<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 September 25, 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 October 23, 1994, 11,552,811.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ACME METALS INCORPORATED
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
September 25, December 26,
1994 1993
------------- ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 138,285 $ 50,444
Receivables, less allowances of $1,283 in 1994
and $1,155 in 1993 56,849 58,479
Inventories 47,129 47,867
Deferred income taxes 12,337 12,337
Other current assets 1,574 1,267
--------- ---------
Total current assets 256,174 170,394
--------- ---------
INVESTMENTS AND OTHER ASSETS
Restricted cash for construction project 200,448 0
Investments in associated companies 14,701 14,701
Other assets 24,592 13,389
Deferred income taxes 19,846 19,846
--------- ---------
Total investments and other assets 259,587 47,936
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment, at cost 362,987 408,556
Construction in progress 42,677 0
Accumulated depreciation (258,189) (293,017)
--------- ---------
Total property, plant and equipment 147,475 115,539
--------- ---------
Total assets $ 663,236 $ 333,869
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 31,301 $ 32,800
Accrued expenses 37,358 34,089
Income taxes payable 606 3,641
Current maturities of long-term debt 0 6,667
--------- ---------
Total current liabilities 69,265 77,197
--------- ---------
LONG-TERM LIABILITIES:
Long-term debt 262,362 49,333
Other long-term liabilities 12,347 10,543
Postretirement benefits other than pensions 84,048 82,630
Retirement benefit plans 29,163 30,963
--------- ---------
Total long-term liabilities 387,920 173,469
--------- ---------
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, 11,316,845 and 5,406,387 shares
issued in 1994 and 1993, respectively 11,181 5,406
Additional paid-in capital 155,981 48,344
Retained earnings 60,184 50,748
Minimum pension liability (21,295) (21,295)
--------- ---------
Total shareholders' equity 206,051 83,203
--------- ---------
Total liabilities and shareholders' equity $ 663,236 $ 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 Nine Months Ended
---------------------------- ----------------------------
September 25, September 26, September 25, September 26,
1994 1993 1994 1993
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NET SALES $123,142 $111,919 $379,565 $336,951
COSTS AND EXPENSES:
Costs of products sold 101,363 98,961 316,876 297,288
Depreciation expense 3,638 3,752 11,062 11,269
-------- -------- -------- --------
Gross profit 18,141 9,206 51,627 28,394
Selling and administrative expense 7,616 7,788 22,920 21,588
Nonrecurring charge 9,459 0 9,459 0
-------- -------- -------- --------
Operating income 1,066 1,418 19,248 6,806
NON-OPERATING INCOME (EXPENSE):
Interest expense (4,267) (1,324) (6,933) (4,058)
Interest income 3,521 388 4,567 1,129
Other -- net 454 (290) 1,315 (68)
-------- -------- -------- --------
Income before income taxes,
extraordinary item 774 192 18,197 3,809
Income tax provision 6 77 6,975 1,524
-------- -------- -------- --------
Income before extraordinary item 768 115 11,222 2,285
Extraordinary item (expense),
net of tax (1,787) 0 (1,787) 0
-------- -------- -------- --------
Net income $ (1,019) $ 115 $ 9,435 $ 2,285
-------- -------- -------- --------
-------- -------- -------- --------
PER COMMON SHARE:
Income before extraordinary item $ 0.09 $ 0.02 $ 1.69 $ 0.42
Extraordinary item (0.21) (0.27)
-------- -------- -------- --------
Net income (loss) $ (0.12) $ 0.02 $ 1.42 $ 0.42
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
The accompanying notes are an integral part of this financial statement.
3
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ACME METALS INCORPORATED
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
For The Nine Months Ended
----------------------------
September 25, December 26,
1994 1993
------------- ------------
ASSETS
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $9,435 $2,285
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Nonrecurring charge 9,459
Depreciation 11,698 11,744
Accretion of Senior Discount Notes 1,362
CHANGE IN CURRENT ASSETS AND LIABILITIES:
Receivables 1,630 (8,381)
Inventories 738 (8,686)
Accounts payable (1,499) 11,840
Other current accounts (74) 4,270
Other, net 2,629 255
-------- -------
Net cash provided by operating activities 35,378 13,327
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in restricted cash for construction
project (200,448)
Capital expenditures (8,572) (7,990)
Capital expenditures - construction project (42,677)
-------- -------
Net cash used for investing activities (251,697) (7,990)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net 110,800
Proceeds from issuance of long-term debt 255,000
Proceeds from issuance of stock options 2,613
Long-term debt issuance cost (14,253)
Payment of long-term debt (50,000) (3,500)
Other 0 439
-------- -------
Net cash provided by (used for) investing
activities 304,160 (3,061)
-------- -------
Net increase in cash and cash equivalents 87,841 2,276
Cash and cash equivalents at beginning of period 50,444 49,224
-------- -------
Cash and cash equivalents at end of period $138,285 $51,500
-------- -------
-------- -------
</TABLE>
The accompanying notes are an integral part of this financial statement.
