign income taxes owed
by CDSC. The benefit for income taxes in the similar period of the prior year
was the result of the Company's net operating losses generating a refund of
taxes previously paid by the Company's wholly owned subsidiary, Bliss & Laughlin
Industries, Inc. As a result, the Company reported a net loss of $10.9 million
for the three months ended June 30, 1999 compared with a net loss of $5.3
million for the three months ended July 4, 1998.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED WITH SIX MONTHS ENDED JULY 4, 1998
Net sales for the six months ended June 30, 1999 totaled $136.4 million on
shipments of approximately 279,300 net tons compared with net sales of $161.6
million for the six months ended July 4, 1998 on shipments of approximately
319,000 tons. Net sales for the six months ended June 30, 1999 were comprised of
$69.2 million for hot-rolled and $67.2 million for cold-finished, compared with
hot-rolled net sales of $72.8 million and cold-finished net sales of $88.8
million for the six months ended July 4, 1998. The $25.2 million, or 15.6%,
decrease in net sales is primarily the result of a 12.5% decrease in shipping
volumes reflecting the general weakening in demand within the domestic steel
industry. In addition, there was a 3.7% decrease in average selling prices per
ton on cold-finished products as a reaction to competition and as a result of
product mix. Partially offsetting the decrease in shipping volumes was an
increase in hot-rolled shipping volumes to Republic's cold-finished operations
as management further integrates the operations of the two companies in
anticipation of their combination.
Cost of sales totaled $131.8 million, or 96.6% of net sales, for the six months
ended June 30, 1999 compared with cost of sales of $151.0 million, or 93.4% of
net sales, for the similar period ended July 4, 1998. Cost of sales for the six
months ended June 30, 1999 consisted of $68.9 million on hot-rolled products and
$62.9 million on cold-finished products compared with $72.9 million on
hot-rolled products and $78.1 million on cold-finished products for the six
months ended July 4, 1998. The increase in cost of sales as a percentage of
sales was primarily generated by a increase in material and manufacturing costs
on a cost per ton basis for both the Company's hot-rolled and cold-finished
operations.
Selling, general and administrative expenses were $6.4 million, or 4.7% of net
sales, for the six months ended June 30, 1999 compared with $9.9 million, or
6.1% of net sales, for the six months ended July 4, 1998. The decrease in
selling, general and administrative expenses is attributable to certain on-going
cost sharing arrangements begun in the fourth quarter of fiscal 1998 between the
Company and Republic. Under the terms of an employee leasing and overhead
allocation agreement, the Company and Republic share the costs of common
expenses of the combined
15
<PAGE> 16
company including, but not limited to sales and marketing services,
administrative services, plant overhead and costs for certain common facilities.
These costs are allocated according to each company's approximate share of
combined trade volumes. Also a contributing factor to the decrease in selling,
general and administrative expense as a percentage of net sales are the results
of the consolidation plan between the Company and Republic initiating certain
cost reductions in anticipation of the combination.
Net interest expense was $12.6 million for the six months ended June 30, 1999
compared with $13.2 million for the similar period ended July 4, 1998. The $0.6
million decrease in net interest expense was attributable to a decrease in the
average amount outstanding under the revolving credit agreement while average
debt levels on amounts borrowed under long-term arrangements remained primarily
fixed during the comparable periods.
The provision for income taxes for the six month period ended June 30, 1999
consisted of currently payable income taxes, primarily foreign income taxes owed
by CDSC. The provision for income taxes in the similar period of the prior year
included a benefit for income taxes as the Company's net operating losses
generating a refund of taxes previously paid by the Company's wholly owned
subsidiary, Bliss & Laughlin Industries, Inc. As a result, the Company reported
a net loss of $18.2 million for the six months ended June 30, 1999 compared with
a net loss of $15.2 million for the six months ended July 4, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Prior to the acquisition of Republic by Blackstone and Veritas, the Company's
liquidity and capital resources were managed on a stand-alone basis. The
resources available to the Company on a stand-alone basis are described below.
Subsequently, the Company's relationship with Republic has provided additional
capital resources and sources of liquidity through the combined management of
the two companies, as more fully described below.
The Company's primary capital resources have consisted of long-term debt and
borrowings under its revolving credit agreement. The long-term debt financing
arrangements consist principally of existing Senior Notes and economic
development financing. The Company has obtained deferrals of principal and
interest payments on certain economic development financing through fiscal 1999.
On May 5, 1999, the Company further amended its revolving credit agreement
("Amended Agreement") in conjunction with the formation of the Marketing JV. The
Amended Agreement required a reduction in borrowing capacity at June 30, 1999 to
$77.0 million, of which $5.3 million was in the form of letters of credit. In
addition at June 30, 1999, amounts available under the Company's Sub-Facility
were reduced to $2.0 million with this Amended Agreement. By July 31, 1999,
amounts available under the Amended Agreement were further reduced to $71.5
million and amounts were no longer available under the Company's Sub-Facility.
The maturity date of the Amended Agreement remains April 2, 2000 and is secured
by certain assets and stock of the Company.
Amounts available under the Amended Agreement and Sub-Facility vary based upon
the Company's borrowing base, as defined under the agreements. As of June 30,
1999, there were no amounts available for additional borrowings under the
Amended Agreement as the Company borrowed in excess of its availability by $4.9
million. The Company subsequently repaid these excess borrowings. Amounts
outstanding under the Company's Amended Agreement, including amounts outstanding
under its Sub-Facility, were $69.4 million and $79.0 million at June 30, 1999
and January 2, 1999, respectively. As of June 30, 1999, the Company did not
comply with the consolidated interest ratio coverage covenant for its Amended
Agreement. The Company has received a waiver for this noncompliance.
Furthermore, total amounts outstanding under the Company's Amended Agreement
were repaid from proceeds obtained in the Combination on August 13, 1999.
Weighted average interest rates on borrowings under the Amended Agreement were
8.56% and 8.79% at June 30, 1999 and January 2, 1999, respectively. Weighted
average interest rates on amounts outstanding under the Company's sub-facility
were 11.25% and 11.50% at June 30, 1999 and January 2, 1999, respectively.
Capital expenditures were $4.7 million for the six months ended June 30, 1999
compared with $8.6 million in the similar period of the prior year. Capital
expenditures are funded by cash provided by operations and borrowings under the
Company's revolving credit agreement. Expenditures for the six months ended June
30, 1999 were for capital improvement projects directed at expanding the
Company's product offering.
Cash provided by operating activities was $17.0 million for the six months ended
June 30, 1999 compared with net cash used by operations of $13.9 million for the
similar period ended July 4, 1998. The increase in net cash
16
<PAGE> 17
provided by operations was primarily attributable to the growth in net amounts
due to/from affiliates in the second quarter of 1999 compared to the similar
period in 1998.
