<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.20549
FORM 10-Q
/X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended June 26, 1994 or
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
---------------------------
Commission file number 0-14727
ACME METALS INCORPORATED
(formerly Acme Steel Company)
(Exact name of registrant as specified in its charter)
DELAWARE 36-3802419
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13500 SOUTH PERRY AVE., RIVERDALE, ILLINOIS 60627-1182
(Address of principal executive offices) (Zip Code)
(708) 849-2500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
--- ---
Number of shares of Common Stock outstanding as of July 15, 1994, 5,567,461.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ACME METALS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
June 26, December 26,
1994 1993
---------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 73,651 $ 50,444
Receivables, less allowances of $1,234 in 1994 and $1,155 in 1993 62,327 58,479
Inventories 41,037 47,867
Deferred income taxes 12,337 12,337
Other current assets 944 1,267
--------- ---------
Total current assets 190,296 170,394
--------- ---------
INVESTMENTS AND OTHER ASSETS:
Investments in associated companies 14,701 14,701
Other assets 13,493 13,389
Deferred income taxes 19,846 19,846
--------- ---------
Total investments and other assets 48,040 47,936
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment, at cost 412,945 408,556
Accumulated depreciation (300,653) (293,017)
--------- ---------
Total property, plant and equipment 112,292 115,539
--------- ---------
$ 350,628 $ 333,869
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 32,503 $ 32,800
Accrued expenses 38,334 34,089
Income taxes payable 2,961 3,641
Current maturities of long-term debt 6,667 6,667
--------- ---------
Total current liabilities 80,465 77,197
--------- ---------
LONG-TERM LIABILITIES
Long-term debt 49,333 49,333
Other long-term liabilities 9,983 10,543
Postretirement benefits other than pensions 83,675 82,630
Retirement benefit plans 30,963 30,963
--------- ---------
Total long-term liabilities 173,954 173,469
--------- ---------
Commitments and contingencies (see note titled COMMITMENTS AND
CONTINGENCIES)
SHAREHOLDERS' EQUITY:
Preferred stock, $1 par value, 2,000,000 shares authorized, no shares issued
Common stock, $1 par value, 20,000,000 shares authorized, 5,559,161
and 5,406,387 shares issued in 1994 and 1993, respectively 5,559 5,406
Additional paid-in capital 50,743 48,344
Retained earnings 61,202 50,748
Minimum pension liability adjustment (21,295) (21,295)
--------- ---------
Total shareholders' equity 96,209 83,203
--------- ---------
$ 350,628 $ 333,869
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of this financial statement.
2
<PAGE>
ACME METALS INCORPORATED
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For The Three Months Ended For The Six Months Ended
-------------------------- -------------------------
June 26, June 27, June 26, June 27,
1994 1993 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET SALES $ 132,863 $ 117,169 $ 256,423 $ 225,032
COSTS AND EXPENSES:
Cost of products sold 109,433 101,708 215,691 198,327
Depreciation expense 3,813 3,791 7,596 7,517
--------- --------- --------- ---------
Gross profit 19,617 11,670 33,136 19,188
Selling and adminisrative expense 7,941 7,071 15,304 13,800
--------- --------- --------- ---------
Operating income 11,676 4,599 17,832 5,388
NON-OPERATING INCOME (EXPENSE):
Interest expense (1,332) (1,350) (2,666) (2,734)
Interest income 652 373 1,046 741
Other - net 430 (195) 1,211 222
--------- --------- --------- ---------
Income before income taxes 11,426 3,427 17,423 3,617
Income tax provision 4,570 1,371 6,969 1,447
--------- --------- --------- ---------
Net income $ 6,856 $ 2,056 $ 10,454 $ 2,170
--------- --------- --------- ---------
--------- --------- --------- ---------
PER COMMON SHARE:
Net Income $ 1.20 $ 0.38 $ 1.84 $ 0.40
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of this financial statement.