4
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ACME METALS INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION:
The accompanying financial statements for the periods ended September 25, 1994
and September 26, 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 LLP, the Company's independent accountants, whose report
appears on page 10 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. Third quarter
results for 1994 and 1993 cover 13-week periods.
<TABLE>
<CAPTION>
For The For The
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
September 25, September 26, September 25, September 26,
1994 1993 1994 1993
------------- ------------- ------------- -------------
(in thousands)
<S> <C> <C> <C> <C>
Net Sales
Steel Making:
Sales to unaffiliated customers $54,436 $47,433 $165,946 $137,517
Intersegment sales 25,804 26,833 87,838 87,941
-------- -------- -------- --------
80,240 74,266 253,784 225,458
Steel Fabricating:
Sales to unaffiliated customers 68,706 64,486 213,619 199,434
Intersegment sales 412 479 1,380 1,401
-------- -------- -------- --------
69,118 64,965 214,999 200,835
Eliminations: (26,216) (27,312) (89,218) (89,342)
-------- -------- -------- --------
Total $123,142 $111,919 $379,565 $336,951
-------- -------- -------- --------
-------- -------- -------- --------
Income (loss) from operations
Steel Making $(4,012) $(543) $5,542 $(1,328)
Steel Fabricating 4,222 2,352 13,460 8,882
Eliminations and adjustments 856 (391) 246 (748)
-------- -------- -------- --------
$1,066 $1,418 $19,248 $6,806
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
5
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PER SHARE DATA:
On August 11, 1994, the Company issued 5,600,000 shares of common stock in
exchange for the special common stock purchase warrants (the "Special Warrants")
sold on March 28, 1994. Per share amounts for 1994 and 1993 are based on the
weighted average number of common and dilutive common equivalent shares
outstanding during the nine-month period (6,641,383 in 1994 and 5,435,817 in
1993). Per share amounts for the quarter ended September 25, 1994 and September
26, 1993 are calculated based on weighted average number of common and dilutive
common equivalent shares for the three month period (8,627,876 in 1994 and
5,435,817 in 1993).
INVENTORIES:
Inventories are summarized as follows:
<TABLE>
<CAPTION>
September 26, December 26,
1994 1993
------------- ------------
(in thousands)
<S> <C> <C>
Raw materials $ 5,426 $ 6,201
Semi-finished and finished products 33,130 32,364
Supplies 8,573 9,302
------- -------
$47,129 $47,867
------- -------
------- -------
</TABLE>
CONTINUOUS THIN SLAB CASTER/HOT STRIP MILL PROJECT:
On August 11, 1994, the Company completed the financing for its $372 million
continuous thin slab caster/hot strip mill project. As a result of the decision
to commence this project, the Company recorded a charge of $9.5 million (pre-
tax) and an extraordinary expense item of $1.8 million, net of tax. The
nonrecurring charge of $9.5 million was recorded to address the impairment of
the existing steel making facilities and contractual employee reduction costs
related to the construction and commissioning of the new continuous thin slab
caster/hot strip mill complex . In addition, an extraordinary expense item of
$1.8 million, net of tax, resulted from the early extinguishment of previously
existing Senior Notes.
The Company capitalized expenditures related to the construction of the
continuous thin slab caster and hot strip mill project totaling $42.7 million as
of September 25, 1994. The capitalized
6
<PAGE>
expenditures are comprised of a $42.0 million payment to Raytheon for the
construction project and $0.7 million of related capitalized interest.