There are no restrictions on the ability of BLI to transfer funds to the
Company.
During fiscal 1999, the Company and Republic have combined their sales efforts
and commenced marketing their respective steel products jointly under the
combined brand name "Republic Technologies International". As of January 4,
1999, Marketing JV was formed to formalize prior efforts of the Company and
Republic to jointly market, advertise, promote and sell both companies' steel
products to each company's existing and potential customers. The Marketing JV is
owned by the Company and Republic in equal proportions and fills purchase orders
for steel products by purchasing such steel products from the Company and/or
Republic, as appropriate for a particular order. The Marketing JV allocates such
purchase orders to the Company or Republic and receives a sales commission
designed to cover the Marketing JV's operating expenses. The Company and
Republic are reimbursed for expenses they incur on behalf of the Marketing JV,
including compensation costs of employees of the Company and Republic who
perform sales and marketing functions for the Marketing JV.
The Company participates in an inventory purchasing arrangement with Republic.
Under the terms of this arrangement, Republic purchases materials on behalf of
the combined companies and bills the Company for their respective share plus an
administrative fee. A similar arrangement is in place with regards to insurance.
Republic purchases insurance coverage for the combined companies for which the
costs are borne ratably by the Company and Republic based on their respective
share.
At January 1, 1999, certain salaried employees of the Company became employees
of Republic. Under the terms of an employee leasing and overhead allocation
agreement, the Company and Republic share the costs of common expenses
including, but not limited to sales and marketing services, administrative
services, plant overhead and costs for certain common facilities. The Company's
allocation of these net costs are based on approximate share of combined trade
volumes.
Since its formation, the Company has incurred substantial losses as a result of
the ongoing start-up activities of its facilities and its general and
administrative expenses. Any substantial delay in achieving or a failure to
bring the facilities up to commercial volumes and productivity levels, or to
sell its products in its target markets could have a material adverse effect on
the Company's financial condition and results of operations. A substantial delay
in integrating the operations of the Company, Republic and USS/Kobe, could have
a material adverse effect on the Company's financial condition and results of
operations. In the event of the above, the Company may need to borrow additional
funds under its Revolving Credit Agreement or, to the extent that the funds are
not available thereunder, to obtain additional financing to meet its cash flow
requirements. The Company is highly leveraged. Restrictive covenants included in
the indenture and other debt obligations may have the effect of limiting the
Company's ability to incur additional indebtedness, sell assets, or acquire
other entities and may otherwise limit the operational and financial flexibility
of the Company.
The Company and Republic presently perform the above mentioned functions on a
combined basis and intend to further integrate operations in 1999 along with
USS/Kobe subsequent to the Combination. Following the Combination, the capital
resources and liquidity of the Company, Republic and USS/Kobe will be managed on
a combined basis. Management has prepared fiscal 1999 financial and operational
plans on a combined basis for the companies. Based on these plans, management
believes that the aggregate of cash flows from combined operations and available
funds under its new and existing credit agreements will be sufficient in 1999 to
enable the companies to meet their debt service requirements when due and to
fund their capital expenditures, working capital and general corporate
requirements, although there can be no assurances with respect thereto.
Dividends declared to holders of the Company's preferred stock were
approximately $96 thousand and $192 thousand for both the three and six month
periods ended June 30, 1999 and July 4, 1998.
On August 13, 1999, management of the Company completed the Combination and RTI
concurrently issued $425.0 million in aggregate principal amount New Senior
Notes and entered into a new revolving credit agreement
17
<PAGE> 18
that permits borrowings up to $425.0 million and is secured by certain assets of
RTI. The Call will be funded by proceeds from the issuance of the New Senior
Notes and a combined equity investment of $155.0 million by Blackstone, Veritas,
FirstEnergy Corp., USX Corporation, Kobe Steel, Ltd. and certain other
investors.
Utilizing proceeds from the equity contribution and its new revolving credit
agreement, RTI repaid in full amounts outstanding under the Bar Tech revolving
credit agreement, $5.5 million for its subordinated loan agreement with
Bethlehem Steel Corporation, and $15.9 million for certain of its economic
development loans. Effective with the Combination, the Company and Republic
terminated the limited liability company agreement of the Marketing JV. (See
Note 10.)
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Year 2000
The Year 2000 issue ("Year 2000") is the result of computer programs being
written using two digits rather than four digits to define the applicable year.
Computer equipment, software and other devices with embedded technology that are
time-sensitive may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in system failures or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to receive orders or manufacture product, ship inventory, process transactions,
send invoices, deposit cash, or engage in other normal business activities. The
inability of business processes to function properly in year 2000 could have
adverse effects on companies and entities throughout the world.
The Company and Republic have developed integrated plans to address issues
related to the impact of Year 2000 in both companies in four major areas:
infrastructure, business applications, plant applications and suppliers.
The infrastructure portion of the program addresses wide and local area
networks, servers, personal computing, telecommunications systems and software,
fax and facility security systems. Each location's equipment has been
inventoried and assessed for Year 2000 problems. Some facilities have completed
the remediation process through replacement or upgrade, and have been tested. As
of June 30, 1999, this portion of the program is approximately 85% complete. The
remaining facilities are scheduled to be completed by September 1999.
The business application portion of the program addresses applications and
system software that run on the larger mainframe and mid-range computers. These
systems are being upgraded and/or replaced with new applications to provide Year
2000 readiness. As of June 30, 1999, approximately 90% of this program area has
been completed, with six facilities converted or upgraded. The remaining work is
scheduled for completion by September 1999.
The Company's plant systems include hardware, software and associated embedded
computer technologies that are used to operate the Company's manufacturing
facilities. These systems have been inventoried and assessed. Six of the seven
plant sites have completed remediation and testing. The final plant site is
scheduled for testing in August 1999.
The Company is currently assessing the impact of the Year 2000 issue as it
relates to its suppliers and customers to identify the extent to which the
Company may be vulnerable in the event those parties fail to properly resolve
their own Year 2000 issues. Readiness questionnaires were sent to the Company's
supplier base. Less than 25% of the suppliers surveyed responded.
As part of the Year 2000 readiness plan, the Company is continuing to assess the
risks associated with the potential system failures of its suppliers, banks,
utilities and internal systems. The Company is developing contingency plans for
these failures, which may include, but are not limited to the use of alternative
suppliers and developing alternative manual systems.
