<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 24, 1995 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
(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 22, 1995: 11,578,548.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ACME METALS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
September 24, December 25,
1995 1994
------------ ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 58,173 $ 76,639
Short term investments 92,732 76,384
Receivables, less allowances of $1,382 in 1995 and $1,283 in 1994 57,197 60,878
Inventories 51,131 44,982
Deferred income taxes 17,532 13,354
Other current assets 1,701 1,605
---------- ----------
Total current assets 278,466 273,842
---------- ----------
INVESTMENTS AND OTHER ASSETS:
Investments in associated companies 14,867 14,358
Restricted cash and investments 81,618 201,397
Other assets 20,491 23,221
Deferred income taxes 20,683 20,683
---------- ----------
Total investments and other assets 137,659 259,659
---------- ----------
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment, at cost 365,226 363,699
Construction in progress 214,793 46,605
Accumulated depreciation (273,015) (261,475)
---------- ----------
Total property, plant and equipment 307,004 148,829
---------- ----------
$ 723,129 $ 682,330
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 49,631 $ 36,732
Accrued expenses 40,772 42,718
Income taxes payable 1,941
---------- ----------
Total current liabilities 90,403 81,391
---------- ----------
LONG-TERM LIABILITIES:
Long-term debt 273,651 265,055
Other long-term liabilities 11,026 10,012
Postretirement benefits other than pensions 85,679 83,867
Retirement benefit plans 16,627 18,727
---------- ----------
Total long-term liabilities 386,983 377,661
---------- ----------
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, 11,578,548
and 11,558,127 shares issued in 1995 and 1994, respectively 11,579 11,558
Additional paid-in capital 164,960 164,599
Retained earnings 89,802 67,719
Minimum pension liability adjustment (20,598) (20,598)
---------- ----------
Total shareholders' equity 245,743 223,278
---------- ----------
$ 723,129 $ 682,330
---------- ----------
---------- ----------
</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 24, September 25, September 24, September 25,
1995 1994 1995 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NET SALES $ 122,211 $ 123,142 $ 389,930 $ 379,565
COSTS AND EXPENSES:
Cost of products sold 101,402 101,363 312,793 316,876
Depreciation expense 2,898 3,638 10,953 11,062
----------- ----------- ----------- -----------
Gross profit 17,911 18,141 66,184 51,627
Selling and administrative expense 8,654 7,616 26,345 22,920
Nonrecurring charge 9,459 9,459
----------- ----------- ----------- -----------
Operating income 9,257 1,066 39,839 19,248
NON-OPERATING INCOME (EXPENSE):
Interest expense (4,438) (4,267) (18,150) (6,933)
Interest income 3,464 3,521 11,148 4,567
Other - net (70) 454 1,668 1,315
----------- ----------- ----------- -----------
Income before income taxes, extraordinary item 8,213 774 34,505 18,197
Income tax provision 2,957 6 12,422 6,975
----------- ----------- ----------- -----------
Income before extraordinary item 5,256 768 22,083 11,222
Extraordinary item (expense), net of tax (1,787) (1,787)
----------- ----------- ----------- -----------
Net income (loss) $ 5,256 $ (1,019) $ 22,083 $ 9,435
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
PER COMMON SHARE:
Income before extraordinary item $ 0.45 $ 0.09 $ 1.90 $ 1.69
Extraordinary item (0.21) (0.27)
----------- ----------- ----------- -----------
Net income (loss) $ 0.45 $ (0.12) $ 1.90 $ 1.42
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</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>
<S> <C> <C>
For The Nine Months Ended
-----------------------------
September 24, September 25,
1995 1994
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 22,083 $ 9,435
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Nonrecurring charge 9,459
Depreciation 11,391 11,698
Accretion of Senior Discount Note 8,596 1,362
CHANGE IN CURRENT ASSETS AND LIABILITIES:
Receivables 3,681 1,630
Inventories (6,149) 738
Accounts payable (2,340) (1,499)
Other current accounts (8,159) (74)
Other, net 3,160 2,629
---------- ----------
Net cash provided by operating activities 32,263 35,378
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investments (346,058)
Sales and/or maturities of investments 441,870
Reclass of restricted cash 7,619
Increase in restricted cash for the modernization
project (200,448)
Capital expenditures (13,363) (8,572)
Capital expenditures - modernization project (141,179) (42,677)
---------- ----------
Net cash used for investing activities (51,111) (251,697)
---------- ----------
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 exercise of stock options 2,613
Long-term debt issuance cost (14,253)
Payment of long-term debt (50,000)
Other 382
---------- ----------
Net cash provided by investing activities 382 304,160
---------- ----------
Net increase (decrease) in cash and cash equivalents (18,466) 87,841
Cash and cash equivalents at beginning of period 76,639 50,444
---------- ----------
Cash and cash equivalents at end of period $ 58,173 $ 138,285
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of this financial statement.
