<PAGE> 1
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 30, 1996 or
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
___________________________
Commission file number 1-14378
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 22, 1996, 11,609,702.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ACME METALS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
1996 1995
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 73,914 $ 53,043
Short term investments 23,393 83,756
Receivables, less allowances of $1,408 in 1996 and $1,335 in 1995 53,332 55,344
Inventories 46,266 51,932
Deferred income taxes 12,857 12,857
Other current assets 2,495 1,855
------------- ------------
Total current assets 212,257 258,787
------------- ------------
INVESTMENTS AND OTHER ASSETS:
Investments in associated companies 17,862 16,112
Restricted cash and investments - 50,305
Other assets 18,471 19,309
Deferred income taxes 31,052 31,052
------------- ------------
Total investments and other assets 67,385 116,778
------------- ------------
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment, at cost 373,582 372,959
Construction in progress 394,732 279,799
Accumulated depreciation (280,234) (273,580)
------------- ------------
Total property, plant and equipment 488,080 379,178
------------- ------------
$ 767,722 $ 754,743
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 47,021 $ 62,355
Accrued expenses 39,229 41,192
Income taxes payable 5,052 4,783
------------- ------------
Total current liabilities 91,302 108,330
------------- ------------
LONG-TERM LIABILITIES:
Long-term debt 294,598 276,831
Other long-term liabilities 10,524 10,143
Postretirement benefits other than pensions 89,786 86,856
Retirement benefit plans 26,402 24,472
------------- ------------
Total long-term liabilities 421,310 398,302
------------- ------------
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, 11,609,702 and 11,579,768 shares issued in 1996
and 1995, respectively 11,610 11,580
Additional paid-in capital 165,330 164,987
Retained earnings 102,591 95,965
Minimum pension liability adjustment (24,421) (24,421)
------------- ------------
Total shareholders' equity 255,110 248,111
------------- ------------
$ 767,722 $ 754,743
============= ============
</TABLE>
The accompanying notes are an integral part of this financial statement.
2
<PAGE> 3
ACME METALS INCORPORATED
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
-------------------------------- ---------------------------------
June 30, June 25, June 30, June 25,
1996 1995 1996 1995
-------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
NET SALES $ 127,268 $ 136,171 $ 253,133 $ 267,719
COSTS AND EXPENSES:
Cost of products sold 109,891 106,943 218,136 211,391
Depreciation expense 3,120 4,088 6,295 8,055
----------- ----------- ----------- ----------
Gross profit 14,257 25,140 28,702 48,273
Training and start-up -
Modernization Project 1,686 - 3,151 -
Selling and administrative expense 8,644 8,868 17,324 17,691
----------- ----------- ----------- ----------
Operating income 3,927 16,272 8,227 30,582
NON-OPERATING INCOME (EXPENSE):
Interest expense (289) (6,372) (937) (13,712)
Interest income 1,678 3,843 3,865 7,684
Other - net - (23) (112) 1,738
----------- ----------- ----------- ----------
Income before income taxes 5,316 13,720 11,043 26,292
Income tax provision 2,126 4,939 4,417 9,465
----------- ----------- ----------- ----------
Net income $ 3,190 $ 8,781 $ 6,626 $ 16,827
=========== =========== =========== ==========
PER COMMON SHARE:
Net Income $ 0.27 $ 0.75 $ 0.57 $ 1.44
=========== =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of this financial statement.