The cost of the Year 2000 project is estimated at $1.6 to $2.0 million and is
being funded through operating cash flows. The Company has to date incurred
approximately $1.5 million of costs and expects to incur the remaining amounts
through year 2000. The cost of replacement hardware and software will be
capitalized as appropriate according to the Company's capital policies and
amortized over the applicable useful lives.
The Company presently believes that it has effective plans in place to
anticipate and resolve the potential Year 2000 issues. In the event, however,
that the Company does not properly and fully anticipate and resolve all Year
2000
18
<PAGE> 19
issues, there can be no assurance that Year 2000 issues will not materially
impact and adversely effect the Company's results of operations or its
relationships with third parties.
The estimated costs and dates by which the Company believes it will have
completed its objectives are based on management's best estimates, which rely on
numerous assumptions regarding future events, including the availability of
certain key resources, third-party remediation plans, and other factors. These
estimates, however, may prove to be inaccurate, and actual results could differ
materially from those anticipated. Factors that could result in material
differences include, without limitation, the availability and cost of personnel
with the appropriate training and experience, the ability to accurately
identify, assess, remediate and test all relevant computer codes and embedded
technology, and similar uncertainties. In addition, Year 2000 issues may lead to
possible third-party claims, the impact of which cannot be estimated at this
time. No assurances can be given that the aggregate cost of defending and
resolving such claims, if any, would not have a material adverse effect on the
Company.
The Company currently believes that the most reasonably likely worst case
scenario for its operations with respect to the Year 2000 issue would be the
inability to sustain its current level of shipments, inability to bill or
invoice and a decrease in operational efficiency as a result of the increase in
manual processing efforts. This could result in potential lost sales and
profits. The Company is continuing to develop its contingency plans to address
these potential disruptions to its business.
FORWARD LOOKING STATEMENTS
Statements included in this filing with the Securities and Exchange Commission
(including those portions of Management's Discussion and Analysis that refer to
the future) may contain forward-looking statements that are not historical facts
but refer to management's intentions, beliefs, or expectations for the future.
It is important to note that the Company's actual results could differ
materially from those projected in such forward-looking statements. Certain
factors that could cause actual results to differ from those in such
forward-looking statements include, but are not limited to, the following:
That the combined company is unable to achieve the objectives of
rationalizing and modernizing production facilities;
Any substantial unanticipated delays or difficulties in integrating the
operations of or managing the capital resources and liquidity of the
Company, Republic and USS/Kobe on a combined basis;
Any substantial delay in the implementation of the Company's plans or
substantial unanticipated costs associated with its plans for a successful
transition into an integrated steelmaking and bar rolling operation;
The ability of the Company to sell its products in its targeted markets at
gross margins necessary to produce and maintain positive operating income.
The Company's success is dependent on its ability to increase sales. The
Company is in the process of enhancing its sales and customer service
programs;
The Company is subject to a variety of competitive factors such as pricing,
the financial strength of its competitors and the Company's ability to
establish a favorable position in the steelmaking and bar rolling industry.
The Company's competitive position could also be adversely affected by any
consolidation of its competition in the steelmaking industry; and
The ability of the Company and its major suppliers to remedy its Year 2000
issues timely and in a cost-effective manner.
19
<PAGE> 20
PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS
- --------------------------
The Company and its subsidiaries are involved in various legal proceedings
occurring in the ordinary course of business. It is the opinion of management,
after consultation with legal counsel, that these matters will not materially
affect the Company's consolidated financial position, results of operations or
cash flows.
ITEM 2. CHANGES IN SECURITIES
- ------------------------------
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
- ----------------------------------------
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
None.
ITEM 5. OTHER INFORMATION
- --------------------------
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(10.54) 1999 Settlement Agreement between United Steelworkers of
America, AFL-CIO on behalf of its Local 1104 and the Company,
Republic Engineered Steels. Inc. and Republic Technologies
International, LLC. dated July 7, 1999, filed herewith.
(10.55) 1999 Settlement Agreement between United Steelworkers of
America, AFL-CIO on behalf of its Local 2354 and the Company,
Republic Engineered Steels. Inc. and Republic Technologies
International, LLC. dated July 7, 1999, and filed herewith.
(10.56) First amendment, dated as of May 5, 1999 to the Facility
Pledge Agreement dated as of April 2, 1996, and amended and
restated as of September 5, 1997, filed herewith.
(27) Financial Data Schedule
a.) Reports on Form 8-K
The Company filed a Form 8-K with the Securities and Exchange
Commission on May 18, 1999 for the Amendment of its Credit
Agreement dated April 2, 1996, as amended and restated April 26,
1996, as further amended and restated September 5, 1997.
20
<PAGE> 21
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.
BAR TECHNOLOGIES INC.
Date: August 16, 1999 By: /s/ Thomas N. Tyrrell
---------------------
Thomas N. Tyrrell
Chief Executive Officer
Date: August 16, 1999 By: /s/ Brenda K. Brown
-------------------
Brenda K. Brown
Vice President of Finance and Controller
21
<PAGE> 1
Exhibit 10.54
1999 SETTLEMENT AGREEMENT
BETWEEN
UNITED STEELWORKERS OF AMERICA, AFL-CIO
ON BEHALF OF ITS LOCAL 1104
AND
BARTECH, RESI AND RTI
WHEREAS, on August 2, 1998, Bar Technologies Inc. ("BarTech") and RES
Acquisition Corporation entered into the 1998 Settlement Agreement, which
included the Master Labor Agreement (the "Master Agreement") and the
plant-specific agreements, setting forth the obligations of BarTech and Republic
Engineered Steels, Inc. ("RESI") at all of their USWA-represented facilities
(such agreements, collectively with the benefit agreements entered into in
connection therewith, the "1998 BLA"); and
WHEREAS, Republic Technologies International, LLC ("RTI") wishes to
adopt the 1998 BLA for all USWA-represented facilities other than those of
Canadian Drawn Steel Company, which will be covered by a separate collective
bargaining agreement; and
WHEREAS, pursuant to a Master Restructuring Agreement (the "MRA"),
affiliates of Blackstone Management Partners L.P. ("Blackstone"), USX
Corporation ("USX") and Kobe Steel, Ltd. ("Kobe") propose to combine the bar
steel businesses of BarTech, RESI and USS/Kobe Steel Company (other than its
tubular steel business to be separately held) ("USS/Kobe") into RTI, a