4
<PAGE>
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION:
The accompanying financial statements for the periods ended September 24, 1995
and September 25, 1994 are unaudited. In the opinion of management, all
adjustments necessary for a fair presentation of such financial statements,
consisting only of normal recurring adjustments, 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. The 1995 fiscal
year will end on December 31, 1995 and will contain 53 weeks. Third quarter
results for 1995 and 1994 cover 13-week periods.
SEGMENT INFORMATION:
The Company presents its operations in two segments, Steel Making and Steel
Fabricating.
Steel Making operations include the manufacture of sheet, strip and semifinished
steel in low-, mid-, and high-carbon alloy and special grades. Principal
markets include agricultural, automotive, industrial equipment, industrial
fasteners, welded steel tubing, processor and tool manufacturing industries.
The Steel Fabricating Segment processes and distributes steel strapping,
strapping tools and industrial packaging (Acme Packaging Corporation), welded
steel tube (Alpha Tube Corporation) and auto and light truck jacks (Universal
Tool & Stamping Company, Inc.). The Steel Fabricating Segment sells to a number
of markets.
All sales between Segments approximate current market prices. Income from
operations consists of total sales less operating expenses. Operating expenses
include an allocation of expenses incurred at the Corporate Office that are
considered by the Company to be operating expenses of the Segments rather than
general corporate expenses. Income from operations does not include other non-
operating income or expense, interest income or expense, or income taxes.
The products and services of the Steel Making and Steel Fabricating Segments are
distributed through their own respective sales organizations which have sales
offices at various locations in the United States. Export sales are
insignificant.
5
<PAGE>
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
For The For The
Three Months Ended Nine Months Ended
---------------------------- ---------------------------
September 24, September 25, September 24, September 25,
1995 1994 1995 1994
------------- ------------ ------------- -------------
(in thousands)
<S> <C> <C> <C> <C>
Net Sales
Steel Making:
Sales to unaffiliated customers $ 53,794 $ 54,436 $ 175,542 $ 165,946
Intersegment sales 25,559 25,804 87,118 87,838
----------- ----------- ----------- -----------
79,353 80,240 262,660 253,784
Steel Fabricating:
Sales to unaffiliated customers 68,417 68,706 214,388 213,619
Intersegment sales 351 412 1,218 1,380
----------- ----------- ----------- -----------
68,768 69,118 215,606 214,999
Eliminations: (25,910) (26,216) (88,336) (89,218)
----------- ----------- ----------- -----------
Total $ 122,211 $ 123,142 $ 389,930 $ 379,565
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Income (Loss) from operations
Steel Making $ 4,727 $ (3,156) $ 23,357 $ 5,788
Steel Fabricating 4,530 4,222 16,482 13,460
----------- ----------- ----------- -----------
Total $ 9,257 $ 1,066 $ 39,839 $ 19,248
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Depreciation
Steel Making $ 2,064 $ 2,815 $ 8,446 $ 8,714
Steel Fabricating 965 961 2,859 2,903
Corporate 32 28 86 81
----------- ----------- ----------- -----------
Total $ 3,061 $ 3,804 $ 11,391 $ 11,698
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Capital Expenditures
Steel Making $ 68,155 $ 45,413 $ 165,480 $ 49,417
Steel Fabricating 1,919 738 2,968 1,778
Corporate 1,183 27 1,332 54
----------- ----------- ----------- -----------
Total $ 71,257 $ 46,178 $ 169,780 $ 51,249
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Flat Rolled Steel Shipments (in tons) 125,653 156,032 455,624 504,013
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
6
<PAGE>
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
PER SHARE DATA:
Per share amounts for 1995 and 1994 are based on the weighted average number of
common and dilutive common equivalent shares outstanding during the three-month
period (11,610,259 in 1995 and 8,627,876 in 1994) and the nine-month period
(11,604,437 in 1995 and 6,641,383 in 1994).