ISSUANCE OF COMMON STOCK:
On August 11, 1994, the Company issued 5.6 million shares of $1 par value common
stock in exchange for 5.6 million Special Warrants sold on March 28, 1994. The
issue price of the Special Warrants was $21.00 providing gross proceeds to the
Company of $117.6 million. The gross proceeds were reduced by related equity
issuance costs of $6.8 million providing net equity proceeds of $110.8 million.
ISSUANCE OF LONG TERM DEBT:
On August 11, 1994, the Company issued long-term debt in the form of Senior
Secured Notes and Senior Secured Discount Notes of $205 million, and a Term Loan
of $50 million for gross cash proceeds of $255.0 million. The gross proceeds
were reduced by debt issuance costs of $14.3 million.
The Senior Secured Notes carry an aggregate principal amount of $125.0 million
at an interest rate of 12.5 percent due 2002. The interest is payable semi-
annually on February 1 and August 1, of each year commencing February 1, 1995.
The Senior Secured Discount Notes, due 2004, provided gross proceeds of $80.0
million. The Senior Discount Notes, which yield 13.5 percent will accrete to an
aggregate principal amount of $117.9 million on August 1, 1997. Thereafter,
interest will be payable semi-annually.
In addition, the Company entered into a Term Loan Facility of $50.0 million.
The interest rate is 400 basis points above the LIBOR rate and is adjusted
quarterly. Interest payments are due quarterly. The Term Loan has a graduated
maturity schedule for quarterly principal payments beginning November 1, 1998
and continuing through August 1, 2001.
On August 11, 1994, the Company also entered into a Working Capital Facility
Agreement for $80.0 million secured by the Company's inventories and accounts
receivable. The Working Capital Facility has not been utilized during the three
months ended September 25, 1994.
7
<PAGE>
SUBSEQUENT EVENT:
On September 22, 1994, Raytheon signed an agreement with the Company to purchase
375,000 shares of common stock for $24 per common share. The gross proceeds of
$9.0 million was reduced by the related issuance costs of $0.5 million. The
transaction was consummated on October 7, 1994. The common shares have not been
registered.
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, 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
8
<PAGE>
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 September 25,
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 or results of
operations of the Company.
In connection with the spin-off of Acme Steel from The Interlake Corporation
("Interlake") in 1986, Interlake entered into cross-indemnification agreements
with Acme Steel related to certain environmental, tax and other matters. To
date, Interlake has met all of its obligations under such agreements. In the
event that Interlake for any reason were unable to fulfill its obligations under
such agreements, the Company could have significant increased future
liabilities. Interlake is subject to the informational requirements of the
Securities Exchange Act of 1934 and in accordance therewith files reports,
proxy material and other information concerning Interlake with the Commission.
Interlake's 12 1/8 percent senior subordinated debentures due 2002 are currently
rated CCC + by Standard & Poor's Corporation and B3 by Moody's Investors
Service, Inc.
9
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of
Acme Metals Incorporated
We have reviewed the accompanying consolidated balance sheet as of
September 25, 1994 and the consolidated statements of operations and cash flows
for the nine-month periods ended September 25, 1994 and September 26, 1993 (the
"consolidated financial information") of Acme Metals Incorporated and its
subsidiaries. These financial statements are the responsibility of the company's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of 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
conducted 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.
/s/ Price Waterhouse
- - --------------------
PRICE WATERHOUSE LLP
Chicago, Illinois
October 28, 1994
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CONTINUOUS CASTER MODERNIZATION PROJECT
On August 11, 1994, the Company completed financing for a $372.0 million
modernization and expansion project. The new facility, a continuous thin slab
caster/hot strip mill, will be constructed at the Company's Acme Steel
subsidiary located in Riverdale, Illinois. The financing package consisted of
issuing 5.6 million shares of new common stock which generated $110.8 million,
net of issuance costs and $255.0 of debt which generated $240.7 million, net of
issuance costs.
As a result of the finalization of the approval to proceed with the
project, the Company recorded a $9.5 million restructuring charge which was
comprised of a non-cash $7.2 million to address impairment of existing steel
making facilities and $2.3 million for contractual employee reduction costs in
the Steel Making Segment. The Company also recorded a $1.8 million
extraordinary item, net of tax, resulting from the early extinguishment of
$50.0 million of previously existing Senior Notes.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the items in the
Consolidated Statement of Operations as a percentage of net sales.