newly-formed entity to be controlled by BarTech, in a transaction expected to be
consummated in the third calendar quarter of 1999 (the "Transaction"); and
WHEREAS, in the event that the Transaction is completed, the combined
RTI entity would own the following plants represented by the United Steelworkers
of America (the "USWA" or "Union"): from BarTech, the plants in Johnstown,
Pennsylvania, and Lackawanna, New York; from BarTech's subsidiaries Bliss &
Laughlin Steel Company and Canadian Drawn Steel Company, the plants in Harvey,
Illinois, and Hamilton, Ontario (Canada) respectively; from RESI, Massillon Cold
Finish, Massillon Hot Roll, Special Metals (Massillon), all in Massillon, Ohio,
and
<PAGE> 2
Canton Eighth Street in Canton, Ohio, the plant in Chicago, Illinois, the
cold-finished plants in Beaver Falls, Pennsylvania, Willimantic, Connecticut,
Seventh Avenue and Dunes Highway, both in Gary, Indiana, and a stainless plant
in Baltimore, Maryland; and from USS/Kobe, the plant in Lorain, Ohio. In
addition, RTI would own B&L's cold-finished plant in Cartersville, Georgia
(non-union); and
WHEREAS, if the Transaction is consummated, RTI anticipates permanently
closing one of the existing two blast furnaces, shutting down the billet caster
operation, investing capital in the billet yard and rolling facilities resulting
in headcount reductions, consolidating administrative and support functions at
the corporate headquarters, and building a new processing center in Ohio to be
manned by USWA represented employees. Overall, a decline in the net hourly
headcount of about 575 is expected during the three (3) years of
transition/consolidation after the consummation of the Transaction; and
WHEREAS, the Union has emphasized its objectives of, among other
things, providing a decent and humane set of retirement options for employees
affected by headcount reductions, and assuring that any RTI transaction
preserves as many bargaining units jobs as possible; and
WHEREAS, BarTech, RESI, USX and Kobe have endeavored to satisfy such
objectives on the terms described herein and have indicated that they will not
close the Transaction unless this Settlement Agreement has first been enter into
by the Union and unless the Master Agreement and Lorain Plant Specific-Agreement
(as defined below) have first been ratified by the Union's members at USS/Kobe's
Lorain, Ohio facilities affected thereby; the effectiveness of this Settlement
Agreement being conditional upon the closing of the Transaction for those
employees currently employed by USS/Kobe in its bar steel business; and
NOW THEREFORE IT IS AGREED that:
The parties to this Settlement Agreement shall be BarTech, RESI, RTI,
and the Union. This Settlement Agreement adopts the 1998 BLA with respect to the
USWA-represented facilities of BarTech and RESI to be transferred to RTI
pursuant to the MRA and adopts the Master Agreement and the Lorain
Plant-Specific Agreement with respect to Union employees of USS/Kobe in its bar
steel business. This
2
<PAGE> 3
Settlement Agreement, the 1998 BLA (with respect to RTI) and the Lorain
Plant-Specific Agreement shall only become effective upon the closing of the
Transaction. The parties enter into this Settlement Agreement as of July 7,
1999.
I. BARGAINING STRUCTURE/SINGLE AGREEMENT/EXPIRATION DATE
A. RTI shall be obligated to the Union under the 1998 BLA applicable to
all USWA-represented facilities of RTI other than Canadian Drawn Steel
which shall be covered by a separate collective bargaining agreement
which shall be coterminous with the agreement covering the other
plants. The 1998 BLA shall address certain subjects on a "Master
Agreement" basis and other issues on the basis of the former corporate
identity of the plants in question or a plant-specific basis
(hereinafter "Plant-Specific Agreement").
The current labor agreement (exclusive of their benefits agreements)
between USS/Kobe and the Union ("Predecessor Labor Agreement" or "PLA")
shall be replaced by the Master and the Lorain Plant-Specific Agreement
as well as this Settlement Agreement upon the closing of the
Transaction.
The benefits agreements associated with the PLA shall continue in
effect until merged or harmonized together pursuant to the RTI benefits
agreements to be adopted by the parties in accordance with this
Settlement Agreement and the Master and Plant-Specific Agreement.
The formerly separate USS/Kobe bargaining unit under the PLA shall be
merged into the single RTI bargaining unit. The termination date
previously established by the PLA shall be amended and extended to give
the BLA a termination date of October 31, 2003.
Wherever this Settlement Agreement sets forth an understanding not
described as plant-specific, such understanding shall be included in
the Master portions of the 1998 BLA. Any language in the Plant-Specific
Agreement which conflicts with the Master portion of the 1998 BLA shall
displace the Master provisions of the 1998 BLA.
3
<PAGE> 4
B. In the negotiation of a successor agreement to the 1998 BLA, bargaining
shall begin with plant-level representatives negotiating over the
topics covered in the agreement on plant-specific issues. After an
appropriate interval of such bargaining, Master bargaining shall
commence, and all issues still unresolved in the plant-specific
bargaining shall be referred to the Master bargaining for resolution.
II. RTI PROFIT SHARING PLAN
RTI bargaining unit employees who were formerly employed by USS/Kobe
shall be included in the RTI Profit Sharing Plan and for purposes of
distribution shall be included in the BarTech Pool as set forth in the
1998 Settlement Agreement.
III. RTI PENSION PROGRAM (AS DEFINED IN PENSION TERM SHEET)
A. The benefits described below will be applicable to former USS/KOBE
employees employed by USS/KOBE immediately prior to the effective date
of this Agreement, through the adoption of Pension Agreements
containing provisions identical to those in the current USS/KOBE
Pension Agreement except as modified below.
B. The regular monthly pension benefit shall be the greater of (1) or (2)
multiplied by all years of continuous service both before and after the
Transaction Date (including all years of service recognized under the
present USS/KOBE Pension Agreement):
1. $35.00 ($46.00 for retirements on and after May 1, 2003)
2. The snapshot Benefit.
The Snapshot Benefit for each participant equals the benefit under the
percent pension formula, calculated as of the Transaction Date, divided
by the participant's years of continuous service as of the Transaction
Date.
4
<PAGE> 5
C. For employees retiring after age 55 with at least 30 years of service,
the 30-Year Minimum Benefit will be available.
D. For 30-year retirements, the Increased Pension shall be the current
$400/$1,500 benefit payment until eligible for 80% of full Social
Security Benefit. For employees who retire under this provision during
the term of this BLA, the Company shall waive the earnings offset
during their retirement period.
E. The Early Retirement Buyout benefit provisions under the current RESI
Pension Agreement shall be applicable with the reduced pension benefit
calculated under Paragraph B above.
F. Modify the Increased Pension provisions for Permanent Incapacity, 70/80
and Rule-of-65 Retirements to provide for continuation of payments
until eligible for 80% of full Social Security Benefits.
G. Change the Automatic Five-year Term Certain to provide the benefit in
the event of a death prior to retirement if the participant was
eligible for immediate retirement.