INVENTORIES:
Inventories are summarized as follows:
September 24, December 25,
1995 1994
------------------ -------------------
(in thousands)
Raw materials $ 5,640 $ 5,200
Semi-finished and finished products 36,735 31,434
Supplies 8,756 8,348
-------- -------
$ 51,131 $ 44,982
-------- -------
-------- -------
PROPERTY, PLANT AND EQUIPMENT:
The Company capitalized expenditures related to the construction of the
Modernization and Expansion Project ("the Project") totaling $200.9 million at
September 24, 1995. The capitalized expenditures are comprised of $188.1
million of cash and accrued payments to Raytheon Engineers & Constructors Inc.,
the general contractor, $10.0 million of related capitalized interest, and $2.8
million of other costs related directly to the construction of the Project.
CASH FLOWS:
For the first nine months of 1995 and 1994, cash payments of $18.6 million and
$12.3 million were made for payment of income taxes, respectively; in these
periods cash payments for interest expense were $19.6 million and $3.7 million,
respectively.
Net cash from investing activities was increased by a reclass of $7.6 million of
non-current restricted cash to cash equivalents in the third quarter of 1995.
The restricted cash was reclassed in connection with $15.2 million of capital
expenditures currently owed to the general contractor, which will be paid in the
fourth quarter of 1995. Due to the non-cash nature of this capital expenditure
it has been excluded from the cash flow statement.
7
<PAGE>
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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 work-place 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.
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 substantial
expenditures for pollution abatement facilities in future years, because of the
continuous revision of these regulatory and statutory requirements, the Company
is not able to reasonably estimate the specific pollution abatement requirements
or, 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 or insurance policies
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 at the time that
a reasonable estimate can be made. At September 24, 1995, the Company had
recorded reserves for environmental clean-up matters which were not material.
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 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 from The Interlake Corporation ("Interlake") on
May 29, 1986 (the "Spin-Off"), Acme Steel Company (a subsidiary of the Company)
entered into certain indemnification
8
<PAGE>
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
agreements with Interlake. Pursuant to the terms of the indemnification
agreements, Interlake undertook to defend, indemnify and hold Acme Steel Company
harmless from any claims, as defined, relating to Acme Steel Company operations
or predecessor operations occurring before May 29, 1986, the inception of Acme
Steel Company. The indemnification agreements cover certain environmental
matters including certain litigation and Superfund sites in Duluth, Minnesota
and Gary, Indiana for which either Interlake or Acme Steel Company's predecessor
operations have been named as defendants or PRP's, as applicable. To date,
Interlake has met its obligations under the indemnification agreements and has
provided the defense and paid all costs related to these environmental matters.
The Company does not have sufficient information to determine the potential
liability, if any, for the matters covered by the indemnification agreements in
the event Interlake fails to meet its obligations thereunder in the future. In
the event that Interlake, for any reason, was unable to fulfill its obligations
under the indemnification agreements, the Company could have increased future
obligations which may be significant.
