<PAGE> 1
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended September 27, 1998 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 Avenue, Riverdale, Illinois 60827-1182
(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 as of November 5, 1998: 11,675,909.
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<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 27, September 28, September 27, September 28,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 103,460 $ 115,250 $ 372,795 $ 364,051
COSTS AND EXPENSES:
Cost of products sold 98,777 105,653 337,259 337,980
Depreciation expense 9,224 9,311 27,755 29,257
------------ ------------ ------------ ------------
Gross margin (4,541) 286 7,781 (3,186)
Selling and administrative expense 9,278 9,433 28,613 29,766
------------ ------------ ------------ ------------
Operating loss (13,819) (9,147) (20,832) (32,952)
NON-OPERATING INCOME (EXPENSE):
Interest expense (10,931) (10,482) (32,678) (30,377)
Interest income 268 19 897 479
Other-net (187) 12,257 (311)
------------ ------------ ------------ ------------
Loss before income taxes (24,482) (19,797) (40,356) (63,161)
Income tax (benefit) provision 68,174 (9,257) 62,618 (24,001)
------------ ------------ ------------ ------------
NET LOSS $ (92,656) $ (10,540) $ (102,974) $ (39,160)
============ ============ ============ ============
LOSS PER SHARE:
BASIC:
Net loss $ (7.94) $ (0.91) $ (8.82) $ (3.37)
------------ ------------ ------------ ------------
Weighted average outstanding shares 11,676,425 11,629,281 11,672,654 11,628,556
============ ============ ============ ============
DILUTED:
Net loss $ (7.94) $ (0.91) $ (8.82) $ (3.37)
------------ ------------ ------------ ------------
Weighted average outstanding shares 11,676,425 11,629,281 11,672,654 11,628,556
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of this financial statement
2
<PAGE> 3
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
(Unaudited)
September 27, December 28,
1998 1997
------------- ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ................................. $ 13,390 $ 6,454
Accounts receivable trade, less allowances of $1,377,
and $1,296 respectively.................................. 53,269 59,646
Inventories ............................................... 75,687 81,630
Income tax receivable ..................................... 230 24,936
Net assets held for sale .................................. 3,808
Deferred income taxes ..................................... 14,082
Other current assets ...................................... 1,704 1,887
--------- ---------
Total current assets ..................................... 144,280 192,443
--------- ---------
INVESTMENTS AND OTHER ASSETS:
Investments in associated companies ....................... 18,717 17,395
Other assets .............................................. 21,520 20,357
Deferred income taxes ..................................... 48,536
--------- ---------
Total investments and other assets ....................... 40,237 86,288
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment ............................. 899,902 864,192
Accumulated depreciation .................................. (342,285) (313,842)
--------- ---------
Total property, plant and equipment ...................... 557,617 550,350
--------- ---------
$ 742,134 $ 829,081
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable .......................................... $ $ 64,691
Accrued expenses .......................................... 26,176 34,109
Current installments of long-term debt .................... 1,500
--------- ---------
Total current liabilities ................................ 26,176 100,300
--------- ---------
LONG-TERM LIABILITIES:
Long-term debt ............................................ 233,463 423,243
Other long-term liabilities ............................... 17,791
Postretirement benefits other than pensions ............... 97,235 95,814
Retirement benefit plans .................................. 5,911 5,590
--------- ---------
Total long-term liabilities .............................. 336,609 542,438
--------- ---------
LIABILITIES SUBJECT TO COMPROMISE ........................... 295,568
--------- ---------
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, 11,672,654 and 11,627,380
shares issued and outstanding, respectively ............ 11,676 11,627
Additional paid-in capital ................................ 165,971 165,608
Retained earnings (accumulated deficit) ................... (81,547) 21,427
Accumulated other comprehensive loss ...................... (12,319) (12,319)
--------- ---------
Total shareholders' equity ............................... 83,781 186,343
--------- ---------
$ 742,134 $ 829,081
========= =========
</TABLE>
The accompanying notes are an integral part of this statement.