H. Eliminate the charge for Pre-Retirement Survivor Annuity Coverage in
the same manner as RESI under the RTI Plan.
I. Modify the Automatic 50% Spouse Option to provide for benefit payments
to pop-up in the event of the death of the spouse before the
participant or in the event of a divorce. This option shall be made
cost neutral to the Plan by mutually agreed to actuarial assumptions.
J. Modify the Surviving Spouse's Benefit provisions so they are the same
as those under the current RESI Pension Agreement.
K. Include appropriate provisions regarding crediting of continuous
service and the calculation of benefits (including any offsets) for
employees who transfer between RTI and USS/KOBE after the Transaction
Date.
5
<PAGE> 6
L. Under the Rule of 65 Retirement, the parties have agreed to include the
former USS/Kobe Plant in Group II for purpose of Suitable Long Term
Agreement (SLTE) as set forth in the 1998 Settlement Agreement.
M. The Pension Agreement will remain in effect for five (5) months after
the termination of the BLA.
IV. LORAIN ECONOMIC MODIFICATIONS
The Lorain Plant Specific Agreement shall provide for the following Economic
provisions for the former USS/Kobe bar and steelmaking facilities:
A. Wages
1. Roll-up and Harmonization Schedule:
<TABLE>
<CAPTION>
Current New
USS/KOBE Labor Effective Wage INC Wage INC Wage INC
Classification Grade Date 11/1/00 11/1/00 11/1/01 11/1/01 11/1/02 11/1/02
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1-8 1 13.734 13.98 0.250 14.09 0.106 14.09 0.000
9-12 2 14.450 14.70 0.250 14.95 0.250 14.98 0.030
13-16 3 15.166 15.42 0.250 15.67 0.250 16.02 0.354
17-23 4 16.419 16.67 0.250 16.92 0.250 17.22 0.301
24-28 5 17.314 17.56 0.250 17.81 0.250 18.56 0.746
</TABLE>
2. Lump sum bonuses for all employees accruing continuous service on the
effective date of the following payments:
$500 November 1, 2001
$500 November 1, 2002
3. Signing Bonus for all employees accruing continuous service on the
effective date of this Agreement:
$1,000 (Paid within 30 days from the effective Date
of this Agreement)
4. Shift Premium - Harmonize to RTI October 31, 2003.
6
<PAGE> 7
5. Sunday Premium - Harmonized to RTI January 1, 2003.
6. Plant-wide Incentive Redevelopment letter contained in the Lorain Plant
Specific Agreement.
B. Sickness & Accident - Harmonize to RTI, January 1, 2001.
<TABLE>
<CAPTION>
RTI S&A Weekly
Insurance Classification Benefit
<S> <C>
Labor Grade 1 $246
Labor Grade 2 $259
Labor Grade 3 $272
Labor Grade 4 $285
Labor Grade 5 $298
</TABLE>
C. Life Insurance - Harmonize to RTI, January 1, 2001.
<TABLE>
<CAPTION>
Insurance Classification RTI Life
Insurance*
<S> <C>
Labor Grade 1 $15,000
Labor Grade 2 $15,500
Labor Grade 3 $16,000
Labor Grade 4 $16,500
Labor Grade 5 $17,000
Employee 15+ yrs. $50,000
</TABLE>
*Grandfather current employees under 15 years service at $20,000.
V. EARLY RETIREMENT BUYOUT PACKAGE ("ERB") AND VOLUNTARY SEVERANCE PLAN
("VSP")
A. The Company and Union agree that a significant reduction in the manning
level at the former USS/Kobe facility is essential to enable RTI to
become
7
<PAGE> 8
competitive and thereby improve job security. In order to lessen the
impact on employees, the parties have agreed to include former USS/Kobe
RTI employees in the ERB and VSP programs set forth in the 1998
Settlement Agreement.
The Company's business plan calls for a reduction in the net number of
bargaining unit jobs at former USS/Kobe Bar and Steelmaking facilities
by approximately five hundred and seventy-five (575) during the
approximately three (3) years of the transition/consolidation. This net
reduction in bargaining unit jobs will be accomplished through the
shutdown of plant(s) (or departments or subdivisions thereof), capital
investments and productivity improvements due to work rule and job
classification improvements.
B. RTI production and maintenance bargaining unit employees who were
formerly employed by USS/KOBE shall participate in the Early Retirement
Buyout Package (ERB) and Voluntary Severance Program (VSP) as set forth
in the 1998 Settlement Agreement and the "Adaptation and Interpretation
of ERB" letters from Thomas N. Tyrrell to David R. McCall dated July 1,
1999.
C. The first one hundred (100) ERB's offered at the former USS/KOBE
facility (Bar, Steelmaking, and Tube) shall be offered to Lorain
employees at RTI (Bar and Steelmaking) and USS/KOBE (Tube) on a
combined plant-wide continuous service basis. Thereafter, ERB's offered
by RTI will be made available only to RTI employees.
VI. The parties hereby adopt the following:
A. The Master Agreement set forth in Appendix A
B. The Lorain Production & Maintenance Plant Specific Agreement
set forth in Appendix B
VI. TERMINATION
The termination date of the new agreement shall be October 31, 2003.
The termination date of the benefits agreements shall be extended to
expire on
8
<PAGE> 9
February 28, 2004.
Executed this _____ day of July, 1999.
REPUBLIC TECHNOLOGIES INTERNATIONAL, LLC
By: Republic Technologies International Holdings, LLC, its Managing Member
By: Bar Technologies Inc., its Managing Member
- --------------------------------------
Name: Thomas N. Tyrrell
Title: CEO, Bar Technologies Inc.