3
<PAGE>
ACME METALS INCORPORATED
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
For The Six Months Ended
------------------------
June 26, June 27,
1994 1993
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 10,454 $ 2,170
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation 7,894 7,831
CHANGE IN CURRENT ASSETS AND LIABILITIES:
Receivables (3,848) (8,608)
Inventories 6,830 (1,950)
Accounts payable (297) 6,004
Other current accounts 3,888 2,380
Other, net 1,188 2,198
-------- --------
Net cash provided by operating activities 26,109 10,025
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (5,071) (4,305)
-------- --------
Net cash used for investing activities (5,071) (4,305)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of long-term debt (3,500)
Proceeds from the exercise of stock options 2,268
Other (99) (20)
-------- --------
Net cash provided by (used for) financing activities 2,169 (3,520)
-------- --------
Net increase in cash and cash equivalents 23,207 2,200
Cash and cash equivalents at beginning of period 50,444 49,224
-------- --------
Cash and cash equivalents at end of period $ 73,651 $ 51,424
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of this financial statement.
4
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ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION:
The accompanying financial statements for the periods ended June 26, 1994 and
June 27, 1993 are unaudited. In the opinion of management, all adjustments
necessary for a fair presentation of such financial statements have been
included. The financial statements have been subjected to a limited review by
Price Waterhouse, the Company's independent accountants, whose report appears on
page 8 of this filing. Such report is not a "report" or "part of the
Registration Statement" within the meaning of Sections 7 and 11 of the
Securities Act of 1933 and the liability provisions of Section 11 of such Act do
not apply.
The Company's fiscal year ends on the last Sunday in December. Second quarter
results for 1994 and 1993 cover 13-week periods.
<TABLE>
<CAPTION>
For The For The
Three Months Ended Six Months Ended
----------------------- -----------------------
June 26, June 27, June 26, June 27,
1994 1993 1994 1993
-------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
Net Sales
Steel Making:
Sales to unaffiliated customers $ 57,745 $ 46,110 $ 111,510 $ 90,084
Intersegment sales 31,531 29,949 62,034 61,108
--------- --------- --------- ---------
89,276 76,059 173,544 151,192
Steel Fabricating:
Sales to unaffiliated customers 75,118 71,059 144,913 134,948
Intersegment sales 471 507 968 922
--------- --------- --------- ---------
75,589 71,566 145,881 135,870
Eliminations: (32,002) (30,456) (63,002) (62,030)
--------- --------- --------- ---------
Total $ 132,863 $ 117,169 $ 256,423 $ 225,032
--------- --------- --------- ---------
--------- --------- --------- ---------
Income (loss) from operations
Steel Making $6,540 $492 $9,204 $(785)
Steel Fabricating 5,395 4,212 9,238 6,530
Eliminations and adjustments (259) (105) (610) (357)
--------- --------- --------- ---------
$ 11,676 $ 4,599 $ 17,832 $ 5,388
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
5
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ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
PER SHARE DATA:
Per share amounts for 1994 and 1993 are based on the weighted average number of
common and dilutive common equivalent shares outstanding during the six-month
period (5,678,661 in 1994 and 5,409,761 in 1993). On a proforma basis, assuming
the conditions satisfying the exchange of the Special Warrants (see discussion
under Modernization Project in Item 2) occurred at the beginning of the period,
earnings per share for the six month period ended June 26, 1994 would have been
$0.92 compared to $0.20 for the first six months of 1993.
INVENTORIES:
Inventories are summarized as follows:
<TABLE>
<CAPTION>
June 26, December 26,
1994 1993
-------- ------------
(in thousands)
<S> <C> <C>
Raw materials $ 3,583 $ 6,201
Semi-finished and finished products 29,358 32,364
Supplies 8,096 9,302
-------- --------
$ 41,037 $ 47,867
-------- --------
-------- --------
</TABLE>
CASH FLOWS:
For the first six months of 1994 and 1993, cash flows were reduced by $7.6
million and $2.6 million for payment of income taxes, respectively; in these
periods cash payments for interest expense were $2.7 million and $2.8 million.
COMMITMENTS AND CONTINGENCIES:
The Company's interest in an iron ore mining joint venture requires payment of
its proportionate share of all fixed operating costs, regardless of the quantity
of ore received, plus the variable operating costs of minimum ore production for
the Company's account. Normally, the Company reimburses the joint venture for
these costs through its purchase of ore at the higher of cost or market prices.