<TABLE>
<CAPTION>
For the Fiscal Year Ended For the Nine Months Ended
----------------------------------------- -----------------------------
December 29, December 27, December 26, September 26, September 25,
1991 1992 1993 1993 1994
------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
NET SALES 100.0% 100.0% 100.0% 100.0% 100.0%
------ ------ ------ ------ ------
COSTS AND EXPENSES:
Cost of products sold 89.0 88.8 86.9 88.2 83.5
Depreciation expense 3.6 3.7 3.2 3.3 2.9
----- ----- ----- ----- -----
Gross profit 7.4 7.5 9.9 8.5 13.6
Selling and administrative expense 7.8 7.4 6.7 6.5 6.0
Nonrecurring charge 0.0 0.6 0.4 0.0 2.5
----- ----- ----- ----- -----
Operating income (loss) (0.4) (0.5) 2.8 2.0 5.1
Interest expense, net (1.1) (1.0) (0.9) (1.2) (1.8)
Other non-operating income, net 0.4 0.1 0.1 0.3 1.2
Unusual income item 0.3 0.3 0.3 0.0 0.3
Income tax provision (credit) (0.2) (0.4) 0.9 0.5 1.8
----- ----- ----- ----- -----
Net income (loss) before extraordinary
item and cumulative effect of changes
in accounting principles (0.6) (0.7) 1.4 0.6 3.0
Extraordinary item, net of taxes 0.0 0.0 0.0 0.0 (0.5)
Cumulative effect of changes in
accounting principles, net of taxes 0.0 (12.9) 0.0 0.0 0.0
----- ----- ----- ----- -----
Net income (loss) (0.6)% (13.6)% 1.4% 0.6% 2.5%
------- ------- ----- ----- -----
------- ------- ----- ----- -----
</TABLE>
11
<PAGE>
THIRD QUARTER 1994 AS COMPARED TO THIRD QUARTER 1993
NET SALES. Consolidated net sales of $123.1 million in the third quarter
of 1994 were $11.2 million, or 10 percent higher than third quarter 1993 net
sales. A 5 percent increase in average selling prices contributed $6.0 million
to the favorable comparison supplemented by higher shipments which increased
sales by $5.2 million. The favorable results were largely related to a strong
economy, increasing the volume as well as selling prices for the Steelmaking
Segment, as compared to 1993.
STEEL MAKING SEGMENT. Net sales for the Steel Making Segment were $80.2
million in the third quarter of 1994, a $6.0 million, or 8 percent, improvement
over last years comparable period. Sales to unaffiliated customers increased 15
percent to $54.4 million while intersegment sales of $25.8 million were 4
percent lower than in the third quarter of 1993. The increase in the Steel
Making Segment's net sales was the result of a 4 percent increase in average
selling prices and a 4 percent increase in shipments.
STEEL FABRICATING SEGMENT. Steel Fabricating Segment net sales of $69.2
million in the third quarter of 1994 were $4.2 million, or 6 percent higher than
the comparable period in the prior year. A 4 percent increase in average
selling prices and 2 percent increase in shipments accounted for the sales
improvement as compared to 1993's third quarter.
GROSS PROFIT. The gross profit margin for the third quarter of 1994 of
$18.1 million was $8.9 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, and a
favorable sales mix. Operating costs, however, were higher in the third quarter
of 1994 due to increased volume in 1994. Increased sales volume was the primary
reason for the increased operating costs. The gross profit, as a percentage of
sales, was 14.7 percent in the third quarter of 1994 versus 8.2 percent in last
year's comparable period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling and administrative
expense totaled $7.6 million and $7.8 million for the third 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 third quarter
of 1994 was $1.1 million as compared to operating income of $1.4 million in the
third quarter of 1993. The operating income was reduced by a $9.5 million
nonrecurring charge resulting from the Company's decision to proceed with the
continuous thin slab caster and hot-strip mill project.
STEEL MAKING SEGMENT. The Steel Making Segment incurred a loss from
operations of $4.0 million due to a nonrecurring charge of $9.5 million
comprised of $7.2 million to address the impairment of existing steel making
facilities, and an additional $2.3 million for contractual employee reduction
costs related to the construction of the continuous thin slab caster/hot strip
mill complex. The earnings improvement was driven by a 3 percent increase in
average selling prices and increased shipments of 3,900 tons. Shipments to
external customers were 10 percent over last year's comparable period while
shipments to the Steel Fabricating Segment were 5,800 tons, or 9 percent, lower
than in the third quarter of 1993. Approximately 65 percent of shipments and
gross profit in 1994 was attributable to external customers while the remainder
was generated by sales to the Steel
12
<PAGE>
Fabricating Segment. In the first nine months of 1994, the Steel Making Segment
shipped and derived 65 percent of its gross profit from external customers. In
total, the increased selling prices generated $2.3 million in increased revenue
while the increased shipments contributed $2.7 million over last year's results.