Also in connection with the Spin-Off from Interlake, Acme Steel Company entered
into a Tax Indemnification Agreement ("TIA") which generally provided for
Interlake to indemnify Acme Steel Company for certain tax matters. While
certain issues have been negotiated and settled between the Company, Interlake
and the Internal Revenue Service, certain significant issues for the tax years
beginning in 1982 through 1986 remain unresolved.
On March 17, 1994, Acme Steel Company received a Statutory Notice of Deficiency
("Notice") in the amount of $16.9 million in tax as a result of the Internal
Revenue Service's examination of the 1982-1984 tax years. The Company is
contesting the unresolved issues and the Notice. Should the government sustain
its position as proposed for those unresolved issues and those contained in the
Notice, substantial interest would also be due (potentially in an amount greater
than the tax claimed). The taxes claimed relate principally to adjustments for
which Acme Steel Company is indemnified by Interlake pursuant to the TIA. The
Company has adequate reserves to cover that portion for which it believes it may
be responsible per the TIA. To date, Interlake has met its obligations under
the TIA with respect to all covered matters. In the event that Interlake, for
any reason, were unable to fulfill its obligations under the TIA, the Company
could have increased future obligations.
The Company's subsidiaries also have various litigation matters pending which
arise out of the ordinary course of their businesses. In the opinion of
management, the ultimate resolution of these matters will not have a material
adverse effect on the financial position of the Company.
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 24,
1995, the consolidated statements of operations for the three-month and nine-
month periods ended September 24, 1995 and September 25, 1994, and the
consolidated statements of cash flows for the nine-month periods ended September
24, 1995 and September 25, 1994 (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 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 25, 1994, and the related
consolidated statements of operations, of shareholders' equity, and of cash
flows for the year then ended (not presented herein), and in our report dated
March 17, 1995 we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying consolidated balance sheet information as of December 25, 1994, is
fairly stated in all material respects in relation to the consolidated balance
sheet from which it has been derived.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Chicago, Illinois
October 20, 1995
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Nine Months Ended For the Years Ended
------------------------- -------------------
September 24, September 25, December 25, December 26, December 27,
1995 1994 1994 1993 1992
------- ------- ------ ------ -------
<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 80.2 83.5 82.5 86.9 88.8
Depreciation expense 2.8 2.9 2.9 3.2 3.7
------ ------ ------ ------ ------
Gross Profit 17.0 13.6 14.6 9.9 7.5
Selling and administrative expense 6.8 6.0 6.4 6.7 7.4
Restructuring/Nonrecurring charge 2.5 1.8 0.4 0.6
------ ------ ------ ------ ------
Operating income (loss) 10.2 5.1 6.4 2.8 (0.5)
Interest expense, net (1.8) (1.8) (1.2) (0.9) (1.0)
Other non-operating income, net 0.4 1.2 0.3 0.1 0.1
Unusual income items 0.3 0.3 0.3
Income tax provision (credit) 3.2 1.8 1.9 0.9 (0.4)
------ ------ ------ ------ -------
Net income (loss) before
extraordinary item and cumulative
effect of accounting changes 5.6 3.0 3.6 1.4 (0.7)
Cumulative effect of changes in
accounting principles, net of taxes (12.9)
------ ------ ------ ------ -------
Net income (loss) before
extraordinary item 5.6 3.0 3.6 1.4 (13.6)
------ ------ ------ ------ ------
Extraordinary item, net of taxes (0.5) (0.3)
------ ------ ------ ------ ------
Net income (loss) 5.6% 2.5% 3.3% 1.4% (13.6)%
------ ------ ------ ------ ------
------ ------ ------ ------ ------
</TABLE>
THIRD QUARTER 1995 AS COMPARED TO THIRD QUARTER 1994
NET SALES. Consolidated net sales of $122.2 million in the third quarter
of 1995 were $0.9 million, or 1 percent lower than third quarter 1994 net sales.
