<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 March 31, 1996 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 April 29, 1996, 11,584,877.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ACME METALS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
1996 1995
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 100,010 $ 53,043
Short term investments 43,229 83,756
Receivables, less allowances of $1,367 in 1996 and $1,335 in 1995 55,421 55,344
Inventories 45,794 51,932
Deferred income taxes 12,857 12,857
Other current assets 2,263 1,855
--------- ---------
Total current assets 259,574 258,787
--------- ---------
INVESTMENTS AND OTHER ASSETS:
Investments in associated companies 17,632 16,112
Restricted cash and investments - 50,305
Other assets 18,678 19,309
Deferred income taxes 31,052 31,052
--------- ---------
Total investments and other assets 67,362 116,778
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment, at cost 373,478 372,959
Construction in progress 341,293 279,799
Accumulated depreciation (276,880) (273,580)
--------- ---------
Total property, plant and equipment 437,891 379,178
--------- ---------
$ 764,827 $ 754,743
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 68,074 $ 62,355
Accrued expenses 34,293 41,192
Income taxes payable 6,930 4,783
--------- ---------
Total current liabilities 109,297 108,330
--------- ---------
LONG-TERM LIABILITIES:
Long-term debt 279,980 276,831
Other long-term liabilities 10,171 10,143
Postretirement benefits other than pensions 88,267 86,856
Retirement benefit plans 25,566 24,472
--------- ---------
Total long-term liabilities 403,984 398,302
--------- ---------
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,
11,584,877 and 11,579,768 shares issued in 1996 and 1995, respectively 11,585 11,580
Additional paid-in capital 164,981 164,987
Retained earnings 99,401 95,965
Minimum pension liability adjustment (24,421) (24,421)
--------- ---------
Total shareholders' equity 251,546 248,111
--------- ---------
$ 764,827 $ 754,743
--------- ---------
--------- ---------
</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
--------------------------
March 31, March 26,
1996 1995
---------- ----------
<S> <C> <C>
NET SALES $ 125,865 $ 131,548
COSTS AND EXPENSES:
Cost of products sold 108,245 104,449
Depreciation expense 3,175 3,967
---------- ----------
Gross profit 14,445 23,132
Training and start-up - Modernization Project 1,465 -
Selling and administrative expense 8,680 8,822
---------- ----------
Operating income 4,300 14,310
NON-OPERATING INCOME (EXPENSE):
Interest expense (648) (7,340)
Interest income 2,187 3,841
Other - net (112) 1,761
---------- ----------
Income before income taxes 5,727 12,572
Income tax provision 2,291 4,526
---------- ----------
Net income $ 3,436 $ 8,046
---------- ----------
---------- ----------
PER COMMON SHARE:
Net income $ 0.30 $ 0.69
---------- ----------
---------- ----------
</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 Three Months Ended
--------------------------
March 31, March 26,
1996 1995
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,436 $ 8,046
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation 3,385 4,114
Accretion of Senior Discount Note 3,149 2,803
CHANGE IN CURRENT ASSETS AND LIABILITIES:
Receivables (77) (1,257)
Inventories 6,138 (2,773)
Accounts payable (9,618) (1,621)
Other current accounts (5,134) 1,116
Other, net 1,714 1,292
-------- --------
Net cash provided by operating activities 2,993 11,720
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investments (19,033) (135,240)
Sales and/or maturities of investments 109,865 108,607
Reclass of restricted cash - 40,198
Capital expenditures (3,562) (1,845)
Capital expenditures - Modernization Project (43,295) (2,008)
-------- --------
Net cash provided by investing activities 43,975 9,712
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Other (1) 439
-------- --------
Net cash (used for) provided by financing activities (1) 439
-------- --------
Net increase in cash and cash equivalents 46,967 21,871
Cash and cash equivalents at beginning of period 53,043 76,639
-------- --------
Cash and cash equivalents at end of period $ 100,010 $ 98,510
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of this financial statement.
4
<PAGE>
ACME METALS INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION:
The accompanying financial statements for the periods ended March 31, 1996 and
March 26, 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 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 December 29, 1996 and will contain 52 weeks.