United Steelworkers of America AFL-CIO
- --------------------------------------
- --------------------------------------
- --------------------------------------
- --------------------------------------
9
<PAGE> 1
Exhibit 10.55
1999 SETTLEMENT AGREEMENT
BETWEEN
UNITED STEELWORKERS OF AMERICA, AFL-CIO
ON BEHALF OF ITS LOCAL 2354
AND
BARTECH, RESI, AND RTI
WHEREAS, on August 2, 1998, Bar Technologies Inc. ("BarTech") and RES
Acquisition Corporation entered into the 1998 Settlement Agreement, which
included the Master Labor Agreement (the "Master Agreement") and the
plant-specific agreements, setting forth the obligations of BarTech and Republic
Engineered Steels, Inc. ("RESI") at all of their USWA-represented facilities
(such agreements, collectively with the benefit agreements entered into in
connection therewith, the "1998 BLA"); and
WHEREAS, Republic Technologies International, LLC ("RTI") wishes to
adopt the 1998 BLA for all USWA-represented facilities other than those of
Canadian Drawn Steel Company, which will be covered by a separate collective
bargaining agreement; and
WHEREAS, pursuant to a Master Restructuring Agreement (the "MRA"),
affiliates of Blackstone Management Partners L.P. ("Blackstone"), USX
Corporation ("USX") and Kobe Steel, Ltd. ("Kobe") propose to combine the bar
steel businesses of BarTech, RESI and USS/Kobe Steel Company (other than its
tubular steel business to be separately held) ("USS/Kobe") into RTI, a
newly-formed entity to be controlled by BarTech, in a transaction expected to be
consummated in the third calendar quarter of 1999 (the "Transaction"); and
WHEREAS, in the event that the Transaction is completed, the combined
RTI entity would own the following plants represented by the United Steelworkers
of America (the "USWA" or "Union"): from BarTech, the plants in Johnstown,
Pennsylvania, and Lackawanna, New York; from BarTech's subsidiaries Bliss &
Laughlin Steel Company and Canadian Drawn Steel Company, the plants in Harvey,
Illinois, and Hamilton, Ontario (Canada) respectively; from RESI, Massillon Cold
Finish, Massillon Hot Roll, Special Metals (Massillon), all in Massillon, Ohio,
and
<PAGE> 2
Canton Eighth Street in Canton, Ohio, the plant in Chicago, Illinois, the
cold-finished plants in Beaver Falls, Pennsylvania, Willimantic, Connecticut,
Seventh Avenue and Dunes Highway, both in Gary, Indiana, and a stainless plant
in Baltimore, Maryland; and from USS/Kobe, the plant in Lorain, Ohio. In
addition, RTI would own B&L's cold-finished plant in Cartersville, Georgia
(non-union); and
WHEREAS, if the Transaction is consummated, RTI anticipates permanently
closing one of the existing two blast furnaces, shutting down the billet caster
operation, investing capital in the billet yard and rolling facilities resulting
in headcount reductions, consolidating administrative and support functions at
the corporate headquarters, and building a new processing center in Ohio to be
manned by USWA represented employees. Overall, a decline in the net hourly
headcount of about 575 is expected during the three (3) years of
transition/consolidation after the consummation of the Transaction; and
WHEREAS, the Union has emphasized its objectives of, among other
things, providing a decent and humane set of retirement options for employees
affected by headcount reductions, and assuring that any RTI transaction
preserves as many bargaining units jobs as possible; and
WHEREAS, BarTech, RESI, USX and Kobe have endeavored to satisfy such
objectives on the terms described herein and have indicated that they will not
close the Transaction unless this Settlement Agreement has first been enter into
by the Union and unless the Master Agreement and Lorain Plant Specific-Agreement
(as defined below) have first been ratified by the Union's members at USS/Kobe's
Lorain, Ohio facilities affected thereby; the effectiveness of this Settlement
Agreement being conditional upon the closing of the Transaction for those
employees currently employed by USS/Kobe in its bar steel business; and
NOW THEREFORE IT IS AGREED that:
The parties to this Settlement Agreement shall be BarTech, RESI, RTI,
and the Union. This Settlement Agreement adopts the 1998 BLA with respect to the
USWA-represented facilities of BarTech and RESI to be transferred to RTI
pursuant to the MRA and adopts the Master Agreement and the Lorain
Plant-Specific Agreement with respect to Union employees of USS/Kobe in its bar
steel business.
2
<PAGE> 3
This Settlement Agreement, the 1998 BLA (with respect to RTI)
and the Lorain Plant-Specific Agreement shall only become effective upon the
closing of the Transaction. The parties enter into this Settlement Agreement as
of July 7, 1999.
I. BARGAINING STRUCTURE/SINGLE AGREEMENT/EXPIRATION DATE
A. RTI shall be obligated to the Union under the 1998 BLA applicable to
all USWA-represented facilities of RTI other than Canadian Drawn Steel
which shall be covered by a separate collective bargaining agreement
which shall be coterminous with the agreement covering the other
plants. The 1998 BLA shall address certain subjects on a "Master
Agreement" basis and other issues on the basis of the former corporate
identity of the plants in question or a plant-specific basis
(hereinafter "Plant-Specific Agreement").
The current labor agreement (exclusive of their benefits agreements)
between USS/Kobe and the Union ("Predecessor Labor Agreement" or "PLA")
shall be replaced by the Master and the Plant-Specific Agreement as
well as this Settlement Agreement.
The benefits agreements associated with the PLA shall continue in
effect until merged or harmonized together pursuant to the RTI benefits
agreements to be adopted by the parties in accordance with this
Settlement Agreement and the Master and Plant-Specific Agreement.
The formerly separate USS/Kobe Office & Technical bargaining unit under
the PLA shall remain in a single RTI bargaining unit. The termination
date previously established by the PLA shall be amended and extended to
give the BLA a termination date of October 31, 2003.
Wherever this Settlement Agreement sets forth an understanding not
described as plant-specific, such understanding shall be included in
the Master portions of the 1998 BLA. Any language in the Plant-Specific
Agreement which conflicts with the Master portion of the 1998 BLA shall
displace the Master provisions of the 1998 BLA.
3
<PAGE> 4
B. In the negotiation of a successor agreement to the 1998 BLA, bargaining
shall begin with plant-level representatives negotiating over the
topics covered in the agreement on plant-specific issues. After an
appropriate interval of such bargaining, Master bargaining shall
commence, and all issues still unresolved in the plant-specific
bargaining shall be referred to the Master bargaining for resolution.
II. RTI PROFIT SHARING PLAN
RTI bargaining unit employees who were formerly employed by USS/Kobe
shall be included in the RTI Profit Sharing Plan and for purposes of
distribution shall be included in the BarTech Pool as set forth in the
1998 Settlement Agreement.
III. RTI PENSION PROGRAM (AS DEFINED IN PENSION TERM SHEET)
A. The benefits described below will be applicable to former USS/KOBE
employees employed by USS/KOBE immediately prior to the effective date
of this Agreement, through the adoption of Pension Agreements
containing provisions identical to those in the current USS/KOBE
Pension Agreement except as modified below.
B. The regular monthly pension benefit shall be the greater of (1) or (2)
multiplied by all years of continuous service both before and after the
Transaction Date (including all years of service recognized under the
present USS/KOBE Pension Agreement):
1. $35.00 ($46.00 for retirements on and after May 1, 2003)
2. The snapshot Benefit.
The Snapshot Benefit for each participant equals the benefit under the
percent pension formula, calculated as of the Transaction Date, divided
by the participant's years of continuous service as of the Transaction
Date.
4
<PAGE> 5
C. For employees retiring after age 55 with at least 30 years of service,
the 30-Year Minimum Benefit will be available.