The Company is subject to various federal, state and local environmental
statutes and regulations which provide a comprehensive program for controlling
the release of materials into the environment and require responsible parties to
remediate certain waste disposal sites. In addition,
6
<PAGE>
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
various health and safety statutes and regulations apply to the workplace
environment. Administrative, civil and criminal penalties may be applicable for
failure to comply with these laws. These environmental laws and regulations are
subject to periodic revision and modification. The United States Congress, for
example, has completed a major overhaul of the federal Clean Air Act which is a
major component of the federal environmental statutes affecting the Company's
operations.
From time to time, the Company is also involved in administrative proceedings
involving the issuance, or renewal, of environmental permits relating to the
conduct of its business. The final issuance of these permits have been resolved
on terms satisfactory to the Company; and, in the future, the Company expects
such permits will similarly be resolved on satisfactory terms.
Although management believes it will be required to make further expenditures
for pollution abatement facilities in future years; because of the continuous
revision of these regulatory statutory requirements, the Company is not able to
reasonably estimate the specific pollution abatement requirements, the amount or
timing of such expenditures to maintain compliance with these environmental
laws. While such expenditures in future years may be substantial, management
does not presently expect they will have a material adverse effect on the
Company's future ability to compete within its markets.
In those cases where the Company has been identified as a Potentially
Responsible Party ("PRP") or is otherwise made aware of a possible exposure to
incur costs associated with an environmental matter, management determines (i)
whether, in fact, the Company has been properly named or is otherwise obligated,
(ii) the extent to which the Company may be responsible for costs associated
with the site in question, (iii) an assessment as to whether another party may
be responsible under various indemnification agreements the Company is a party
to, and (iv) an estimate, if one can be made, of the costs associated with the
clean-up efforts or settlement costs. It is the Company's policy to make
provisions for environmental clean-up costs at the time that a reasonable
estimate can be made. At June 26, 1994, the Company had recorded reserves of
approximately $0.3 million for environmental clean-up matters. While it is not
possible to predict the ultimate costs of resolving environmental related issues
facing the Company, based upon information currently available, they are
currently not expected to have a material effect on the consolidated financial
condition of the Company.
In connection with the spin-off from The Interlake Corporation (Interlake), Acme
Steel Company entered into certain indemnification agreements with Interlake.
As discussed in the Company's 1993 Annual Report on Form 10-K, significant
environmental and tax matters are subject to indemnification by Interlake under
these agreements. The inability of Interlake to fulfill its obligations under
these indemnification agreements could result in significant increased future
liabilities for Acme Steel Company.
7
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of
Acme Metals Incorporated
We have made a review of the accompanying consolidated balance sheet as of June
26, 1994 and the consolidated statements of operations and cash flows for the
six-month periods ended June 26, 1994 and June 27, 1993 (the "consolidated
financial information") of Acme Metals Incorporated and its subsidiaries, in
accordance with standards established by the American Institute of Certified
Public Accountants.
A review of interim financial information consists principally of obtaining an
understanding of the system for the preparation of interim financial
information, applying analytical review procedures to financial data, and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit in accordance with generally accepted
auditing standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated financial information for it to be in
conformity with generally accepted accounting principles.
We previously audited in accordance with generally accepted auditing standards,
the consolidated balance sheet as of December 26, 1993, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the year then ended (not presented herein), and in our report dated March 21,
1994 we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
consolidated balance sheet as of December 26, 1993, is fairly stated in all
material respects in relation to the consolidated balance sheet from which it
has been derived.
PRICE WATERHOUSE
Chicago, Illinois
July 21, 1994
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SECOND QUARTER 1994 AS COMPARED TO SECOND QUARTER 1993
NET SALES. Consolidated net sales of $132.9 million in the second quarter
of 1994 were $15.6 million, or 13 percent higher than second quarter 1993 net
sales. A 7 percent increase in average selling prices contributed $8.5 million
to the favorable comparison supplemented by higher shipments which increased
sales by $7.1 million.
STEEL MAKING SEGMENT. Net sales for the Steel Making Segment advanced to
$89.3 million in the second quarter of 1994, a $13.2 million, or 17 percent,
improvement over last years comparable period. Sales to unaffiliated customers
increased 25 percent to $57.7 million while intersegment sales of $31.5 million
were 5 percent higher than in the second quarter of 1993. The increase in the
Steel Making Segment's net sales was the result of a 9 percent increase in
average selling prices and a 19,000 ton increase in shipments.