3
<PAGE> 4
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
For The Nine Months Ended
-------------------------------
September 27, September 28,
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(102,974) $ (39,160)
ADJUSTMENTS TO RECONCILE NET LOSS TO
NET CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES:
Gain on assets held for sale (12,000)
Depreciation 28,633 29,751
Accretion of Senior Discount Notes 8,803
Deferred income taxes 62,618
CHANGE IN CURRENT ASSETS AND LIABILITIES:
Receivables 9,860 (6,542)
Inventories 7,247 (272)
Accounts payable (8,495) (14,489)
Other current accounts 11,880 (1,672)
Pension contribution (3,691)
Income tax receivable 24,706 (16,320)
Other, net (3,544) 917
--------- ---------
Net cash (used for) provided by operating activities 17,931 (42,675)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investments (331)
Sales and/or maturities of investments 12,148
Capital expenditures (23,025) (31,475)
--------- ---------
Net cash used for investing activities (23,025) (19,658)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of long-term debt (1,250)
Proceeds for, assets held for sale 18,000
Borrowings under revolving credit agreement 129,750 73,500
Repayments of revolving credit agreement (134,750) (38,000)
Payments of capital lease (131)
Other 411 324
--------- ---------
Net cash provided by financing activities 12,030 35,824
--------- ---------
Net increase (decrease) in cash and cash equivalents 6,936 (26,509)
Cash and cash equivalents at beginning of period 6,454 33,224
--------- ---------
Cash and cash equivalents at end of period $ 13,390 $ 6,715
========= =========
</TABLE>
The accompanying notes are an integral part of this financial statement.
4
<PAGE> 5
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements for Acme Metals
Incorporated include its wholly owned subsidiaries including, Acme Steel Company
("Acme Steel"), Acme Packaging Corporation ("Acme Packaging"), and Alpha Tube
Corporation ("Alpha Tube"), hereinafter collectively referred to as "the
Company," for the periods ended September 27, 1998 and September 28, 1997. The
statements should be read in conjunction with the audited financial statements
included in the Company's 1997 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
PricewaterhouseCoopers LLP, the Company's independent accountants, whose report
appears on page 21 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 27, 1998 and will contain 52 weeks.
Third quarter results for 1998 and 1997 cover 13-week periods.
REORGANIZATION UNDER CHAPTER 11, BANKRUPTCY PROCEEDINGS:
On September 28, 1998, Acme Metals Incorporated and its subsidiary companies,
Acme Steel, Acme Packaging, Alpha Tube, Alabama Metallurgical Corporation and
Acme Steel Company International, Inc., voluntarily filed separate petitions for
protection under Chapter 11 of the Federal Bankruptcy Code ("Bankruptcy Code")
in the U.S. Bankruptcy Court for the District of Delaware. These petitions are
being jointly administered under Case 98-2179 pursuant to Rule 1015(b) of the
Federal Rules of Bankruptcy Procedure. The Company is in possession of its
properties and assets and continues to operate with its existing directors and
officers as debtors-in-possession ("DIP") subject to the Bankruptcy Court's
("Court") supervision and orders.
Pursuant to the provisions of the Bankruptcy Code, all of the Company's
liabilities as of September 28, 1998 were automatically stayed. Moreover, absent
approval from the Court, the Company is prohibited from paying any pre-petition
obligations. As debtors-in-possession, the Company has the right, subject to
Court approval and certain other conditions, to assume or reject any
pre-petition executory contracts and unexpired leases. Parties affected by such
rejections may file pre-petition claims with the Court in accordance with
bankruptcy procedures. The Court has approved payment of certain pre-petition
liabilities such as employee wages and benefits and certain specified
pre-petition obligation to vendors, customers and taxing authorities.
Additionally, the Court has allowed for the retention of legal and financial
professionals.
5
<PAGE> 6
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The Company intends to present a plan of reorganization to the Court to
reorganize the Company's businesses and to restructure the Company's long-term
debt, and trade obligations. Under the provisions of the Bankruptcy Code, the
Company has the exclusive right to file such plan at any time during the 120 day
period following September 28, 1998. The exclusive filing time period may be
extended by the Court at the Company's request.