First 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 contractual prices determined on an
annual basis. 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 UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
March 31, March 26,
1996 1995
--------- --------
(in thousands)
<S> <C> <C>
Net Sales
Steel Making:
Sales to unaffiliated customers $ 57,714 $ 60,274
Intersegment sales 28,769 29,559
--------- --------
86,483 89,833
Steel Fabricating:
Sales to unaffiliated customers 68,151 71,302
Intersegment sales 422 430
--------- --------
68,573 71,732
Eliminations (29,191) (30,017)
--------- --------
Total $ 125,865 $131,548
--------- --------
--------- --------
Income from Operations
Steel Making $ 294 $ 7,904
Steel Fabricating 4,006 6,406
--------- --------
Total $ 4,300 $ 14,310
--------- --------
--------- --------
Depreciation
Steel Making $ 2,341 $ 3,132
Steel Fabricating 963 953
Corporate 81 29
--------- --------
Total $ 3,385 $ 4,114
--------- --------
--------- --------
Capital Expenditures
Steel Making $ 61,230 $ 43,566
Steel Fabricating 952 402
Corporate 10 68
--------- --------
Total $ 62,192 $ 44,036
--------- --------
--------- --------
Steel Shipments (in tons) 156,421 170,741
--------- --------
--------- --------
</TABLE>
PER SHARE DATA:
Per share amounts for 1996 and 1995 are based on the weighted average number of
common and dilutive common equivalent shares outstanding during the three-month
period (11,607,211 in 1996 and 11,643,406 in 1995).
6
<PAGE>
ACME METALS INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
INVENTORIES:
Inventories are summarized as follows:
March 31, December 31,
1996 1995
--------- ------------
(in thousands)
Raw materials $ 4,841 $ 8,397
Semi-finished and finished products 34,027 36,339
Supplies 6,926 7,196
--------- --------
$ 45,794 $ 51,932
--------- --------
--------- --------
PROPERTY, PLANT AND EQUIPMENT:
The Company capitalized expenditures related to the construction of the
Modernization and Expansion Project (the "Project") totaling $319.9 million at
March 31, 1996. The capitalized expenditures are comprised of $287.1 million of
cash and accrued payments to Raytheon Engineers & Constructors Inc., the general
contractor, $24.9 million of related capitalized interest, and $7.9 million of
other costs related directly to the construction of the Project. Cash and
accrued payments to the general contractor at March 31, 1996 and December 31,
1995 include accounts payable of $34.2 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 $9.1 million in the first quarter of
1996, as compared to $8.6 million in 1995 for the same period. In the first
quarter of 1995, cash flows from investing activities were increased by a
release of $40.2 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 quarter of 1996 for the Modernization Project
are discussed in Property, Plant and Equipment footnote. In addition, during
the first quarter of 1996, the Company made a cash contribution of $1.5 million
to the steel processing joint venture. At March 31, 1996 the Company had
contributed a total of $3.3 million to the same joint venture.
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.
7
<PAGE>
ACME METALS INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
During 1994, the Company entered into a turnkey contract with Raytheon
Engineers & Constructors, Inc. ("Raytheon") to build the 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, 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 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
8
<PAGE>
ACME METALS INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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.
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 March 31,
1996 and the consolidated statements of income and cash flows for the three-
month periods ended March 31, 1996 and March 26, 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
April 25, 1996
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months Ended For the Years Ended
-------------------------- -------------------
March 31, March 26, 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 86.0 79.4 81.3 82.5 86.9
Depreciation expense 2.5 3.0 2.5 2.9 3.2
----- ----- ----- ----- -----
Gross profit 11.5 17.6 16.2 14.6 9.9
Training/start-up-Modernization Project 1.2
Selling and administrative expense 6.9 6.7 6.8 6.4 6.7
Restructuring/Nonrecurring charge 0.0 0.0 0.0 1.8 0.4
----- ----- ----- ----- -----
Operating income 3.4 10.9 9.4 6.4 2.8
Interest income (expense) net 1.1 (5.6) (1.3) (1.2) (0.9)
Other non-operating income, net 0.0 4.2 0.3 0.3 0.1
Unusual income items 0.0 0.0 0.0 0.0 0.3
Income tax provision 1.8 3.4 3.0 1.9 0.9
----- ----- ----- ----- -----
Net income before extraordinary item 2.7 6.1 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% 6.1% 5.4% 3.3% 1.4%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
FIRST QUARTER 1996 COMPARED WITH FIRST QUARTER 1995
NET SALES. Consolidated net sales of $125.9 million in the first quarter
of 1996 were $5.7 million, or 4 percent lower than the first quarter 1995 net
sales. A 3.7 percent decrease in selling prices reduced sales by $4.8 million
along with lower shipments totaling $0.9 million. The first quarter of 1996
includes increased shipments of iron and semi-finished products equaling $4.6
million over 1995's first quarter.
