<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 25, 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 July 18, 1995, 11,580,547.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
ACME METALS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
June 25, December 25,
1995 1994
------------- --------------
<S> ASSETS
CURRENT ASSETS: <C> <C>
Cash and cash equivalents $ 79,425 $ 76,639
Short term investments 124,215 76,384
Receivables, less allowances of $1,424 in 1995 and $1,301 in 1994 63,162 60,878
Inventories 54,489 44,982
Deferred income taxes 13,354 13,354
Other current assets 1,188 1,605
------------- ------------
Total current assets 335,833 273,842
------------- ------------
INVESTMENTS AND OTHER ASSETS:
Investments in associated companies 14,365 14,358
Restricted cash and investments 111,519 201,397
Other assets 21,718 23,221
Deferred income taxes 20,683 20,683
------------- ------------
Total investments and other assets 168,285 259,659
------------- ------------
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment, at cost 364,315 363,699
Construction in progress 144,532 46,605
Accumulated depreciation (269,946) (261,475)
------------- ------------
Total property, plant and equipment 238,901 148,829
------------- ------------
$ 743,019 $682,330
------------- ------------
------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 72,064 $ 36,732
Accrued expenses 45,287 42,718
Income taxes payable 46 1,941
------------- ------------
Total current liabilities 117,397 81,391
------------- ------------
LONG-TERM LIABILITIES
Long-term debt 270,730 265,055
Other long-term liabilities 10,895 10,012
Postretirement benefits other than pensions 84,930 83,867
Retirement benefit plans 18,555 18,727
------------- ------------
Total long-term liabilities 385,110 377,661
------------- ------------
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, 11,578,818
and 5,559,161 shares issued in 1995 and 1994, respectively 11,579 11,558
Additional paid-in capital 164,984 164,599
Retained earnings 84,547 67,719
Minimum pension liability adjustment (20,598) (20,598)
------------- ------------
Total shareholders' equity 240,512 223,278
------------- ------------
$ 743,019 $ 682,330
------------- ------------
------------- ------------
</TABLE>
The accompanying notes are an integral part of this financial statement.
2
<PAGE>
ACME METALS INCORPORATED
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For The Three Months Ended For The Six Months Ended
------------------------------------ -------------------------------
June 25, June 26, June 25, June 26,
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET SALES $ 136,171 $ 132,863 $ 267,719 $ 256,423
COSTS AND EXPENSES:
Cost of products sold 106,943 109,433 211,391 215,691
Depreciation expense 4,088 3,813 8,055 7,596
---------- ---------- ---------- ----------
Gross profit 25,140 19,617 48,273 33,136
Selling and administrative expense 8,868 7,941 17,691 15,304
---------- ---------- ---------- ----------
Operating income 16,272 11,676 30,582 17,832
NON-OPERATING INCOME (EXPENSE):
Interest expense (6,372) (1,332) (13,712) (2,666)
Interest income 3,843 652 7,684 1,046
Other - net (23) 430 1,738 1,211
---------- ---------- ---------- ----------
Income before income taxes 13,720 11,426 26,292 17,423
Income tax provision 4,939 4,570 9,465 6,969
---------- ---------- ---------- ----------
Net income $ 8,781 $ 6,856 $ 16,827 $ 10,454
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
PER COMMON SHARE:
Net Income $ 0.75 $ 1.20 $ 1.44 $ 1.84
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</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 25, June 26,
1995 1994
------------ ----------
<S>
CASH FLOWS FROM OPERATING ACTIVITIES: <C> <C>
Net income $ 16,827 $ 10,454
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation 8,330 7,894
Accretion of Senior Discount Note 5,675
CHANGE IN CURRENT ASSETS AND LIABILITIES:
Receivables (2,284) (3,848)
Inventories (9,507) 6,830
Accounts payable 1,101 (297)
Other current accounts 1,123 3,888
Other, net 3,360 1,188
---------- ----------
Net cash provided by operating activities 24,625 26,109
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investments (253,487)
Sales and/or maturities of investments 261,303
Release of restricted cash 34,231
Capital expenditure - modernization project (60,024)
Capital expenditures (4,268) (5,071)
---------- ----------
Net cash used for investing activities (22,245) (5,071)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the exercise of stock options 2,268
Other 406 (99)
---------- ----------
Net cash provided by financing activities 406 2,169
---------- ----------
Net increase in cash and cash equivalents 2,786 23,207
Cash and cash equivalents at beginning of period 76,639 50,444
---------- ----------
Cash and cash equivalents at end of period $ 79,425 $ 73,651
---------- ----------
---------- ----------
</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 June 25, 1995 and
June 26, 1994 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. The fiscal year
ended 1995 will end on December 31, 1995 and will contain 53 weeks. Second
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). The Steel Fabricating Segment sells to a number of markets.