Although the Chapter 11 filing raises substantial doubt about the Company's
ability to continue as a going-concern, the accompanying financial statements
have been prepared on a going-concern basis. This basis contemplates the
continuity of operations, realization of assets, and discharge of liabilities in
the ordinary course of business. Specifically, the statements do not present the
amount which will ultimately be paid to settle liabilities and contingencies
which may be allowed in the Chapter 11 reorganization case. A plan of
reorganization could materially change the amounts currently disclosed in the
financial statements.
Under Chapter 11, the rights of and ultimate payment by the Company to
pre-petition creditors may be substantially altered. This could result in claims
being liquidated in the Chapter 11 proceedings at less (and possibly
substantially less) than 100 percent of their face value. At this time, because
of material uncertainties, these results are not reflected in the accompanying
financial statements. Although the actual filing for Chapter 11 reorganization
occurred after the end of the third quarter, the balance sheet reflects the
classification of liabilities as if the filing occurred on September 27, 1998.
DIP FINANCING:
In connection with the Company's Chapter 11 filing, the Company is currently
finalizing a Revolving Credit Agreement ("DIP Financing Agreement") with
BankAmerica Business Credit, Inc. ("BankAmerica") for a maximum of $100 million
subject to borrowing base limitations based on inventory and accounts
receivable. The DIP Financing Agreement is intended to support the Company's
operations during Chapter 11 proceedings, and to expire September 29, 2000 or
upon Court approval of the Company's plan of reorganization.
The DIP Financing Agreement would provide for borrowing under a revolving line
of credit and a letter of credit facility. The DIP Financing Agreement would be
collateralized by substantially all of the assets of the Company. The borrowings
will bear an interest rate equal to a fluctuating per annum rate ranging from
0.50 percent to 1.00 percent based on the amount of borrowings plus the
Reference Rate as defined by Bank of America N.T. & S.A., San Francisco,
California ("Bank of America"). At the Company's option, the interest rate will
be the applicable margin (ranging from 1.75 percent to 3.00 percent based on the
amount of borrowings) plus the one month, two month, three month, or six month
LIBOR rate as quoted by Bank of America.
6
<PAGE> 7
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Covenants of the DIP Financial Agreement generally restrict creating additional
liens on its assets, creating any claims superior to those of Bank America,
paying pre-petition obligations, merging or consolidating with any person, or
selling assets. Additionally, the DIP Financing Agreement will restrict new debt
and payment of reclamation liens. Moreover, the Company will be required to
maintain financial covenants.
SEGMENT INFORMATION:
The Company presents its operations in two segments, Steel Making and Steel
Fabricating.
Steel Making operations, conducted through Acme Steel, include the manufacture
of flat rolled 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 is conducted through Acme Packaging, Alpha Tube,
and, until March 9, 1998, Universal Tool & Stamping Company, Inc. ("Universal").
Acme Packaging manufactures, processes and distributes steel and plastic
strapping, strapping tools and industrial packaging materials. Alpha Tube
manufactures and distributes welded steel tube. Universal manufactured and
distributed auto and light truck jacks. Principal markets of the Steel
Fabricating Segment include agricultural, automotive, brick, construction,
forest and paper products, appliance, heating and cooling equipment, household
and leisure equipment, truck exhaust, and wholesalers.
All sales between segments are recorded at contractual prices determined on an
annual basis and reviewed periodically to approximate, as best as possible,
current market conditions. Income (loss) from operations consists of total sales
less operating expenses.