STEEL FABRICATING SEGMENT. Steel Fabricating Segment net sales of $75.6
million in the second quarter of 1994 were $4 million, or 6 percent higher than
the comparable period in the prior year. A 6 percent increase in average
selling prices accounted for all of the sales improvement as shipments were down
slightly (less than 1 percent) as compared to 1993's second quarter.
GROSS PROFIT. The gross profit margin for the second quarter of 1994 of
$19.6 million was $7.9 million higher than the margin recorded during last
year's comparable period. The increase in margin was due to higher average
selling prices for the Company's products and increased shipment volume.
Operating costs, however, were higher in the second quarter of 1994. Higher
material costs and increased expenditures were the primary reasons for the
increased operating costs. The gross profit, as a percentage of sales, was 14.8
percent in the second quarter of 1994 versus 10 percent in last year's
comparable period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling and administrative
expense totaled $7.9 million and $7.1 million for the second quarters of 1994
and 1993, respectively. Selling and administrative expenses represented 6
percent of net sales for both periods.
OPERATING INCOME. Operating income for the Company for the second quarter
of 1994 was $11.7 million as compared to operating income of $4.6 million in the
second quarter of 1993.
STEEL MAKING SEGMENT. Operating income for the Steel Making Segment
totaled $6.5 million as compared to the $0.5 million recorded in the second
quarter of 1993. The earnings improvement was driven by a 9 percent increase in
average selling prices and increased shipments. Shipments to external customers
were 20 percent over last year's comparable period while shipments to the Steel
Fabricating were 1,200 tons, or 2 percent, lower than in the second quarter of
1993. Approximately 65 percent of shipments and gross profit in 1994 was
attributable
9
<PAGE>
to external customers while the remainder was generated by sales to the Steel
Fabricating Segment. In 1993's first six months the Steel Making Segment
shipped and derived 61 percent of its gross profit from external customers. In
total, the increased selling prices generated $5.9 million in increased revenue
while the increased shipments contributed $2.1 million over last year's results.
STEEL FABRICATING SEGMENT. The Steel Fabricating's operating income of
$5.4 million for the second quarter of 1994 was $1.2 million higher than in last
year's comparable period with all of the increase derived from a 6 percent
increase in average selling prices. Acme Packaging's operating income for the
second quarter of 1994 was 25 percent higher than last year's comparable period
due primarily to a 3 percent increase in average selling prices for steel
strapping. Alpha Tube's results in the second quarter of 1994 were up
substantially as a result of a 14 percent increase in average selling prices for
welded tubing, and Universal's operating income was slightly higher in
connection with a 3 percent increase in average selling prices for auto and
light truck jacks. The majority of the price increases for the Steel
Fabricating Segment in the second quarter of 1994 was the result of price hikes
initiated in 1993. Partially offsetting the Steel Fabricating Segment's sales
related gains were increased raw material costs in the form of higher flat-
rolled prices from the Steel Making Segment and external suppliers.
NON-OPERATING INCOME. Non-operating income in the second quarter of 1994
was $0.6 million higher than the $0.2 million expense recorded in last year's
comparable period. Non-operating income in the second quarter of 1994 included
a $0.4 million refund of prior years' utility costs from Commonwealth Edison and
$0.1 million royalty income partially offset by non-capitalizable expenses
related to the Company's continuous thin slab caster/hot strip mill project. An
adjustment was recorded in last year's second quarter to reflect lower royalty
income due to the temporary suspension of operations at two of the primary mines
from which the Company derives royalties.
INCOME TAX EXPENSE. The income tax expense for the second quarter of 1994
totaled $4.6 million based on a 40 percent effective tax rate as compared to the
$1.4 million expense in the second quarter of 1993, also based on a 40 percent
effective rate.
NET INCOME. The Company recorded earnings of $6.9 million, or $1.20 per
share in the second quarter of 1994 versus the $2.1 million, or 38 cents per
share, recorded in the second quarter of 1993.