All sales between Segments are recorded at 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 Six Months Ended
------------------------------ --------------------------------
June 25, June 26, June 25, June 26,
1995 1994 1995 1994
---------- ---------- ------------ -----------
(in thousands)
<S> <C> <C> <C> <C>
Net Sales
Steel Making:
Sales to unaffiliated customers $ 61,475 $ 57,745 $ 121,749 $111,510
Intersegment sales 31,999 31,531 61,558 62,034
---------- ----------- ----------- -----------
93,474 89,276 183,307 173,544
Steel Fabricating:
Sales to unaffiliated customers 74,728 75,118 146,002 144,913
Intersegment sales 378 471 836 968
---------- ----------- ----------- -----------
75,106 75,589 146,838 145,881
Eliminations: (32,409) (32,002) (62,426) (63,002)
---------- ----------- ----------- -----------
Total $ 136,171 $ 132,863 $ 267,719 $ 256,423
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
Income from operations
Steel Making $ 10,726 $ 6,281 $ 18,630 $ 8,594
Steel Fabricating 5,546 5,395 11,952 9,238
---------- ----------- ----------- -----------
Total $ 16,272 $ 11,676 $ 30,582 $ 17,832
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
Depreciation
Steel Making $ 3,250 $ 2,973 $ 6,382 $ 5,899
Steel Fabricating 941 963 1,894 1,942
Corporate 25 28 54 53
---------- ----------- ----------- -----------
Total $ 4,216 $ 3,964 $ 8,330 $ 7,894
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
Capital Expenditures
Steel Making 53,759 $ 2,498 $ 97,325 $ 4,004
Steel Fabricating 647 708 1,049 1,040
Corporate 81 23 149 27
---------- ----------- ----------- -----------
Total $ 54,487 $ 3,229 $ 98,523 $ 5,071
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
Steel Shipments (in tons) 159,230 177,022 329,971 347,463
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
</TABLE>
6
<PAGE>
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 six-month
period (11,667,874 in 1995 and 5,678,661 in 1994).
INVENTORIES:
Inventories are summarized as follows:
<TABLE>
<CAPTION>
June 25, December 25,
1995 1994
----------- -------------
(in thousands)
<S> <C> <C>
Raw materials $ 6,538 $ 5,200
Semi-finished and finished products 39,446 31,434
Supplies 8,505 8,348
------- -------
$54,489 $44,982
------- -------
------- -------
</TABLE>
PROPERTY, PLANT AND EQUIPMENT:
The Company capitalized expenditures related to the construction of the
Modernization and Expansion Project ("the Project") totaling $138.9 million at
June 25, 1995. The capitalized expenditures are comprised of $131.2 million of
cash and accrued payments to Raytheon Engineers & Constructors Inc., the general
contractor, $5.7 million of related capitalized interest, and $2.0 million of
other costs related directly to the construction of the Project.
CASH FLOWS:
For the first six months of 1995 and 1994, cash payments of $11.3 million and
$7.6 million were made for payment of income taxes, respectively; in these
periods cash payments for interest expense were $1.3 million and $2.7 million.
Net cash from investing activities was decreased by a release of $34.2 million
of non-current restricted cash to cash equivalents in the second quarter of
1995. The restricted cash was released in connection with $34.2 million of
capital expenditures currently owed to the general contractor, which will be
paid in the third quarter of 1995. Due to the non-cash nature of this capital
expenditure it has been excluded from the cash flow statement.
7
<PAGE>
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. The United States Congress, for example, has recently
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 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, 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 June 25, 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.