7
<PAGE> 8
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
For The For The
Three Months Ended Nine Months Ended
--------------------- ---------------------
Sept. 27, Sept. 28, Sept. 27, Sept. 28,
1998 1997 1998 1997
--------- --------- -------- --------
(in thousands, except for shipment and production statistics)
<S> <C> <C> <C> <C>
Net Sales:
Steel Making:
Sales to unaffiliated customers $ 44,482 $ 44,495 $ 188,794 $ 148,825
Intersegment sales 22,271 23,620 67,039 73,405
--------- --------- --------- ---------
66,753 68,115 255,833 222,230
Steel Fabricating:
Sales to unaffiliated customers 58,978 70,755 184,001 215,226
Intersegment sales 157 221 547 798
--------- --------- --------- ---------
59,135 70,976 184,548 216,024
Eliminations (22,428) (23,841) (67,586) (74,203)
--------- --------- --------- ---------
Total $ 103,460 $ 115,250 $ 372,795 $ 364,051
========= ========= ========= =========
Income (loss) from Operations:
Steel Making $ (19,209) $ (16,451) $ (38,507) $ (53,047)
Steel Fabricating 5,390 7,304 17,675 20,095
--------- --------- --------- ---------
Total $ (13,819) $ (9,147) $ (20,832) $ (32,952)
========= ========= ========= =========
Depreciation:
Steel Making $ 8,508 $ 8,529 $ 25,475 $ 26,824
Steel Fabricating 1,166 990 3,104 2,916
Corporate 18 3 54 11
--------- --------- --------- ---------
Total $ 9,692 $ 9,522 $ 28,633 $ 29,751
========= ========= ========= =========
Capital Expenditures:
Steel Making $ 5,504 $ 4,364 $ 10,612 $ 23,144
Steel Fabricating 375 2,553 9,354 6,388
Corporate 15,690 4 15,832 57
--------- --------- --------- ---------
Total $ 21,569 $ 6,921 $ 35,798 $ 29,589
========= ========= ========= =========
Operating Data (in tons)
Steel Production (hot band) 166,963 184,096 619,554 543,387
Steel Shipments (flat roll) 161,806 141,980 627,232 464,050
</TABLE>
8
<PAGE> 9
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
INVENTORIES:
Inventories as determined on the last-in, first-out method are summarized as
follows:
<TABLE>
<CAPTION>
September 27, December 28,
1998 1997
------------- ------------
(unaudited)
(in thousands)
<S> <C> <C>
Raw materials $13,674 $ 13,510
Semi-finished and finished products 55,091 62,126
Supplies 6,922 5,994
------- --------
$75,687 $ 81,630
======= ========
</TABLE>
INCOME TAXES:
As a result of the losses incurred to date, the related negative effect on the
Company's overall liquidity position and the Chapter 11 filing on September 28,
1998, the Company recorded a valuation allowance against its entire net deferred
assets.
PROPERTY, PLANT AND EQUIPMENT:
As a result of its Chapter 11 bankruptcy filing, the Company recorded an
obligation for future payments under a lease for property used by Alpha Tube and
a computer related lease. These leases were formerly treated as operating
leases.
9
<PAGE> 10
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
LONG-TERM DEBT:
The Company's long-term debt (including current maturities) not subject to
compromise at September 27, 1998 and December 28, 1997 is summarized as follows:
<TABLE>
<CAPTION>
September 27, December 28,
1998 1997
------------- ------------
(unaudited)
(in thousands)
<S> <C> <C>
10.875 percent Senior Unsecured Notes, net of discount $ $198,506
Senior Secured Credit Agreement 174,250 175,000
12.5 percent Senior Secured Notes 17,623 17,623
13.5 percent Senior Secured Discount Notes 669 669
Note Payable 6,000
Environmental Improvement Bonds 7.95 percent 11,345 11,345
Environmental Improvement Bonds 7.90 percent 8,585 8,585
Working Capital Facility 5,000
Alpha Tube Facility 14,700
Capitalized leases 6,291 2,015
-------- --------
$233,463 $424,743
======== ========
</TABLE>
As a result of the Chapter 11 bankruptcy filing, all long-term debt is in
default.
LIABILITIES SUBJECT TO COMPROMISE:
Liabilities expected to be settled as part of a Plan of reorganization are
classified as "Liabilities subject to compromise" and include the following
liabilities at September 27, 1998:
<TABLE>
<S> <C>
Accounts payable $ 53,939
Accrued taxes 3,632
Accrued employee benefits 1,335
Workers' compensation 2,653
Accrued professional fees 634
Other accrued liabilities 6,208
Interest payable 6,598
10.875 percent Senior Unsecured Notes,
net of discount 198,581
Note payable 5,500
Other long-term liabilities 16,488
--------
$295,568
========
</TABLE>
10
<PAGE> 11
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
CASH FLOWS:
Cash payments for interest expense were $23.0 million during the first nine
months of 1998 and $21.0 million in the first nine months of 1997. Accrued
payments to the general contractor for the New Facility at September 27, 1998
and September 28, 1997 include liabilities of $9.1 million and $10.1 million,
respectively, while the accrual at December 28, 1997 was $15.5 million. Due to
the non-cash nature of such payables at each date they have been excluded from
the Statements of Cash Flows.