The slight decrease in the third quarter of 1995 in sales was the result of
overall lower shipments which was largely offset by higher selling prices, and a
change in product mix.
STEEL MAKING SEGMENT. Net sales for the Steel Making Segment fell slightly
to $79.4 million in the third quarter of 1995, representing a $0.9 million, or 1
percent, decrease over last year's comparable period. A decrease in shipments
reduced results by $2.8 million, but the decrease was largely offset by higher
average selling prices of 3 percent, or $1.9 million as compared to the same
period in 1994. (The decrease in the Steel Making Segment's net sales was
primarily the result of a 20 percent decrease in flat rolled steel shipments
which was largely offset by increased shipments of hot metal, pig iron and semi-
finished products, contributing $18 million in sales in 1995 as compared to $5.6
million in 1994.)
STEEL FABRICATING SEGMENT. The Steel Fabricating Segment net sales of
$68.8 million in the third quarter of 1995 were $0.3 million lower than the
comparable period in the prior year.
11
<PAGE>
The reduction in sales was primarily attributable to a 3 percent decrease in
shipments which was partially offset by average selling prices increasing by 4
percent as compared to 1994's third quarter.
GROSS PROFIT. The gross profit margin for the third quarter of 1995 of
$17.9 million was just below the $18.1 million recorded during last year's
comparable period. The decrease in margin was due to reduced flat rolled
shipment volume and was partially offset by higher than average selling prices
across all the Company's products. Somewhat offsetting the reduction in flat
rolled shipment volume was the shipment of hot metal in the third quarter of
1995 contributing $1.2 million. Operating costs were consistent with the third
quarter of 1994, with the exception of lower depreciation expense due to a
reduction in the depreciable asset base. The gross profit, as a percentage of
sales, was 14.6 percent in the third quarter of 1995 versus 14.7 percent in last
year's comparable period.
SELLING AND ADMINISTRATIVE EXPENSE. Selling and administrative expense
totaled $8.7 million and $7.6 million for the third quarters of 1995 and 1994,
respectively. Selling and administrative expenses represented 7.1 percent of
net sales in 1995 compared to 6.2 percent in 1994. The increase was generated
mainly by higher salaries, benefits, and other administrative expenses.
OPERATING INCOME. Operating income for the Company for the third quarter
of 1995 was $9.3 million as compared to operating income of $1.1 million in the
third quarter of 1994. The operating income for 1994 was reduced by a $9.5
million non-recurring charge recorded by the Steel Making Segment, as described
below.
STEEL MAKING SEGMENT. Operating income for the Steel Making Segment
totaled $4.7 million as compared to the $3.2 million operating loss recorded in
the third quarter of 1994. The third quarter 1994 loss was the result of a non-
recurring charge of $9.5 million resulting from charges to address the
impairment of steel making facilities and contractual employee reduction costs
related to the Project. Exclusive of this charge operating income totaled $6.3
million in the third quarter of 1994. The decrease of operating income in the
third quarter 1995 of $1.6 million (excluding the non-recurring charge of $9.5
million), resulted principally from increased fixed operating costs per ton due
to lower production volume. Flat rolled shipments to external customers were 28
percent lower than last year's comparable period and shipments to the Steel
Fabricating Segment were 5 percent lower than in the third quarter of 1994.
Partially offsetting reduced flat rolled shipments were hot metal shipments
contributing approximately $1.2 million in operating income. Approximately 60
percent of gross profit in 1995 was attributable to external customers while the
remainder was generated by the Steel Fabricating Segment compared to 65 percent
in 1994.
STEEL FABRICATING SEGMENT. The Steel Fabricating Segment's operating
income of $4.5 million for the third quarter of 1995 was $0.3 million higher
than in last year's comparable period with all of the increase derived from a 5
percent increase in average selling prices. 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.