8
<PAGE>
In connection with the Spin-Off from The Interlake Corporation ("Interlake") on
May 29, 1986, Acme Steel Company (a subsidiary of the Company) entered into
certain indemnification 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 could 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 June 25,
1995, the consolidated statements of income for the three-month and six-month
periods ended June 25, 1995 and June 26, 1994, and the consolidated statements
of cash flows for the six-month period ended June 25, 1995 and June 26, 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/ PriceWaterhouse LLP
PRICE WATERHOUSE LLP
Chicago, Illinois
July 26, 1995
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED
------------------------ -------------------
June 25, June 26, 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 79.0 84.1 82.5 86.9 88.8
Depreciation expense 3.0 2.9 2.9 3.2 3.7
------ ------ ------ ------ ------
Gross Profit 18.0 13.0 14.6 9.9 7.5
Selling and administrative expense 6.6 6.0 6.4 6.7 7.4
Restructuring/Nonrecurring charge 1.8 0.4 0.6
------ ------ ------ ------ ------
Operating income (loss) 11.4 7.0 6.4 2.8 (0.5)
Interest expense, net (2.2) (0.6) (1.2) (0.9) (1.0)
Other non-operating income, net 0.6 0.4 0.3 0.1 0.1
Unusual income items 0.0 0.3 0.3
Income tax provision (credit) 3.5 2.7 1.9 0.9 (0.4)
------ ------ ------ ------ ------
Net income (loss) before
extraordinary item and cumulative
effect of accounting changes 6.3 4.1 3.6 1.4 (0.7)
Cumulative effect of changes in
accounting principles, net of taxes (12.9)
------ ------ ------ ------ ------
Net income (loss) before
extraordinary item 6.3 4.1 3.6 1.4 (13.6)
------ ------ ------ ------ ------
Extraordinary item, net of taxes 0.0 0.0 (0.3) 0.0 0.0
------ ------ ------ ------ ------
Net income (loss) 6.3% 4.1% 3.3% 1.4% (13.6)%
------ ------ ------ ------ ------
------ ------ ------ ------ ------
</TABLE>
SECOND QUARTER 1995 AS COMPARED TO SECOND QUARTER 1994
NET SALES. Consolidated net sales of $136.2 million in the second quarter
of 1995 were $3.3 million, or 2 percent higher than second quarter 1994 net
sales. A 5 percent increase in average selling prices contributed $6.5 million
to the favorable comparison, but was reduced by lower shipments which decreased
sales by $3.1 million. Although economic conditions have remained strong, there
is indication of an expected softening in future quarters.
STEEL MAKING SEGMENT. Net sales for the Steel Making Segment advanced to
$93.5 million in the second quarter of 1995, a $4.2 million, or 5 percent,
improvement over last year's comparable period. Although sales of flat rolled
products declined, increased shipments of hot metal and pig iron resulted in an
overall increase in sales to unaffiliated customers of 6 percent to $61.5
million while intersegment sales of $32.0 million were 1 percent higher than in
the second quarter of 1994. The increase in the Steel Making Segment's net
sales was primarily the result of a 5 percent increase in average selling prices
as well as a shift in product mix.
STEEL FABRICATING SEGMENT. Steel Fabricating Segment net sales of $75.1
million in the second quarter of 1995 were $0.5 million, or 1 percent lower than
the comparable period in the prior year.
11
<PAGE>
The reduction in sales was primarily attributable to a 4 percent decrease in
shipments offset by average selling prices being up 3 percent as compared to
1994's second quarter.
GROSS PROFIT. The gross profit margin for the second quarter of 1995 of
$25.1 million was $5.5 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 as shipment volume remained almost
consistent with the prior year's second quarter. Operating costs, however,
were lower in the second quarter of 1995 due to lower costs relating to usage
of natural gas, scrap, and iron ore, in the Steel Making Segment. The gross
profit, as a percentage of sales, was 18.5 percent in the second quarter of 1995
versus 14.7 percent in last year's comparable period.
SELLING AND ADMINISTRATIVE EXPENSE. Selling and administrative expense
totaled $8.9 million and $7.9 million for the second quarters of 1995 and 1994,
respectively. Selling and administrative expenses represented 6.6 percent of
net sales in 1995 compared to 6.0 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 second quarter
of 1995 was $16.3 million as compared to operating income of $11.7 million in
the second quarter of 1994.
STEEL MAKING SEGMENT. Operating income for the Steel Making Segment
totaled $10.7 million as compared to the $6.3 million recorded in the second
quarter of 1994. The earnings improvement of $4.4 million was driven almost
entirely by a 5 percent increase in average selling prices as sales volume
remained consistent with the prior year. Shipments to external customers were 7
percent over last year's comparable period while shipments to the Steel
Fabricating Segment were 4,500 tons, or 7 percent lower than in the second
quarter of 1994. Approximately 61 percent of shipments and gross profit in 1995
was attributable to external customers while the remainder was generated by
sales to the Steel Fabricating Segment. Operating costs were lower in the
second quarter of 1995 due principally to lower costs relating to usage of
natural gas, scrap, and iron ore.