STEEL FABRICATING SEGMENT. The Steel Fabricating Segment's operating
income of $4.2 million for the third quarter of 1994 was $1.9 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 third quarter of 1994 was 40 percent higher than last year's comparable
period due primarily to an increase in sales volume for steel strapping. Alpha
Tube's results in the third 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 consistent with the prior year for the same
period. The majority of the price increases for the Steel Fabricating Segment
in the third quarter of 1994 was the result of price hikes initiated in 1993.
Partially offsetting the effect of 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.
INTEREST INCOME/EXPENSE. Interest income for the third quarter of 1994
totaled $3.5 million, exceeding the third quarter of 1993 by $3.1 million. The
increase is due primarily to income generated on the proceeds received from
issuance of $255 million of debt and $117.6 million of equity. Interest expense
of $4.3 million for the third quarter of 1994 surpassed the same period for the
prior year $2.9 million arising from the issuance of $255.0 million of long term
debt in the third quarter of 1994. In the third quarter of 1994, interest
expense of $0.7 million was capitalized as part of the continuous thin slab
caster and hot strip mill project.
NON-OPERATING INCOME. Non-operating income in the third quarter of 1994
was $0.7 million higher than the $0.3 million expense recorded in last year's
comparable period. Non-operating income in the third quarter of 1994 included a
$0.6 million refund of prior years' utility costs from Commonwealth Edison and
$0.1 million royalty income.
INCOME TAX EXPENSE. Income tax expense for the third quarter was favorably
affected by an adjustment of the estimated affective tax rate for the year from
40 percent to 38 percent.
EXTRAORDINARY ITEM. An extraordinary expense item of $2.9 million, or $1.8
million net of taxes was recorded in the third quarter of 1994. The
extraordinary item results from a prepayment penalty for the early
extinguishment of previously existing $50.0 million Senior Notes.
NET INCOME. The Company recorded a loss of $1.0 million, or $0.12 per
share in the third quarter of 1994 versus income of $0.1 million, or $0.02 cents
per share, recorded in the third quarter of 1993.
13
<PAGE>
NINE MONTHS ENDED SEPTEMBER 25, 1994 AS COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 26, 1993
NET SALES. Consolidated net sales of $379.6 million for the nine months
ended September 25, 1994 were $42.6 million, or 13 percent higher than net
sales in the first nine months of 1993. Higher shipment volume represented a
$22.0 million increase in sales supplemented by a 6 percent increase in average
selling prices over last year's comparable period. The increased selling prices
had a $20.6 million favorable impact on sales in comparison to the nine months
of 1993. The favorable comparison can be largely attributed to strong economic
conditions increasing the demand for steel and improving average selling prices.
STEEL MAKING SEGMENT. Net sales for the Steel Making Segment advanced to
$253.8 million in the nine months of 1994, a $28.3 million, or 13 percent,
improvement over last year's comparable period. Sales to unaffiliated customers
increased 21 percent to $165.9 million while intersegment sales of $87.8 million
were consistent with the first nine 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 26,392 ton increase in shipments.
STEEL FABRICATING SEGMENT. Steel Fabricating Segment net sales of $215.0
million in the first nine months of 1994 were $14.2 million, or 7 percent higher
than the comparable period in the prior year. A 6 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 nine months.
GROSS PROFIT. The gross profit for the first nine months of 1994 of $51.6
million was $23.2 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 nine months of 1994. Higher
material costs, increased expenditures and higher insurance and pension costs
were the primary reasons for the increased operating costs. The gross profit,
as a percentage of net sales, was 13.6 percent in the first nine months of 1994
versus 8.4 percent in last year's comparable period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling and administrative
expense totaled $22.9 million (6.0 percent of net sales) and $21.6 million (6.4
percent of net sales) for the first nine months of 1994 and 1993, respectively.