3
<PAGE> 4
ACME METALS INCORPORATED
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
For The Six Months Ended
-----------------------------------
June 30, June 25,
1996 1995
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,626 $ 16,827
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation 6,738 8,330
Accretion of Senior Discount Note 6,422 5,675
CHANGE IN CURRENT ASSETS AND LIABILITIES:
Receivables 2,012 (2,284)
Inventories 5,666 (9,507)
Accounts payable (9,668) 1,101
Other current acconts (2,298) 1,123
Other, net 4,653 3,360
---------- ----------
Net cash provided by operating activities 20,151 24,625
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investments (22,678) (253,487)
Sales and/or maturities of investments 133,346 261,303
Reclass of restricted cash - 34,231
Capital expenditures - Modernization Project (112,442) (60,024)
Capital expenditures (8,981) (4,268)
---------- ----------
Net cash used for investing activities (10,755) (22,245)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of bonds, net of discount 11,288 -
Debt issue costs (186) -
Other 373 406
---------- ----------
Net cash provided by financing activities 11,475 406
---------- ----------
Net increase in cash and cash equivalents 20,871 2,786
Cash and cash equivalents at beginning of period 53,043 76,639
---------- ----------
Cash and cash equivalents at end of period $ 73,914 $ 79,425
========== ==========
</TABLE>
The accompanying notes are an integral part of this financial statement.
4
<PAGE> 5
ACME METALS INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION:
The accompanying financial statements for the periods ended June 30, 1996 and
June 25, 1995 are unaudited. The statements should be read in conjunction with
the audited financial statements included in the Company's 1995 Annual Report
on Form 10-K. In the opinion of management, all adjustments, consisting only
of normal recurring adjustments, necessary for a fair statement 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 11 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 December 29, 1996 and will contain 52 weeks.
Second quarter results for 1996 and 1995 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 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> 6
ACME METALS INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
For The For The
Three Months Ended Six Months Ended
---------------------------- -----------------------------
June 30, June 25, June 30, June 25,
1996 1995 1996 1995
------------ ------------ ------------ ------------
(in thousands)
<S> <C> <C> <C> <C>
Net Sales
Steel Making:
Sales to unaffiliated customers $ 55,877 $ 61,475 $ 113,591 $ 121,749
Intersegment sales 30,626 31,999 59,395 61,558
----------- ---------- ----------- -----------
86,503 93,474 172,986 183,307
Steel Fabricating:
Sales to unaffiliated customers 71,391 74,728 139,542 146,002
Intersegment sales 277 378 699 836
----------- ---------- ----------- -----------
71,668 75,106 140,241 146,838
Eliminations (30,903) (32,409) (60,094) (62,426)
----------- ---------- ----------- -----------
Total $ 127,268 $ 136,171 $ 253,133 $ 267,719
=========== ========== =========== ===========
Income from operations:
Steel Making $ (2,370) $ 10,726 $ (2,076) $ 18,630
Steel Fabricating 6,297 5,546 10,303 11,952
----------- ---------- ----------- -----------
Total $ 3,927 $ 16,272 $ 8,227 $ 30,582
=========== ========== =========== ===========
Depreciation:
Steel Making $ 2,302 $ 3,250 $ 4,643 $ 6,382
Steel Fabricating 969 941 1,932 1,894
Corporate 82 25 163 54
----------- ---------- ----------- -----------
Total $ 3,353 $ 4,216 $ 6,738 $ 8,330
=========== ========== =========== ===========
Capital Expenditures:
Steel Making $ 52,195 $ 53,759 $ 113,425 $ 97,325
Steel Fabricating 1,380 647 2,332 1,049
Corporate - 81 10 149
----------- ---------- ----------- -----------
Total $ 53,575 $ 54,487 $ 115,767 $ 98,523
=========== ========== =========== ===========
Steel Shipments (in tons) 156,696 159,230 313,117 329,971
=========== =========== =========== ===========
</TABLE>
6
<PAGE> 7
ACME METALS INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
INVENTORIES:
Inventories are summarized as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
--------- ----------
(in thousands)
<S> <C> <C>
Raw materials $ 6,042 $ 8,397
Semi-finished and finished products 33,088 36,339
Supplies 7,136 7,196
---------- ----------
$ 46,266 $ 51,932
========== ==========
</TABLE>
PROPERTY, PLANT AND EQUIPMENT:
The Company has capitalized expenditures related to the construction of the
Modernization and Expansion Project (the "Project") totaling $368.2 million at
June 30, 1996. The capitalized expenditures are comprised of $322.4 million of
cash and accrued payments to Raytheon Engineers & Constructors Inc.