STEEL FABRICATING SEGMENT. The Steel Fabricating's operating income of
$5.5 million for the second quarter of 1995 was $0.1 million higher than in last
year's comparable period with all of the increase derived from a 3 percent
increase in average selling prices. Acme Packaging's operating income for the
second quarter of 1995 was 6 percent higher than last year's comparable period
due to an increase in average selling prices for steel strapping. Alpha Tube's
results in the second quarter of 1995 were up substantially as a result of
increase in average selling prices for welded tubing, and Universal's operating
income was slightly due to lower due to decreased sales volume of auto and light
truck jacks. The majority of the price increases for the Steel Fabricating
Segment in the second quarter of 1995 was the result of price hikes initiated in
1994. 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.
INTEREST INCOME / EXPENSE. Interest income for the second quarter of 1995
totaled $3.8 million, exceeding the first quarter of 1994 by $3.1 million. The
increase is due primarily to higher investment levels in connection with the
Project resulting from the issuance of debt and equity in the third quarter of
1994. Interest expense of $6.4 million for the second quarter of 1995 surpassed
the same period of the prior year by $5.1 million, resulting from the issuance
of $255.0 million of
12
<PAGE>
long term debt in the third quarter of 1994. In the second quarter of 1995,
interest expense of $2.3 million was capitalized as part of the Project.
OTHER NON-OPERATING INCOME. Other non-operating income in the second
quarter of 1995 was $0.4 million lower than the income recorded in last year's
comparable period. Other non-operating income in the second quarter of 1994
included a $0.4 million refund of prior years' utility costs from Commonwealth
Edison.
INCOME TAX EXPENSE. The income tax expense for the second quarter of 1995
totaled $4.9 million based on a 36 percent effective tax rate as compared to the
$4.6 million expense in the second quarter of 1994, based on a 40 percent
effective rate.
NET INCOME. The Company recorded earnings of $8.8 million, or $0.75 per
share in the second quarter of 1995 versus the $6.9 million, or $1.20 cents per
share, recorded in the second quarter of 1994. 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
(11,667,874 in 1995 and 5,678,661 in 1994).
SIX MONTHS ENDED JUNE 25, 1995 AS COMPARED TO SIX MONTHS ENDED JUNE 26, 1994
NET SALES. Consolidated net sales of $267.7 million for the six months
ended June 25, 1995 were $11.3 million, or 4 percent higher than net sales in
the first six months of 1994. Higher average selling prices resulted in a $16.2
million increase in sales, but was reduced by a decrease in shipments over last
year's comparable period. The decrease in shipments had a $4.9 million
unfavorable impact on sales in comparison to the first six months of 1994.
STEEL MAKING SEGMENT. Net sales for the Steel Making Segment advanced to
$183.3 million in the first six months of 1995, a $9.8 million, or 6 percent,
improvement over last year's comparable period. Sales to unaffiliated customers
increased 9 percent to $121.7 million while intersegment sales of $61.6 million
were 1 percent lower than in the first six months of 1994. The increase in the
Steel Making Segment's net sales was primarily the result of a 5 percent
increase in average selling prices as shipments remained almost consistent with
the prior year.
STEEL FABRICATING SEGMENT. Steel Fabricating Segment net sales of $146.8
million in the first six months of 1995 were $1.0 million, or 1 percent higher
than the comparable period in the prior year. Higher average selling prices
contributing $9.2 million was almost completely offset by lower shipments
reducing sales by $8.3 million as compared to last year's first six months.
GROSS PROFIT. The gross profit for the first six months of 1995 of $48.3
million was $15.2 million higher than the gross profit recorded during last
year's comparable period. The increase in gross profit was due almost entirely
to higher average selling prices for the Company's products. In addition,
operating costs were lower in the first six months of 1995.
SELLING AND ADMINISTRATIVE EXPENSE. Selling and administrative expense
totaled $17.7 million (6.6 percent of net sales) and $15.3 million (6 percent of
net sales) for the first six months of 1995 and 1994, respectively. The
increase was generated by higher salaries and expenses associated with
13
<PAGE>
on-going efforts to implement new information technology systems and business
processes within the Company.
OPERATING INCOME. Operating income for the Company for the six months
ended June 25, 1995 was $30.6 million as compared to operating income of $17.8
million in the first six months of 1994.