D. For 30-year retirements, the Increased Pension shall be the current
$400/$1,500 benefit payment until eligible for 80% of full Social
Security Benefit. For employees who retire under this provision during
the term of this BLA, the Company shall waive the earnings offset
during their retirement period.
E. The Early Retirement Buyout benefit provisions under the current RESI
Pension Agreement shall be applicable with the reduced pension benefit
calculated under Paragraph B above.
F. Modify the Increased Pension provisions for Permanent Incapacity, 70/80
and Rule-of-65 Retirements to provide for continuation of payments
until eligible for 80% of full Social Security Benefits.
G. Change the Automatic Five-year Term Certain to provide the benefit in
the event of a death prior to retirement if the participant was
eligible for immediate retirement.
H. Eliminate the charge for Pre-Retirement Survivor Annuity Coverage in
the same manner as RESI under the RTI Plan.
I. Modify the Automatic 50% Spouse Option to provide for benefit payments
to pop-up in the event of the death of the spouse before the
participant or in the event of a divorce. This option shall be made
cost neutral to the Plan by mutually agreed to actuarial assumptions.
J. Modify the Surviving Spouse's Benefit provisions so they are the same
as those under the current RESI Pension Agreement.
K. Include appropriate provisions regarding crediting of continuous
service and the calculation of benefits (including any offsets) for
employees who transfer between RTI and USS/KOBE after the Transaction
Date.
5
<PAGE> 6
L. Under the Rule of 65 Retirement, the parties have agreed to include the
former USS/Kobe Plant in Group II for purpose of Suitable Long Term
Agreement (SLTE) as set forth in the 1998 Settlement Agreement.
M. The Pension Agreement will remain in effect for five (5) months after
the termination of the BLA.
IV LORAIN ECONOMIC MODIFICATIONS
The Lorain Plant Specific Agreement shall provide for the following Economic
provisions for the former USS/Kobe bar and steelmaking facilities:
A. Wages
1. Roll-up and Harmonization Schedule:
<TABLE>
<CAPTION>
Current USS/Kobe New Effective Date
Classifications Labor Grade Of Agreement 3/1/00 11/1/01 11/1/02
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1-8 1 Standard 1292 1368 1388 1408
Bi-Weekly Wage
Scale
Equiv. Hr. Rate 16.15 17.10 17.35 17.60
9 and above 2 Standard 1372 1448 1468 1488
Bi-Weekly Wage
Scale
Equiv. Hr. Rate 17.15 18.10 18.35 18.60
</TABLE>
2. Signing Bonus for all employees accruing continuous service on the
effective date of this Agreement:
$1,000 (Paid within 30 days from the effective Date of this
Agreement)
3. Shift Premium - Harmonize to RTI October 31, 2003.
4. Sunday Premium - Harmonized to RTI January 1, 2003.
B. Sickness & Accident - Harmonize to RTI, January 1, 2001.
6
<PAGE> 7
<TABLE>
<CAPTION>
RTI S&A Weekly
Insurance Classification Benefit
<S> <C>
Labor Grade 1 $285
Labor Grade 2 $298
</TABLE>
C. Life Insurance - Harmonize to RTI, January 1, 2001.
<TABLE>
<CAPTION>
Insurance Classification RTI Life
Insurance*
<S> <C>
Labor Grade 1 $16,500
Labor Grade 2 $17,000
Employee 15+ yrs. $50,000
</TABLE>
*Grandfather current employees under 15 years service at $20,000.
V. EARLY RETIREMENT BUYOUT PACKAGE ("ERB") AND VOLUNTARY SEVERANCE PLAN
("VSP")
A. The Company and Union agree that a significant reduction in the manning
level at the former USS/Kobe facility is essential to enable RTI to
become competitive and thereby improve job security. In order to lessen
the impact on employees, the parties have agreed to include former
USS/Kobe RTI employees in the ERB and VSP programs set forth in the
1998 Settlement Agreement.
The Company's business plan calls for a reduction in the net number of
bargaining unit jobs at former USS/Kobe Bar and Steelmaking facilities
by approximately five hundred and seventy-five (575) during the
approximately three (3) years of the transition/consolidation. This net
reduction in bargaining unit jobs will be accomplished through the
shutdown of plant(s) (or departments or subdivisions thereof), capital
investments and productivity improvements due to work rule and job
classification improvements.
7
<PAGE> 8
B. RTI Office & Technical bargaining unit employees who were formerly
employed by USS/KOBE shall participate in the Early Retirement Buyout
Package (ERB) and Voluntary Severance Program (VSP) as set forth in the
1998 Settlement Agreement and the "Adaptation and Interpretation of
ERB" letters from Thomas N. Tyrrell to David R. McCall dated July 1,
1999.
C. The first one hundred (100) ERB's offered at the former USS/KOBE
facility (Bar, Steelmaking, and Tube) shall be offered to Lorain
employees at RTI (Bar and Steelmaking) and USS/KOBE (Tube) on a
combined plant-wide continuous service basis. Thereafter, ERB's offered
by RTI will be made available only to RTI employees.
VI The parties hereby adopt the following:
A. The Master Agreement set forth in Appendix A
B. The Lorain Office & Technical Plant Specific Agreement set
forth in Appendix B
VII. TERMINATION
The termination date of the new agreement shall be October 31, 2003.
The termination date of the benefits agreements shall be extended to
expire on February 28, 2004.
Executed this _____ day of July, 1999.
REPUBLIC TECHNOLOGIES INTERNATIONAL, LLC
By: Republic Technologies International Holdings, LLC, its Managing Member
By: Bar Technologies Inc., its Managing Member
- ---------------------------------------
Name: Thomas N. Tyrrell
Title: CEO, Bar Technologies Inc.