("Raytheon"), the general contractor, $33.9 million of related capitalized
interest, and $11.9 million of other costs related directly to the construction
of the Project. Accrued payments to the general contractor at June 30, 1996
and December 31, 1995 include accounts payable of $13.3 million and $18.9
million, respectively. Due to the non-cash nature of such payables at each
date they have been excluded from the Statements of Cash Flows.
CASH FLOWS:
Cash payments for interest expense were $10.3 million during the first six
months of 1996 and 1995. In the first half of 1995, cash flows from investing
activities were increased by a release of $34.2 million of non-current
restricted cash to cash and cash equivalents. The restricted cash was
reclassified to recognize an amount currently owed to the general contractor.
Due to the non-cash nature of this capital expenditure it has been excluded
from Statements of Cash Flows. Cash transactions relating to the first half of
1996 for the Modernization Project are discussed in the Property, Plant and
Equipment footnote. Also during the first half of 1996, the Company made
additional cash contributions of $1.8 million to its steel processing joint
venture. At June 30, 1996 the Company had contributed a total of $3.5 million
to this joint venture.
LONG TERM DEBT:
On April 23, 1996 the Company sold $11.3 million of tax-exempt bonds. The
Environmental Improvement Revenue bonds, which were issued at a price of 99.5,
have an effective interest rate of 7.99 percent and mature in 29 years. The
net proceeds of the bonds reimbursed the Company for funds expended for the
acquisition, construction and installation of solid waste disposal facilities
that are part of the Modernization and Expansion Project. The bonds are
secured by the Company's pledge of loan payments and an interest in the solid
waste disposal facilities.
7
<PAGE> 8
ACME METALS INCORPORATED
NOTES TO UNAUDITED 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.
During 1994, the Company entered into a turnkey contract with Raytheon to
construct a new facility in conjunction with its Modernization and Expansion
Project at its steel making facilities located in Riverdale, Illinois. Based
on the turnkey contract without taking into account financing costs, internally
generated costs directly related to the project or additional changes that may
be requested by Acme during construction, management estimates the cost of the
Modernization and Expansion Project, including ancillary facilities,
construction, general contractor fees and certain other project costs that will
be paid by the Company will approximate $392 million.
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 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
8
<PAGE> 9
ACME METALS INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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 costs at the time that a reasonable estimate can be
made. At March 31, 1996 and December 31, 1995, 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 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, 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 provides 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.
9
<PAGE> 10
ACME METALS INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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.
10
<PAGE> 11
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 30,
1996, the consolidated statements of operations for the three-month and
six-month periods ended June 30, 1996 and June 25, 1995, and the consolidated
statements of cash flows for the six-month periods ended June 30, 1996 and June
25, 1995 (the "consolidated financial information") of Acme Metals Incorporated
and its subsidiaries. This consolidated financial information is 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 31, 1995, 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
January 25, 1996 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 31, 1995, 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
July 19, 1996
11
<PAGE> 12
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 30, June 25, December 31, December 25, December 26,
1996 1995 1995 1994 1993
-------- -------- ------------ ------------ ------------
<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 86.2 79.0 81.3 82.5 86.9
Depreciation expense 2.5 3.0 2.5 2.9 3.2
------- ------- ------- ------- -------
Gross Profit 11.3 18.0 16.2 14.6 9.9
Training/start-up-Modernization Project 1.2
Selling and administrative expense 6.8 6.6 6.8 6.4 6.7
Restructuring/Nonrecurring charge 0.0 0.0 0.0 1.8 0.4
------- --------- -------- ------- -------
Operating income 3.3 11.4 9.4 6.4 2.8
Interest income (expense) net 1.1 (2.2) (1.3) (1.2) (0.9)
Other non-operating income, net 0.0 0.6 0.3 0.3 0.1
Unusual income items 0.0 0.0 0.0 0.0 0.3
Income tax provision 1.7 3.5 3.0 1.9 0.9
------- -------- -------- ------- -------
Net income before extraordinary item 2.7 6.3 5.4 3.6 1.4
Extraordinary item, net of taxes 0.0 0.0 0.0 (0.3) 0.0
------- -------- ------- ------- -------
Net income 2.7% 6.3% 5.4% 3.3% 1.4%
======= ======== ======= ======= =======
</TABLE>
Second Quarter 1996 as compared to Second Quarter 1995
NET SALES. Consolidated net sales of $127.3 million in the second quarter
of 1996 were $8.9 million, or 6.5 percent lower than second quarter 1995 net
sales. A 3 percent decrease in selling prices reduced sales by $3.9 million
along with lower shipments totaling $5.0 million.