STEEL MAKING SEGMENT. Operating income for the Steel Making Segment
totaled $18.6 million as compared to the $8.6 million income recorded in the
first six months of 1994. The earnings improvement was driven by a 5 percent
increase in average selling prices contributing $10.1 million. Shipments to
external customers were 9 percent higher than last year's comparable period
while shipments to the Steel Fabricating Segment were 9,400 tons, or 7 percent
lower than in the first six months of 1994. Decreased shipments reduced results
by $0.8 million from the previous year. Approximately 66 percent of shipments
and 67 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 six months the Steel Making Segment shipped 62 percent and derived
64 percent of its gross profit from external customers. Also contributing to
the Steel Making Segment's earnings for the first six months of 1995 were lower
costs relating to the purchase and usage of natural gas, scrap, and iron ore, as
compared to the same period for 1994.
STEEL FABRICATING SEGMENT. The Steel Fabricating Segment's operating
income of $12.0 million for the first six months of 1995 was $2.7 million higher
than in last year's comparable period with virtually all of the increase derived
from a 5 percent increase in average selling prices. Acme Packaging's operating
income for the first six months of 1995 was 24 percent higher than last year's
comparable period due primarily to a 6 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
Universal's operating income was slightly lower due to decreased sales volume to
its auto customers. The majority of the price increases for the Steel
Fabricating Segment in the first six months of 1995 was the result of price
increases initiated in 1994. 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.
INTEREST INCOME / EXPENSE. Interest income for the first six months of
1995 totaled $7.7 million, exceeding the first half 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 expense of $13.7 million for the six months of 1995 surpassed
the same period for the prior year by $11.0 million resulting from the issuance
of $255.0 million of long term debt in the third quarter of 1994. In the first
six months of 1995, interest expense of $3.8 million was capitalized as part of
the Project.
OTHER NON-OPERATING INCOME. Other non-operating income in the first six
months of 1995 was $0.5 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 $1.2
million consisting almost entirely of a refund from Commonwealth Edison for
prior utility costs.
14
<PAGE>
INCOME TAX EXPENSE. The income tax expense for the first six months of
1995 totaled $9.5 million based on a 36 percent effective tax rate as compared
to the $7.0 million expense in the first six months of 1994, based on a 40
percent effective rate.
NET INCOME. The Company recorded earnings of $16.8 million, or $1.44 per
share, in the first six months of 1995 versus the $10.5 million, or $1.84 per
share, recorded in the first six months of 1994. Per share amounts for 1995 and
1994 are based on weighted average number of common shares and dilutive common
equivalent shares outstanding during the six month period (11,667,874 in 1995
and 5,678,661 in 1994).
LIQUIDITY AND CAPITAL RESOURCES
At June 25, 1995, the Company's cash and cash equivalents balance was $79.4
million, up $2.8 million from the December 1994 balance. Operating activities
generated $24.6 million of cash in the first six months of 1995 due to a
combination of net income, an add back of $8.3 million of non-cash depreciation,
a $5.7 million of non-cash accretion of the Senior Discount Notes, and a
decrease of $6.2 million from changes in working capital and other non-current
accounts. Investing activities decreased cash $22.2 million due primarily to
the disbursement of $64.3 million of cash for capital expenditures. This
decrease was partially offset by the release of $34.2 million of restricted cash
and investments to make funds available for the amounts owing to the general
contractor. In addition, the sale of short-term investments, net of purchases,
increased cash from investing activities by $7.8 million. Working capital
amounted to $218.4 million at June 25, 1995, up $26.0 million from December 25,
1994.
As of June 25, 1995, the Company's long term indebtedness was $270.7
million. Long term debt increased $5.7 million in the first half of 1995 due to
the accretion of Senior Secured Discount Notes. The Company also currently has
an unused $80.0 million working capital facility, all of which remained
available. In the second quarter of 1995, the Company extended this agreement an
additional year through August, 1998. At June 25, 1995, the Company's ratio of
debt to capitalization was .53 to 1.
Capital expenditures totaled $98.6 million for the first six months of
1995, $94.3 million of which related to current amounts owing 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.
The Company believes it has sufficient liquidity and capital resources from
the combination of funds generated from operations, available 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.
15
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS
(a) Exhibit 15 - Letter Regarding Unaudited Interim Financial Information
Exhibit 27 - Financial Data Schedule
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 7, 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)
16
<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 July
26, 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
August 7, 1995
Chicago, Illinois
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<PERIOD-END> JUN-25-1995
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