STEEL MAKING SEGMENT. Net sales for the Steel Making Segment were $86.5
million in the first quarter of 1996, a $3.4 million, or 4 percent, decline over
last year's comparable period. Sales to unaffiliated customers decreased 4
percent, to $57.7 million and intersegment sales of $28.8 million were 3 percent
lower than in the first quarter of 1995. The decrease in the Steel Making
Segment's net sales was largely the result of a 2 percent decrease in average
selling prices, while a decrease in flat-rolled shipment volume was partially
offset by the increased sale of iron and semi-finished products.
STEEL FABRICATING SEGMENT. The Steel Fabricating Segment net sales of
$68.6 million in the first quarter of 1996 were $3.2 million, or 4 percent lower
than the comparable period in the prior year. A decrease in selling prices
primarily at Alpha Tube combined with lower shipments at Universal Tool
accounted for the majority of the decline.
11
<PAGE>
GROSS PROFIT. The gross profit margin for the first quarter of 1996 of
$14.4 million was $8.7 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 first quarter of 1996 mostly due to the higher
raw material, natural gas and other conversion costs at the Steel Making
Segment. The gross profit, as a percentage of sales, was 11.5 percent in the
first quarter of 1996 versus 17.6 percent in the first quarter of 1995.
SELLING AND ADMINISTRATIVE EXPENSE. Selling and administrative expense was
$8.7 million and $8.8 million for the first quarters of 1996 and 1995,
respectively. Selling and administrative expenses represented 6.9 percent of
net sales in 1996 versus 6.7 percent in 1995.
OPERATING INCOME. Operating income for the Company for the first quarter
of 1996 was $4.3 million as compared to operating income of $14.3 million in the
first quarter of 1995.
STEEL MAKING SEGMENT. The Steel Making Segment earned $0.3 million from
operations in the first quarter of 1996 down $7.6 million from 1995. The
significant decline in earnings was driven by a 2 percent decrease in flat-
rolled average selling prices and decreased flat-rolled shipments of
approximately 14,300 tons. Also reducing results in the first quarter of 1996
were sharply higher operating costs, principally relating to increased natural
gas and iron ore costs along with higher maintenance and other conversion costs.
Finally, employee training costs to prepare for start-up of the Modernization
and Expansion Project decreased income from operations by $1.5 million as
compared to 1995's first quarter. Flat-rolled shipments to external customers
were 8 percent lower than last year's comparable period, while shipments to the
Steel Fabricating Segment were approximately 3,300 tons, or 5 percent, lower
than in the first quarter of 1995. Approximately 65 percent of shipments and
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 $4.0 million for the first quarter of 1996 was $2.4 million lower than
in last year's comparable period, resulting primarily from increased costs in
the form of higher flat-rolled steel prices and higher production costs for Acme
Packaging.
INTEREST INCOME/EXPENSE. Interest income for the first quarter of 1996
totaled $2.2 million, falling below the first quarter of 1995 by $1.7 million.
The decrease in interest income is the result of reduced on-hand cash and
investment balances due to progress payments for the construction of the
Modernization and Expansion Project. Interest expense of $0.6 million for the
first quarter of 1996 was below the same period for the prior year by $6.8
million arising from the increased capitalization of interest cost due to the
increased investment in the Modernization and Expansion Project. In the first
quarter of 1996 and 1995, interest costs of $8.3 million and $1.5 million,
respectively, were capitalized as part of the Project.
NON-OPERATING INCOME/EXPENSE. Non-operating expense in the first quarter
of 1996 was $0.1 million, which was $1.9 million lower than the income recorded
in last year's comparable period. Non-operating income in the first quarter of
1995 included a $1.6 million gain on the sale of the Company's interest in a
West Virginia coal producing property.
INCOME TAX EXPENSE. Income tax expense in the first quarter of 1996
totaled $2.3 million based on an effective tax rate of 40 percent as compared to
the $4.5 million in 1995's first quarter, based on a 36 percent effective tax
rate.