Steel Making Segment. Net sales for the Steel Making Segment were $86.5
million in the second quarter of 1996, a $7.0 million, or 7.5 percent, decline
over last year's comparable period. Sales to unaffiliated customers decreased
9.1 percent to $55.9 million and intersegment sales of $30.6 million were 4.3
percent lower than in the second quarter of 1995. The decrease in the Steel
Making Segment's net sales was the result of a 5 percent decrease in selling
prices combined with decreased flat-rolled and semi-finished shipment volume.
These decreases were offset by increased sales of iron products which totaled
$12.0 million, or $2.2 million higher than the prior year.
Steel Fabricating Segment. The Steel Fabricating Segment net sales of
$71.7 million in the second quarter of 1996 was $3.4 million, or 4.6 percent
lower than the comparable period in the prior year.
12
<PAGE> 13
A decrease in selling prices primarily at Alpha Tube combined with lower
shipments at both Universal Tool and Alpha Tube accounted for the majority of
the decline.
GROSS PROFIT. The gross profit margin for the second quarter of 1996 of
$14.3 million was $10.9 million lower than the margin recorded during last
year's comparable period. The substantial decrease in margin was due partially
to lower average selling prices for steel and tube products. Operating costs
were also significantly higher in the second quarter of 1996 mostly due to the
higher raw material and natural gas costs and an annual maintenance outage
which occurred in the third quarter of the comparable period in the prior year.
The gross profit, as a percentage of sales, was 11.2 percent in the second
quarter of 1996 versus 18.5 percent in the second quarter of 1995.
SELLING AND ADMINISTRATIVE EXPENSE. Selling and administrative expense was
$8.6 million and $8.9 million for the second quarters of 1996 and 1995,
respectively. Selling and administrative expenses represented 6.8 percent of
net sales in 1996 versus 6.5 percent in 1995.
OPERATING INCOME. Operating income for the Company for the second quarter
of 1996 was $3.9 million as compared to $16.3 million for the same period in
1995.
Steel Making Segment. The Steel Making Segment recorded a $2.4 million
loss from operations in the second quarter of 1996, down $13.1 million from
1995. The significant decline in earnings was driven by a 4 percent decrease
in flat-rolled selling prices as well as decreased flat-rolled and
semi-finished shipments of approximately 9,900 tons or 6 percent. Also
reducing results in the second quarter of 1996 were sharply higher operating
costs, principally relating to increased natural gas and iron ore costs along
with higher maintenance due primarily to an annual maintenance outage which
occurred in the third quarter of 1995, labor and other conversion costs.
Somewhat offsetting these unfavorable items were increased sales of iron
products contributing $1.9 million in the second quarter of 1996 compared to
$0.8 million for the same period of the prior year. Finally, employee training
costs to prepare for start-up of the Modernization and Expansion Project
decreased income from operations by $1.7 million as compared to 1995's second
quarter. Sales to external customers were 10 percent lower than last year's
comparable period, while shipments to the Steel Fabricating Segment
approximated the second quarter of 1995. Approximately 62 percent of shipments
and 64 percent of gross profit in 1996 was attributable to external customers
while the remainder was generated by sales to the Steel Fabricating Segment.