12
<PAGE>
Acme Packaging's operating income for the third quarter of 1995 was consistent
with last year's comparable period as an increase in average selling prices for
steel strapping was largely offset by increased raw material costs due to higher
flat rolled steel prices from the Steel Making Segment. Alpha Tube's results in
the third quarter of 1995 were up slightly as a result of lower raw material
steel costs, and Universal's operating income equaled the comparable 1994
period. The majority of the price increases for the Steel Fabricating Segment
in the third quarter of 1995 was the result of price hikes initiated in 1994.
INTEREST INCOME / EXPENSE. Interest income for the third quarter of 1995
totaled $3.4 million, compared to $3.5 million in the third quarter of 1994.
Interest costs for the third quarter of 1995 totaled $8.6 million of which $4.2
million was capitalized as part of the Project. In the comparable period for
1994, the Company incurred $5.0 million of interest costs of which $0.7 million
was capitalized. The increase in costs in the third quarter of 1995 relates to
the issuance of debt midway through the third quarter of 1994.
OTHER NON-OPERATING INCOME. Other non-operating income in the third
quarter of 1995 was $0.5 million lower than the income recorded in last year's
comparable period. Other non-operating income in the third quarter of 1994
included a $0.6 million refund of prior years' utility costs from Commonwealth
Edison.
INCOME TAX EXPENSE. The income tax expense for the third quarter of 1995
totaled $3.0 million based on a 36 percent effective tax rate. The 1995 expense
was $3.0 million higher than the third quarter of 1994 based on a 38 percent
effective tax rate.
NET INCOME. The Company recorded earnings of $5.3 million, or $0.45 per
share in the third quarter of 1995 versus a loss of $1.0 million, or $0.12 cents
per share, recorded in the third quarter of 1994. Net income for the third
quarter of 1994 includes a $5.9 million, net of tax, non-recurring charge to
address the impairment of steel making facilities and contractual employee
reduction costs related to the construction of the Project, and a related
extraordinary expense item of $1.8 million, net of tax, resulting from the early
extinguishment of previously existing Senior Notes. Per share amounts for 1995
and 1994 are based on weighted average number of common shares and dilutive
common equivalent shares outstanding during each respective three month period
(11,610,259 in 1995 and 8,627,876 in 1994).
NINE MONTHS ENDED SEPTEMBER 24, 1995 AS COMPARED TO NINE MONTHS ENDED SEPTEMBER
25, 1994
NET SALES. Consolidated net sales of $389.9 million for the nine months
ended September 24, 1995 were $10.4 million, or 3 percent higher than net sales
in the first nine months of 1994. Higher average selling prices resulted in a
$19.8 million increase in sales, but was reduced by a decrease in shipments over
last year's comparable period. The decrease in shipments caused a $9.4 million
unfavorable impact on sales in comparison to the first nine months of 1994.
13
<PAGE>
STEEL MAKING SEGMENT. Net sales for the Steel Making Segment advanced to
$262.7 million in the first nine months of 1995, a $8.9 million, or 4 percent,
improvement over last year's comparable period. Sales to unaffiliated customers
increased 6 percent to $175.5 million while intersegment sales of $87.1 million
were nearly 1 percent lower than in the first nine months of 1994. The increase
in the Steel Making Segment's net sales was primarily the result of a 4 percent
increase in average selling prices and increased hot metal and pig iron sales,
as flat rolled shipments were 10 percent lower than the prior year.
STEEL FABRICATING SEGMENT. Steel Fabricating Segment net sales of $215.6
million in the first nine months of 1995 were $0.6 million higher than the
comparable period in the prior year. Higher average selling prices contributing
$12.2 million were almost completely offset by lower shipments reducing sales
by $11.6 million as compared to last year's first nine months.
GROSS PROFIT. The gross profit for the first nine months of 1995 of $66.2
million was $14.6 million higher than the gross profit recorded during last
year's comparable period. The increase in gross profit was due principally to
higher average selling prices for the Company's products. In addition,
operating costs were lower in the first nine months of 1995.