OPERATING INCOME. Operating income for the Company for the nine months
ended September 25, 1994 was $19.2 million as compared to operating income of
$6.8 million in the first nine months of 1993. The operating results were
reduced by a $9.5 million nonrecurring charge resulting from adjustments
relating to the continuous thin slab caster/hot-strip mill complex.
STEEL MAKING SEGMENT. Operating income for the Steel Making Segment
totaled $5.5 million as compared to the $1.3 million loss recorded in the first
nine months of 1993. Earnings were reduced by a $9.5 million nonrecurring
charge consisting of an impairment of assets and contractual employee reduction
costs related to the construction of the continuous thin slab caster/hot-strip
mill complex. The earnings improvement was driven by a 6 percent increase in
average selling prices and increased shipments. Shipments to external customers
were 13 percent higher than last year's
14
<PAGE>
comparable period while shipments to the Steel Fabricating Segment were 16,000
tons, or 7 percent, lower than in the first nine months of 1993. Approximately
62 percent of shipments and 66 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 nine months, the Steel Making Segment
shipped 58 percent and derived 60 percent of its gross profit from external
customers. In total, the increased selling prices generated $13.9 million in
increased revenue while the increased shipments contributed $5.5 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 for the Steel Making Segment's active and retired employees.
STEEL FABRICATING SEGMENT. The Steel Fabricating Segment's operating
income of $13.5 million for the first nine months of 1994 was $4.6 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 nine months of 1994 was 27 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 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 lower in connection
with an increase in selling administrative expenses of 25 percent and increased
sales volume. The majority of the price increases for the Steel Fabricating
Segment in the first nine 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 nine months of
1994 was $1.3 million higher than last year's comparable period due primarily to
a refund of prior years' utility costs recorded in the current period.
INTEREST INCOME/EXPENSE. Interest income for the first nine months of 1994
totaled $4.6 million, exceeding the first nine months of 1993 by $3.4 million.
The increase is due to income generated on proceeds received from issuance of
debt and equity in the third quarter of 1994. Interest expense of $6.9 million
for the first nine months of 1994 surpassed the same period for the prior year
$2.9 million arising from the issuance of long term debt in the third quarter of
1994. In the third quarter of 1994, interest expense of $0.7 million was
capitalized as part of the continuous thin slab caster and hot strip mill
project.
INCOME TAX EXPENSE. The income tax expense for the nine months of 1994
totaled $7.0 million based on a 38 percent effective tax rate as compared to the
$1.5 million expense in the first nine months of 1993, based on a 40 percent
effective rate.
EXTRAORDINARY ITEM. An extraordinary expense item of $2.9 million, or
$1.8 million net of tax was recorded in the third quarter of 1994. The
extraordinary item results from a prepayment penalty for the early
extinguishment of existing $50.0 million Senior Notes.
NET INCOME. The Company recorded earnings of $9.4 million, or $1.42 per
share in the first nine months of 1994 versus the $2.2 million, or 42 cents per
share, recorded in the first nine months of 1993.
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
MODERNIZATION PROJECT. The Board of Directors of the Company approved, and
the Company completed financing for the $372 million continuous thin slab
caster/hot strip mill complex at the Company's Acme Steel Company subsidiary's
Riverdale, Illinois steel works facility.
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 will finance these expenditures
exclusively from proceeds obtained by issuance of 5.6 million shares of common
stock for $117.6 million and $255 million of debt (together with cash on hand
and operating cash flow). The issuance of debt consists of Senior Secured Notes
of $125.0 million, Senior Secured Discount Notes of $80 million, and a Term Loan
Facility of $50.0 million.
The Senior Secured Notes carry an aggregate principal amount of $125.0
million at an interest rate of 12.5 percent due 2002. The interest is payable
semi-annually on February 1 and August 1, of each year commencing February 1,
1995.
The Senior Secured Discount Notes, due 2004, provided gross proceeds of
$80.0 million. The Senior Discount Notes, which yield 13.5 percent will accrete
to an aggregate principal amount of $117.9 million on August 1, 1997.
Thereafter, interest will be payable semi-annually.
The Term Loan Facility of $50.0 million bears interest at 400 basis points
above the LIBOR rate and is adjusted quarterly. Interest payments are due
quarterly. The Term Loan has a graduated maturity schedule for quarterly
principal payments beginning November 1, 1998 and continuing through August 1,
2001.