Steel Fabricating Segment. The Steel Fabricating Segment's operating
income of $6.3 million for the second quarter of 1996 was $0.8 million better
than in last year's comparable period, resulting primarily from decreased raw
material costs. Partially offsetting lower material costs were decreased
selling prices for tube products.
INTEREST INCOME / EXPENSE. Interest income for the second quarter of 1996
totaled $1.7 million, falling below the second quarter of 1995 by $2.2 million.
The decrease in interest income is the result of reduced on-hand cash and
investment balances resulting from progress payments for the construction of
the Modernization and Expansion Project. Interest expense of $0.3 million for
the second quarter of 1996 was below the same period for the prior year by $6.1
million arising from the increased capitalization of interest costs due to the
increased investment in the Modernization and Expansion Project. In the second
quarter of 1996 and 1995, interest costs of $9.0 million and $2.3 million,
respectively, were capitalized as part of the Project. The Company will
continue to capitalize interest costs until the completion of the Modernization
and Expansion Project.
13
<PAGE> 14
INCOME TAX EXPENSE. Income tax expense in the second quarter of 1996
totaled $2.1 million based on an effective tax rate of 40 percent as compared
to the $4.9 million in 1995's second quarter, based on a 36 percent effective
tax rate.
NET INCOME. The Company recorded earnings of $3.2 million, or $0.27 per
share in the second quarter of 1996 versus income of $8.8 million, or $0.75
per share, recorded in the second quarter of 1995. Per share amounts for
1996 and 1995 are based on the weighted average number of common shares and
dilutive common equivalent shares outstanding during the three month periods
(11,622,957 in 1996 and 11,671,189 in 1995).
Six Months Ended June 30, 1996 as compared to Six Months Ended June 25, 1995
NET SALES. Consolidated net sales of $253.1 million for the six months
ended June 30, 1996 were $14.6 million, or 5.4 percent lower than net sales in
the same period of 1995. Lower selling prices resulted in a $10.1 million
decrease in sales, with lower sales volume accounting for the remainder of the
decrease over last year's comparable period. The first half of 1996 includes
increased sales of iron and semi-finished products of $4.3 million over the
comparable period in 1995.
Steel Making Segment. Net sales for the Steel Making Segment of $173.0
million in the first six months of 1996 were $10.3 million, approximately 5.6
percent, below last year's comparable period. Sales to unaffiliated customers
decreased 6.7 percent to $113.6 million while intersegment sales of $59.4
million were 3.5 percent lower than in the first six months of 1995. The
decrease in the Steel Making Segment's net sales was the result of a 3 percent
decrease in selling prices and lower flat-rolled and semi-finished shipments,
while shipments of iron products increased during the period to a total of
$22.1 million.
Steel Fabricating Segment. Steel Fabricating Segment net sales of $140.2
million in the first six months of 1996 were $6.6 million, or 4.5 percent lower
than the comparable period in the prior year. Lower average selling prices of
$2.3 million and lower shipments of $4.3 million accounted for the reduction in
sales as compared to last year's first six months of 1995.
GROSS PROFIT. The gross profit for the first six months of 1996 of $28.7
million was $19.6 million lower than the gross profit recorded during last
year's comparable period. The substantial decrease in gross profit was due to
lower average selling prices for the Company's products and significant
increases in operating costs for the Steel Making Segment as compared to the
first six months of 1996.
SELLING AND ADMINISTRATIVE EXPENSE. Selling and administrative expenses
for the first half of 1996 were $17.3 million (6.8 percent of net sales) versus
$17.7 million (6.6 percent of net sales) for the comparable period in 1995.
OPERATING INCOME. Operating income for the Company for the six months
ended June 30, 1996 was $8.2 million as compared to operating income of $30.6
million in the first six months of 1995.