SELLING AND ADMINISTRATIVE EXPENSE. Selling and administrative expense
totaled $26.3 million (6.8 percent of net sales) and $22.9 million (6 percent of
net sales) for the first nine months of 1995 and 1994, respectively. The
increase was generated by higher salaries, increased administrative costs, and
expenses associated with on-going efforts to implement new information
technology systems and business processes within the Company.
OPERATING INCOME. Operating income for the Company for the nine months
ended September 24, 1995 was $39.8 million as compared to operating income of
$19.2 million in the first nine months of 1994. The operating income for the
first nine months of 1994 was reduced by a $9.5 million non-recurring charge
recorded by the Steel Making Segment.
STEEL MAKING SEGMENT. Operating income for the Steel Making Segment
totaled $23.4 million as compared to the $5.8 million income recorded in the
first nine months of 1994. Affecting the first nine months of 1994 was a non-
recurring charge, as described above. Exclusive of this charge operating income
for the first nine months of 1994 totaled $15.3 million. The 1995 earnings
improvement was driven by a 4 percent increase in average selling prices. Flat
rolled shipments to external customers were 25 percent lower than last year's
comparable period and shipments to the Steel Fabricating Segment were 8 percent
lower than in the first nine months of 1994. Somewhat offsetting the decrease
in flat rolled steel shipments was the increase in shipments of hot metal
products contributing $1.9 million of additional operating income in 1995.
Also, offsetting the benefit of higher average selling prices were increased
selling and administrative costs. Approximately 62 percent of shipments and 64
percent of gross profit in 1995 were attributable to external customers while
the remainder was generated by sales to the Steel Fabricating Segment. In
1994's first nine months the Steel Making Segment shipped 63 percent and derived
66 percent of its gross profit from external customers.
14
<PAGE>
STEEL FABRICATING SEGMENT. The Steel Fabricating Segment's operating
income of $16.5 million for the first nine months of 1995 was $3.0 million
higher than in last year's comparable period with virtually all of the increase
derived from increased average selling prices. Higher average selling prices
contributed $12.3 million of additional operating income as compared to the same
period for 1994. Partially offsetting these gains were decreased shipments and
an unfavorable product mix reducing results by $6.0 million. The remaining
benefit of higher selling prices was reduced mostly by increased raw material
costs in the form of higher flat rolled prices from the Steel Making Segment,
and increased selling and administrative expenses.
Acme Packaging's operating income for the first nine months of 1995 was 20
percent higher than last year's comparable period due primarily to a 5 percent
increase in average selling prices for steel strapping. Alpha Tube's results in
1995 doubled as a result of a 9 percent increase in average selling prices for
welded tubing and lower raw material costs, and Universal's operating income was
consistent with the same period in 1994.
INTEREST INCOME / EXPENSE. Interest income for the first nine months of
1995 totaled $11.1 million, exceeding the first nine months of 1994 by $6.6
million. The increase is due primarily to increased investments in connection
with the Project resulting from the issuance of debt and equity in the third
quarter of 1994. Interest costs totaled $26.2 million for the nine months of
1995 of which $8.0 million was capitalized as part of the Project. Interest
costs for the first nine months of 1994 were $7.6 million with $0.7 million
capitalized as part of the Project.
OTHER NON-OPERATING INCOME. Other non-operating income in the first nine
months of 1995 was $0.4 million higher than last year's comparable period due to
a $1.6 million gain on the sale of the Company's interest in a West Virginia
coal producing property. The comparable period in 1994 included income of $1.3
million consisting almost entirely of refunds from Commonwealth Edison for prior
utility costs.
INCOME TAX EXPENSE. The income tax expense for the first nine months of
1995 totaled $12.4 million based on a 36 percent effective tax rate as compared
to the $6.9 million expense in the first nine months of 1994, based on a 38
percent effective rate.