The facility is expected to take 27 months to complete and upon its
completion will reduce the cost of the Steel Making Segment by approximately 20
percent. The cost savings will be realized by increased productivity yields,
reduced utility costs, and reduced manpower.
At September 25, 1994 cash balances totaled $138.3 million, up $87.8
million from the December 26, 1993 balance. Operating activities generated
$35.4 million of cash in the first nine months of 1994 comprised primarily of a
combination of net income of $9.4 million, $11.7 million of non-cash
depreciation and the nonrecurring charge of $9.5 million, $1.4 million of non-
cash interest expense on the Senior Discount Notes and $3.4 million from changes
in working capital and non-current accounts. The change in working capital and
non-current accounts was due to a decrease in receivables and inventory
balances, and increases in the retired medical and pension liability accruals.
Financing activities reducing cash included debt issuance costs of $14.3
million. Proceeds from the exercise of stock options totaled $2.6 million.
Also reducing cash was the prepayment of $50.0 million of previously existing
Senior Notes.
16
<PAGE>
Investing activities include a $42.0 million payment to Raytheon Engineers
& Constructors, Inc. for the construction of the continuous thin slab caster/hot
strip mill project. The remainder of funds received from the issuance of debt
totaling $200.4 million, after the payments of issuance costs and Raytheon
Engineers, was reclassified as non-current restricted cash. The funds are held
in trust and are restricted for the construction of the continuous thin slab
caster/hot strip mill complex.
Working capital stood at $186.9 million at the end of the third quarter, up
$93.7 million over last December's ending amount. The current ratio increased
from 2.2 at the end of 1993 to 3.7 at September 25, 1994. The Company has a new
three year $80 million revolving credit agreement secured by accounts receivable
and inventory which has not been utilized in 1994. The previously existing
$60.0 million revolving credit agreement was terminated.
17
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 15 - Letter Regarding Unaudited Interim Financial Information
(b) Exhibit 27 - Financial Data Schedule
(c) Reports on Form 8-K
On June 30, 1994, the Company issued a press release announcing that the
Board of Directors had approved construction of the proposed continuous
thin slab caster/hot strip mill complex at its Acme Steel Company in
Riverdale, Illinois, plant contingent upon successful completion of the
financing for the project and that the Company had selected Raytheon
Engineers & Constructors, Inc. of Philadelphia to serve as general
contractor for the project and SMS Schloemann-Siemag AG, of Dusseldorf, as
the primary equipment supplier.
The report on Form 8-K disclosing the above matter was filed on August 3,
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: November 9, 1994 By: /s/ J. F. Williams
-----------------------------
Jerry F. Williams
Vice President - Finance
and Administration
(Principal Financial Officer)
By: /s/ G. J. Pritz
-----------------------------
Gregory J. Pritz
Controller
(Principal Accounting Officer)
18
<PAGE>
Exhibit 15
November 9, 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 October
28, 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,
/s/ Price Waterhouse
- - --------------------
PRICE WATERHOUSE
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Unaudited Consolidated Balance Sheets at September 25, 1994 and
Unaudited Consolidated Statements of Operations for the Nine Months Ended
September 25, 1994 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-25-1994
<PERIOD-START> DEC-27-1993
<PERIOD-END> SEP-25-1994
<CASH> 138,285
<SECURITIES> 0
<RECEIVABLES> 56,849
<ALLOWANCES> 1,283
<INVENTORY> 47,129
<CURRENT-ASSETS> 256,174
<PP&E> 405,664
<DEPRECIATION> 258,189
<TOTAL-ASSETS> 663,236
<CURRENT-LIABILITIES> 69,265
<BONDS> 262,362
<COMMON> 11,181
0
0
<OTHER-SE> 194,870
<TOTAL-LIABILITY-AND-EQUITY> 663,236
<SALES> 379,565
<TOTAL-REVENUES> 379,565
<CGS> 316,876
<TOTAL-COSTS> 327,938
<OTHER-EXPENSES> 32,379<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,933
<INCOME-PRETAX> 18,197
<INCOME-TAX> 6,975
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 1,787<F2>
<CHANGES> 0
<NET-INCOME> 9,435
<EPS-PRIMARY> 1.42
<EPS-DILUTED> 0
<FN>
<F1>Includes a $9,459 non-recurring charge.
<F2>For prepayment penalty of previously existing debt.
</FN>
</TABLE>