Steel Making Segment. The Steel Making Segment recorded an operating loss
of $2.1 million compared to the $18.6 million of income recorded in the first
six months of 1995. The loss was driven by a 5 percent decrease in selling
prices reducing results by $8.5 million. Flat-rolled and semi-finished
shipments to external customers were approximately 36,000 tons or 10 percent
lower than last year's comparable period and shipments to the Steel Fabricating
Segment were 2,600 tons, or 2 percent lower than in the first six months of
1995. Also
14
<PAGE> 15
contributing to the Steel Making Segment's loss for the first six months of
1996 were higher costs relating to the purchase and usage of natural gas,
increased maintenance and repair due primarily to an annual maintenance outage,
higher labor costs and training and start-up costs for the Modernization and
Expansion Project. (Note: The annual maintenance outage which occurred in the
second quarter of 1996, was performed in the third quarter of 1995.) Somewhat
offsetting the decreased shipments and increased costs were increased iron
product sales contributing $2.4 million in the first half of 1996 versus $0.8
million in the same period of the prior year. Approximately 60 percent of
shipments and 64 percent of gross profit in 1996 were attributable to external
customers while the remainder was generated by sales to the Steel Fabricating
Segment. In 1995's first six months, the Steel Making Segment shipped 66
percent to and derived 67 percent of its gross profit from external customers.
Steel Fabricating Segment. The Steel Fabricating Segment's operating
income of $10.3 million for the first six months of 1996 was $1.6 million lower
than in last year's comparable period with virtually all of the decrease
related to increased raw material costs (occurring in the first quater of 1996)
in the form of higher flat-rolled prices from the Steel Making Segment and
increased production costs.
INTEREST INCOME/EXPENSE. Interest income for the first six months of
1996 totaled $3.9 million, falling below the first half of 1995 by $3.8
million. Interest expense of $0.9 million for the first six months of 1996 was
lower than the same period for the prior year by $12.8 million resulting from
increased capitalization of interest expense associated with the Modernization
and Expansion Project. In the first six months of 1996, interest expense of
$17.3 million was capitalized as part of the Modernization and Expansion
Project. Interest will continue to be capitalized until the completion of the
Modernization and Expansion Project.
INCOME TAX EXPENSE. The income tax expense for the first six months of
1996 totaled $4.4 million based on a 40 percent effective tax rate as compared
to the $9.5 million expense in the first six months of 1995, based on a 36
percent effective rate.
NET INCOME. The Company recorded earnings of $6.6 million, or $0.57 per
share, in the first six months of 1996 versus the $16.8 million, or $1.44 per
share, recorded in the first six months of 1995. Per share amounts for 1996
and 1995 are based on the weighted average number of common shares and dilutive
common equivalent shares outstanding during the six month periods (11,619,816
in 1996 and 11,667,874 in 1995).
LIQUIDITY AND CAPITAL RESOURCES. At June 30, 1996, the Company had total
cash and cash equivalents and short term investments of $97.3 million compared
to $187.1 million at December 31, 1995. At the end of the second quarter, the
Company's cash and cash equivalents balance was $73.9 million, up $20.9 million
from the December 31, 1995 balance.
Operating activities generated $20.2 million of cash in the quarter due to a
combination of net income, an add-back of $6.7 million of non-cash
depreciation, $6.4 million of non-cash accretion on the Company's Senior
Discount Notes, and the remainder resulting from changes in working capital and
other non-current accounts. Investing activities decreased cash $10.8 million
as the sale of investments (net of purchases) of $110.7 million was more than
offset by $121.4 million of capital expenditures, primiarily related to the
Modernization and Expansion Project. (Note: Capital expenditures include an
account payable of $18.9 million at December 31, 1995 and $13.3 million at June
30, 1996. The amount payable at year-end 1995 was liquidated during the first
quarter of 1996.)