NET INCOME. The Company recorded earnings of $22.1 million, or $1.90 per
share, in the first nine months of 1995 versus the $9.4 million, or $1.42 per
share, recorded in the first nine months of 1994. Affecting the first nine
months of 1994 were a third quarter non-recurring charge of $5.9 million, net of
tax, and an extraordinary expense item of $1.8 million, as described above. Per
share amounts for 1995 and 1994 are based on weighted average number of common
shares and dilutive common equivalent shares outstanding during the nine month
period (11,604,437 in 1995 and 6,641,383 in 1994).
LIQUIDITY AND CAPITAL RESOURCES
At September 24, 1995, the Company's cash and cash equivalents balance was $58.2
million, down $18.5 million from the December 1994 balance. Operating
activities generated $32.3 million of cash in the first nine months of 1995 due
to a combination of net income, an add back of $11.4 million of non-cash
depreciation, $8.6 million of non-cash accretion of the Senior
15
<PAGE>
Discount Notes, and a net decrease of $9.8 million from changes in working
capital and other non-current accounts. Investing activities decreased cash
$51.1 million due primarily to the disbursement of $154.5 million of cash for
capital expenditures. The decrease was partially offset by the reclass of $7.6
million of restricted cash and investments to make funds available for the
amounts owing to the general contractor (the company has an obligation
outstanding to the general contractor of $15.2 million at the end of the third
quater of 1995). Also, the sale and/or maturities of investments, net of
purchases, increased cash from investing activities by $95.8 million. Working
capital amounted to $188.1 million at September 24, 1995, lower by $4.4 million
from December 25, 1994. In addition to cash and cash equivalents, the Company's
cash balances include $92.7 million of short-term investments, and $81.6 million
of restricted cash and investments held in trust and committed for the
construction of the Project and related debt service.
As of September 24, 1995, the Company's long-term indebtedness was $273.7
million. Long-term debt increased $8.6 million in the first nine months of
1995 due to the scheduled accretion of Senior Secured Discount Notes. The
Company also currently has an unused $80.0 million working capital facility,
essentially all of which remains available. At September 24, 1995, the
Company's ratio of debt to total capitalization was .53 to 1.
Capital expenditures totaled $169.8 million for the first nine months of 1995,
$156.3 million of which related to current amounts paid or owed to the general
contractor, capitalized interest, and other costs related to the Project. The
remainder of capital expenditures were for normal, expected replacement and
rehabilitation of production facilities throughout the Company, and expenditures
associated with on-going efforts to implement new information system technology
and business processes within the Company.
The Company believes it has sufficient liquidity and capital resources from the
combination of funds generated from operations, remaining funds resulting from
the financing associated with the Project and its working capital facility to
support its ongoing operations and capital spending required for the Project.
16
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a)
(1) Exhibit 15 - Letter Regarding Unaudited Interim Financial Information
(2) Exhibit 27 - Financial Data Schedule
(b)
The Registrant did not file any reports on Form 8-K during the quarter
ended September 24, 1995.
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 6, 1995 By: /s/ Jerry F. Williams
---------------------------------------
Jerry F. Williams
Vice President - Finance
and Administration
(Principal Financial Officer)
By: /s/ Gregory J. Pritz
---------------------------------------
Gregory J. Pritz
Controller
(Principal Accounting Officer)
17
<PAGE>
Exhibit 15
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
20, 1995 (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 and 33-30841) and in its Registration
Statements on Form S-8 (Nos. 33-38747 and 33-59627). We are also aware of our
responsibilities under the Securities Act of 1933.
Very truly yours,
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
October 20, 1995
Chicago, Illinois
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> DEC-26-1994
<PERIOD-END> SEP-24-1995
<CASH> 58,173
<SECURITIES> 92,732
<RECEIVABLES> 57,197
<ALLOWANCES> 1,382
<INVENTORY> 51,131
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<COMMON> 11,579
0
0
<OTHER-SE> 234,164
<TOTAL-LIABILITY-AND-EQUITY> 723,129
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<TOTAL-REVENUES> 389,930
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