SIX MONTHS ENDED JUNE 26, 1994 AS COMPARED TO SIX MONTHS ENDED JUNE 27, 1993
NET SALES. Consolidated net sales of $256.4 million for the six months
ended June 26, 1994 were $31.4 million, or 14 percent higher than net sales in
the first six months of 1993. Higher shipment volume represented a $16.0
million increase in sales supplemented by a 7 percent increase in average
selling prices over last year's comparable period. The increased selling prices
had a $15.4 million favorable impact on sales in comparison to the first six
months of 1993.
10
<PAGE>
STEEL MAKING SEGMENT. Net sales for the Steel Making Segment advanced to
$173.5 million in the first six months of 1994, a $22.4 million, or 15 percent,
improvement over last year's comparable period. Sales to unaffiliated customers
increased 24 percent to $111.5 million while intersegment sales of $62.0 million
were 2 percent higher than in the first six months of 1993. The increase in the
Steel Making Segment's net sales was the result of a 7 percent increase in
average selling prices and a 22,000 ton increase in shipments.
STEEL FABRICATING SEGMENT. Steel Fabricating Segment net sales of $145.9
million in the first six months of 1994 were $10.0 million, or 7 percent higher
than the comparable period in the prior year. A 7 percent increase in average
selling prices accounted for substantially all of the sales improvement while
increased shipments generated the remainder of the increase over last year's
first six months.
GROSS PROFIT. The gross profit for the first six months of 1994 of $33.1
million was $13.9 million higher than the gross profit recorded during last
year's comparable period. The increase in gross profit was due to higher
average selling prices for the Company's products and increased shipment volume.
Operating costs, however, were higher in the first six months of 1994. Higher
material costs, increased expenditures and higher insurance and pension costs
($1.3 million higher than last year's comparable period) were the primary
reasons for the increased operating costs. The gross profit, as a percentage of
net sales, was 12.9 percent in the first six months of 1994 versus 8.5 percent
in last year's comparable period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling and administrative
expense totaled $15.3 million (6.0 percent of net sales) and $13.8 million (6.1
percent of net sales) for the first six months of 1994 and 1993, respectively.
OPERATING INCOME. Operating income for the Company for the six months
ended June 26, 1994 was $17.8 million as compared to operating income of $5.4
million in the first six months of 1993.
STEEL MAKING SEGMENT. Operating income for the Steel Making Segment
totaled $9.2 million as compared to the $0.8 million loss recorded in the first
six months of 1993. The earnings improvement was driven by a 7 percent increase
in average selling prices and increased shipments. Shipments to external
customers were 16 percent higher than last year's comparable period while
shipments to the Steel Fabricating Segment were 10,000 tons, or 7 percent, lower
than in the first six months of 1993. Approximately 62 percent of shipments and
64 percent of gross profit in 1994 was attributable to external customers while
the remainder was generated by sales to the Steel Fabricating Segment. In
1993's first six months the Steel Making Segment shipped 57 percent and derived
60 percent of its gross profit from external customers. In total, the increased
selling prices generated $10.5 million in increased revenue while the increased
shipments contributed $4.1 million over last year's results. Partially
offsetting the Steel Making Segment's sales-related gains were increased
material costs and higher insurance and pension costs ($1.0 million higher than
last year's comparable period) for the Steel Making Segment's active and retired
employees.
11
<PAGE>
STEEL FABRICATING SEGMENT. The Steel Fabricating Segment's operating
income of $9.2 million for the first six months of 1994 was $2.7 million higher
than in last year's comparable period with virtually all of the increase derived
from a 7 percent increase in average selling prices. Acme Packaging's operating
income for the first six months of 1994 was 34 percent higher than last year's
comparable period due primarily to a 4 percent increase in average selling
prices for steel strapping. Alpha Tube's results in 1994 more than doubled as a
result of a 14 percent increase in average selling prices for welded tubing, and
Universal's operating income was slightly higher in connection with a 3 percent
increase in average selling prices for auto and light truck jacks. The majority
of the price increases for the Steel Fabricating Segment in the first six months
of 1994 was the result of price increases initiated in 1993. Partially
offsetting the Steel Fabricating Segment's sales related gains were increased
raw material costs in the form of higher flat-rolled prices from the Steel
Making Segment and external suppliers.
NON-OPERATING INCOME. Non-operating income in the first six months of 1994
was $1.0 million higher than last year's comparable period due primarily to a
refund of prior years' utility costs recorded in the current period.