Capital expenditures were $115.8 million for the first half of 1996. Total
capital expenditures for the Modernization and Expansion Project were $106.8
million which included $81.7 million for current
15
<PAGE> 16
amounts paid and owing the general contractor, capitalized interest of $17.3
million, and other costs of $7.8 million directly relating to the Project.
The remaining $9.0 million of capital expenditures were primarily for the
upgrade of the Company's management information systems and to a lesser extent
the replacement and rehabilitation of various production facilities.
At June 30, 1996, the Company's long-term indebtedness was $294.6 million.
Long-term debt increased $17.8 million in the first half of 1996 due partially
to the accretion of Senior Secured Discount Notes of $6.4 million. In
addition, on April 23, 1996 the Company sold $11.3 million of tax-exempt bonds.
The Environmental Improvement Revenue bonds, which were issued at a price of
99.5, have an effective interest rate of 7.99 percent and mature in 29 years.
The net proceeds of the bonds will reimburse the Company for funds expended for
the acquisition, construction and installation of solid waste disposal
facilities that are part of the Modernization and Expansion Project. The bonds
are secured by the Company's pledge of loan payments and an interest in the
solid waste disposal facilities.
Working capital of $121.0 million at the end of the second quarter 1996, was
$29.5 million lower than the year-end 1995 balance reflecting progress payments
for the construction of the Modernization and Expansion Project. The Company
also currently has an unused $80.0 million working capital facility of which,
approximately $78.0 million is available at June 30, 1996 determined by the
borrowing base calculation. The working capital facility agreement was
recently extended and expires in August 1999. At June 30, 1996 the Company's
ratio of debt to capitalization was .54 to 1.
MODERNIZATION AND EXPANSION PROJECT. The Modernization and Expansion
Project is expected to start-up in the second half of 1996 and be fuly
operational by the middle of 1997. During this transition period the Company
will incur training costs as well as production inefficiencies related to the
start-up of the new facility in 1996 and the decommissioning of the redundant
operations in the existing facilities in 1997. The total amount of these
transitional costs is expected to be approximately $15 million and will be
charged to the Steel Making Segment operations. Additionally, depreciation
expense (approximately $2.0-$2.5 million per month) related to the new facility
and interest costs (approximately $2.9 million per month) previously
capitalized as a cost of construction, will be charged to the operations of the
new facility coincident with its start-up. All of these charges will
significantly reduce the results of operations of the Steel Making Segment in
1996.
While the Company expects second-half 1997 results to benefit from the full
operations of the Modernization and Expansion Project, the transition expenses
in the first half of the year will prevent the Company from realizing the total
annual benefits of the new facility until 1998.
Actual events might materially differ from those projected in the above
forward-looking statements. The timely arrival, successful installation and
testing of major equipment and computer systems are important assumptions in
the Company's projection of a second-half start-up of the new facility. If the
new facility is not completed in a timely manner or materially exceeds the
Company's cost expectations; there are substantial unexpected production
interruptions or other start-up difficulties; the new facility fails to
achieve the production levels; quality levels or performance objectives
represented and guaranteed by the equipment suppliers and turn-key general
contractor (although mitigated by liquidated damages of up to 30% of the
contract) are not achieved, the competitive and financial position of the
Company could be materially adversely affected.
16
<PAGE> 17
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS
(a) Exhibit 15 - Letter Regarding Unaudited Interim Financial
Information
Exhibit 27 - Financial Data Schedule
17
<PAGE> 18
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 12, 1996 By:
-----------------------------------------
Jerry F. Williams
Vice President - Finance
and Administration and
Chief Financial Officer
(Principal Financial Officer)
By:
-----------------------------------------
Gregory J. Pritz
Controller
(Principal Accounting Officer)
18
<PAGE> 1
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
19, 1996 (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 the 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
Chicago, Illinois
August 12, 1996
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<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 73,914
<SECURITIES> 23,393
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<COMMON> 11,610
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<OTHER-SE> 243,500
<TOTAL-LIABILITY-AND-EQUITY> 767,722
<SALES> 253,133
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