United Steelworkers of America AFL-CIO
- ---------------------------------------
- ---------------------------------------
- ---------------------------------------
- ---------------------------------------
<PAGE> 1
Exhibit 10.56
EXECUTION COPY
FIRST AMENDMENT, dated as of May 5, 1999
(this "Amendment"), to the Facility Pledge Agreement
dated as of April 2, 1996, and amended and restated
as of September 5, 1997, among BLACKSTONE CAPITAL
PARTNERS II MERCHANT BANKING FUND L.P., a Delaware
limited partnership, BLACKSTONE OFFSHORE CAPITAL
PARTNERS II L.P., a Cayman Island limited
partnership, and BLACKSTONE FAMILY INVESTMENT
PARTNERSHIP II L.P., a Cayman Island limited
partnership (collectively, the "Funds"); BRW STEEL
HOLDINGS L.P., a Delaware limited partnership
("BRWSH"); BRW STEEL OFFSHORE HOLDINGS L.P.; a
Delaware limited partnership ("BRWSH II" and,
together with BRWSH, the "Partnerships"); BAR
TECHNOLOGIES INC., a Delaware corporation
("BarTech"); BLISS & LAUGHLIN STEEL COMPANY, an
Illinois corporation and a wholly owned subsidiary of
BarTech ("BLSC" and, together with BarTech, the
"Borrowers"); each other subsidiary of BarTech listed
on Schedule I thereto (each such subsidiary and BLSC
individually a "Subsidiary Pledgor" and collectively,
the "Subsidiary Pledgors"); each of the members of
management of BarTech listed on Schedule II thereto
(collectively, the "Management Stockholders" and,
together with the Funds, the Partnerships, BarTech
and the Subsidiary Pledgors, the "Pledgors"); and THE
CHASE MANHATTAN BANK (formerly known as Chemical
Bank), a New York banking corporation, as collateral
agent (in such capacity, the "Collateral Agent") for
the Secured Parties (as defined therein).
Reference is made to (a) the Credit Agreement dated as of April 2,
1996, amended and restated as of April 25, 1996, and as further amended and
restated as of September 5, 1997 (as amended or modified from time to time, the
"Credit Agreement"), among the Borrowers, the financial institutions party
thereto, as lenders (the "Lenders"), The Chase Manhattan Bank (formerly known as
Chemical Bank), as agent (in such capacity, the "Administrative Agent"), and
Chase Manhattan Bank Delaware (formerly known as Chemical Bank Delaware), as
fronting bank (in such capacity, the "Fronting Bank"). Capitalized terms used
herein and not defined herein shall have the meanings assigned to such terms in
the Facility Pledge Agreement and the Credit Agreement.
The Borrowers and the other Pledgors have requested that the
Secured Parties amend certain provisions of the Facility Pledge Agreement. The
Secured Parties are willing to do so, subject to the terms and conditions of
this Amendment.
<PAGE> 2
2
Accordingly, in consideration of the mutual agreements herein
contained and other good and valuable consideration, the sufficiency and receipt
of which are hereby acknowledged, the Pledgors and the Collateral Agent, on
behalf of itself and each other Secured Party (and each of their respective
successors or assigns), hereby agree as follows:
SECTION 1. Amendment to Section 2.01. Clause (a) (until the
first proviso thereof) of Section 2.01 of the Facility Pledge Agreement is
hereby amended and restated to read in its entirety as follows:
"(a) the shares of capital stock and membership interests
owned by it listed on Schedule III and any shares of capital stock of
BarTech or any Subsidiary or membership interests of RTI obtained in
the future by such Pledgor and the certificates representing all such
shares and membership interests (the "Pledged Stock");".
SECTION 2. Amendment to Schedule III. Schedule III to the
Facility Pledge Agreement is hereby amended and restated in its entirety to read
as set forth in Annex I hereto.
SECTION 3. No Other Amendments. Except as specifically stated
herein, the Facility Pledge Agreement shall continue in full force and effect in
accordance with the provisions thereof.
SECTION 4. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 5. Counterparts. This Amendment may be executed in any
number of counterparts, each of which shall be an original but all of which,
when taken together, shall constitute but one instrument. Delivery of an
executed counterpart of a signature page of this Amendment by telecopy shall be
effective as delivery of a manually executed counterpart of this Amendment.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment as of the day and year first above written.
BRW STEEL HOLDINGS, L.P.,
by
/S/ DAVID A. STOCKMAN
------------------------------------
Name: David A. Stockman
Title: Authorized Signatory
BRW STEEL OFFSHORE HOLDINGS, L.P.,
by
/S/ DAVID A. STOCKMAN
------------------------------------
Name: David A. Stockman
Title: Authorized Signatory
<PAGE> 3
3
BAR TECHNOLOGIES INC.,
by
/S/ JOHN B. GEORGE
------------------------------------
Name: John B. George
Title: V.P. Finance and Treasurer
BLISS & LAUGHLIN STEEL COMPANY,
by
/S/ MICHAEL P. HOULIHAN
------------------------------------
Name: Michael P. Houlihan
Title: Assistant Treasurer
BLISS & LAUGHLIN INDUSTRIES INC.,
by
/S/ MICHAEL P. HOULIHAN
------------------------------------
Name: Michael P. Houlihan
Title: Assistant Treasurer
BLACKSTONE CAPITAL PARTNERS
II MERCHANT BANKING FUND L.P.,
by
/S/ DAVID A. STOCKMAN
------------------------------------
Name: David A. Stockman
Title: Member
BLACKSTONE OFFSHORE CAPITAL PARTNERS II L.P.,
by
/S/ DAVID A. STOCKMAN
------------------------------------
Name: David A. Stockman
Title: Member
BLACKSTONE FAMILY INVESTMENT PARTNERSHIP II L.P.,
by
/S/ DAVID A. STOCKMAN
------------------------------------
Name: David A. Stockman
Title: Member
<PAGE> 4
4
THE CHASE MANHATTAN BANK,
as Collateral Agent,
by
/S/ JAMES H. RAMAGE
------------------------------------
Name: James H. Ramage
Title: Vice President
<PAGE> 5
ANNEX I
Schedule III to the
Facility Pledge Agreement
CAPITAL STOCK
-------------
None.
MEMBERSHIP INTEREST
-------------------
BarTech holds a 50.0% membership interest and voting interest
and an initial 33-1/3% economic allocation in RTI.
DEBT SECURITIES
---------------
None.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001013335
<NAME> BAR TECHNOLOGIES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-START> JAN-03-1999
<PERIOD-END> JUN-30-1999
<CASH> 2,883
<SECURITIES> 0
<RECEIVABLES> 43,137
<ALLOWANCES> 1,111
<INVENTORY> 73,048
<CURRENT-ASSETS> 120,981
<PP&E> 108,032
<DEPRECIATION> 15,812
<TOTAL-ASSETS> 237,393
<CURRENT-LIABILITIES> 202,168
<BONDS> 128,229
5,500
0
<COMMON> 2
<OTHER-SE> (109,389)
<TOTAL-LIABILITY-AND-EQUITY> (109,387)
<SALES> 136,369
<TOTAL-REVENUES> 136,369
<CGS> 131,778
<TOTAL-COSTS> 131,778
<OTHER-EXPENSES> 9,791
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,635
<INCOME-PRETAX> (17,835)
<INCOME-TAX> 376
<INCOME-CONTINUING> (18,211)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,211)
<EPS-BASIC> (14.40)
<EPS-DILUTED> (14.40)
</TABLE>