12
<PAGE>
NET INCOME. The Company recorded earnings of $3.4 million, or $0.30 per
share, in the first quarter of 1996 versus income of $8.0 million, or $0.69 per
share, recorded in the first quarter of 1995. Per share amounts for 1996 and
1995 are based on weighted average number of common shares and dilutive common
equivalent shares outstanding during the three month period (11,607,211 in 1996
and 11,643,406 in 1995).
LIQUIDITY AND CAPITAL RESOURCES. At the end of the first quarter, the
Company's cash and cash equivalents balance was $100.0 million, up $47 million
from the December 31, 1995 balance. Working capital of $150.3 million at the
end of the first quarter 1996, approximated the year-end 1995 balance. At March
31, 1996, the Company had total cash and cash equivalents and short term
investments of $143.2 million.
Operating activities generated $3.0 million of cash in the quarter due to a
combination of net income, an add-back of $3.4 million of non-cash depreciation,
and $3.1 million of non-cash accretion which was partially offset by a decrease
of $7.0 million resulting from changes in working capital and other non-current
accounts. Investing activities increased cash $44.0 million as the sale of
investments (net of purchases) of $90.9 million which was somewhat offset by
$46.9 million of capital expenditures.
Capital expenditures were $62.2 million for the first quarter of 1996. Total
capital expenditures for the Modernization and Expansion Project were $58.6
million which included $46.4 million for current amounts paid and owing the
general contractor, capitalized interest of $8.3 million, and other costs
totaling $3.9 million. The remaining $3.6 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 March 31, 1996, the Company's long term indebtedness was $280 million. Long
term debt increased $3.1 million in the first quarter of 1996 due to the
accretion on Senior Secured Discount Notes. The Company also currently has an
unused $80.0 million working capital facility of which, approximately $78.0
million is available at March 31, 1996 under the borrowing base calculation. At
March 31, 1996 the Company's ratio of debt to capitalization was .53 to 1.
In the first quarter of 1996, the Company increased its investment in associated
companies by $1.5 million. The funds were contributed to the steel processing
joint venture which will provide processing capability for wider coils produced
by the new continuous caster and hot strip mill. The total capital investment
in the joint venture at March 31, 1996 was $3.3 million.
SUBSEQUENT EVENT. 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 waster
disposal facilities that are part of the Moderinations and Expansion Project.
The bonds are secured by the Company's pledge of loan payments and an interest
in the solid waste disposal facilities.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's 1996 Annual Meeting of Shareholders was held on April 25,
1996. In connection with the meeting, proxies were solicited pursuant to
the Securities Exchange Act. The following are the voting results on
proposals considered and voted upon at the meeting, all of which are
described in the Company's Proxy Statement dated March 26, 1996.
1. The three nominees for election as Class I Directors listed in the
Proxy Statement were elected:
NAME VOTES FOR VOTES WITHHELD
---- --------- --------------
Allan L. Rayfield 8,500,537 78,154
L. Frederick Sutherland 8,505,668 73,023
William R. Wilson 8,502,168 76,523
2. The proposal to ratify the appointment of Price Waterhouse LLP as the
Company's independent accountants for the fiscal year 1996 was passed.
(8,538,970 votes FOR, 16,124 votes ABSTAINED, 23,597 votes AGAINST)
Effective April 25, 1996, Mr. C. J. Gauthier and Mr. Julien L. McCall
retired from the Board of Directors and Dr. Carol M. O'Cleireacain
resigned from the Board of Directors.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 15 - Letter Regarding Unaudited Interim Financial Information
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
1. Report on Form 8-K filed April 15, 1996 reported that Stephen D.
Bennett, President of the Company, has been elected Chief
Executive Officer.
2. Report on Form 8-K filed April 23, 1996 reported the issuance of
$11,345,000 of tax-exempt bonds.
14
<PAGE>
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: May 14, 1996 By: /s/ J. F. Williams
----------------------------------
Jerry F. Williams
Vice President - Finance
and Administration and
Chief Financial Officer
(Principal Financial Officer)
By: /s/ G. J. Pritz
--------------------------------------
Gregory J. Pritz
Controller
(Principal Accounting Officer)
15
<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 April
25, 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
May 13, 1996
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