INCOME TAX EXPENSE. The income tax expense for the first six months of
1994 totaled $7.0 million based on a 40 percent effective tax rate as compared
to the $1.4 million expense in the first six months of 1993, also based on a 40
percent effective rate.
NET INCOME. The Company recorded earnings of $10.5 million, or $1.84 per
share in the first six months of 1994 versus the $2.2 million, or 40 cents per
share, recorded in the first six months of 1993.
LIQUIDITY AND CAPITAL RESOURCES
At June 26, 1994 cash balances totaled $73.7 million, up $23.2 million from
the December 1993 balance. Operating activities generated $26.1 million of cash
in the first six months of 1994 comprised of a combination of net income of
$10.5 million, the add-back of $7.9 million of non-cash depreciation and $7.7
million from changes in working capital and non-current accounts. The change in
working capital and non-current accounts was due primarily to reduced inventory
balances as a result of better than expected sales volume in the first six
months of the year and reduction in iron ore which will be replenished in the
second half of the year, and increases in the retired medical and pension
liability accruals.
Working capital stood at $109.8 million at the end of the second quarter,
up $16.6 million over last December's ending amount. The current ratio
increased from 2.2 at the end of 1993 to 2.4 at June 26, 1994. Long term debt
was 37 percent of total capitalization at the end of June. The Company
currently has a $60 million revolving credit agreement which has not been
utilized in 1994.
MODERNIZATION PROJECT. The Board of Directors of the Company have
approved, subject to adequate financing, the building of a continuous thin slab
caster/hot strip mill at the Company's Acme Steel Company subsidiary's
Riverdale, Illinois steel works facility.
12
<PAGE>
In connection with the Modernization Project, on March 28, 1994, the
Company sold Special Warrants on a private placement basis exclusively in Canada
and Europe. On or before September 14, 1994, the Special Warrants are
exercisable on a one-for-one basis for 5,600,000 shares of the Company's Common
Stock. Conditions for the Company's receipt of the proceeds of the sale of the
Special Warrants include, among other matters, confirmation of the availability
of not less than 85% of the remaining financing needed for construction of the
Modernization Project.
Based on the turnkey contract price, without taking into account financing
costs or changes that may be requested by Acme Steel during construction,
management estimates that the cost of the Modernization Project, including
equipment, ancillary facilities, construction and general contractor fees, and
including certain project costs which are the responsibility of the Company,
will not exceed $372 million. The Company expects these expenditures will be
financed exclusively from proceeds derived from debt financing and the Special
Warrant Offering, together with cash on hand and operating cash flow.
OTHER. The Company also plans to spend approximately $23.5 million in 1998
related to the relining and upgrading of Acme Steel's A blast furnace at its
Chicago facilities.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 15 - Letter Regarding Unaudited Interim Financial Information
(b) Reports on Form 8-K
On March 28, 1994, Acme Metals Incorporated (the "Company") sold 5,600,000
special common stock purchase warrants at a price of $21.00 per warrant on
a private placement basis exclusively in Canada. On or before August 25,
1994 (subsequently changed to September 14, 1994), the securities will be
exchangeable on a one for one basis, subject to certain conditions, for
5,600,000 common shares of the Company. Conditions for the exchange of the
special warrants for common shares are set forth in a Purchase Agreement
dated as of March 11, 1994 between the Company and Nesbitt Thomson Inc., a
copy of which was filed as an Exhibit to the Company's Annual Report on
Form 10-K for the fiscal year ended December 26, 1993.
The report on Form 8-K disclosing the above matter was filed on April 20,
1994.
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.
ACME METALS INCORPORATED
Date: August 6, 1994 By: /s/ J. F. Williams
----------------------
Jerry F. Williams
Vice President - Finance
and Administration
(Principal Financial Officer)
14
<PAGE>
Exhibit 15
August 6, 1994
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Dear Sirs:
We are aware that Acme Metals Incorporated has included our report dated July
21, 1994 (issued pursuant to the provisions of Statement on Auditing Standards
No. 71) in the Prospectuses constituting part of its Registration Statements on
Form S-8 (Nos. 33-17235, 33-19437, 33-338747 and 33-30841). We are also aware
of our responsibilities under the Securities Act of 1933.
Very truly yours,