COMPREHENSIVE INCOME:
During the quarter ending March 29, 1998, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income," which requires the Company to disclose, in
financial statement format, all non-owner changes in equity. There was no
recorded effect on equity due to the adoption of SFAS No. 130 through the first
nine months of 1998.
COMMITMENTS AND CONTINGENCIES:
Under the Bankruptcy Code, actions by creditors to collect pre-petition
indebtedness are stayed and other contractual obligations may not be enforced
against the Company. As debtors-in-possession, the Company has the right,
subject to Bankruptcy Court approval and certain other limitations, to assume or
reject executory contracts and unexpired leases. In this context, "rejection"
means that the debtor companies are relieved from their obligations to perform
further under the contract or lease but are subject to a claim for damages for
the breach thereof. Any damages resulting from rejection are treated as
pre-petition general unsecured claims in the reorganization. The parties
affected by these rejections may file claims with the Bankruptcy Court in
accordance with bankruptcy procedures. Pre-petition claims which were contingent
or unliquidated at the commencement of the Chapter 11 proceeding are generally
allowable against the debtor-in-possession in amounts fixed by the Bankruptcy
Court.
11
<PAGE> 12
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(dollars in thousands)
Guarantor's Financial Statements
In December 1997, Acme Metals Incorporated, as issuer, and Acme Steel
Company, a wholly owned subsidiary of the Company, as guarantor, entered into an
offering pursuant to which $200 million of 10.875 percent Senior Unsecured Notes
due 2007 were offered pursuant to Rule 144A under the Securities Act of 1933, as
amended (the "Act"). See Exhibit 4.17 to the Company's Annual Report on Form
10-K for the fiscal year ended December 28, 1997. In June, 1998, the Company
registered the Senior Unsecured Notes under the Act.
Following is unaudited consolidating condensed financial information
pertaining to the Company and its subsidiary guarantor and its subsidiary
nonguarantors.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 27, 1998
------------------------------------------------------------------------------
SUBSIDIARY
SUBSIDIARY NON TOTAL
PARENT GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ---------- ---------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Net Sales $ $ 66,753 $ 59,135 $ (22,428) $ 103,460
Cost and expenses 81,297 49,132 (22,428) 108,001
---------- ---------- ---------- --------- ----------
Gross margin (14,544) 10,003 (4,541)
Selling and administrative expense 4,665 4,613 9,278
---------- ---------- ---------- --------- ----------
Operating income (loss) (19,209) 5,390 (13,819)
Net interest income (expense) and other 4,692 (14,598) (757) (10,663)
---------- ---------- ---------- --------- ----------
Income (loss) before income taxes 4,692 (33,807) 4,633 (24,482)
Income tax provision (benefit) 26,695 30,127 11,352 68,174
---------- ---------- ---------- --------- ----------
Net income (loss) before equity (22,003) (63,934) (6,719) (92,656)
adjustment
Equity loss in subsidiaries (70,653) 70,653
---------- ---------- ---------- --------- ----------
Net income (loss) $ (92,656) $ (63,934) $ (6,719) $ 70,653 $ (92,656)
========== ========== ========== ========= ==========
</TABLE>
12
<PAGE> 13
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(dollars in thousands)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 28, 1997
---------------------------------------------------------------------------------
SUBSIDIARY
SUBSIDIARY NON TOTAL
PARENT GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales $ $ 68,115 $ 70,976 $ (23,841) $ 115,250
Cost and expenses 79,845 58,960 (23,841) 114,964
-------- --------- -------- -------- ----------
Gross margin (11,730) 12,016 286
Selling and administrative 4,721 4,712 9,433
-------- --------- -------- -------- ----------
Operating income (loss) (16,451) 7,304 (9,147)
Net interest income (expense) and other 4,951 (14,524) (1,077) (10,650)
-------- --------- -------- -------- ----------
Income (loss) before income taxes 4,951 (30,975) 6,227 (19,797)
Income tax provision (benefit) 2,606 (14,576) 2,713 (9,257)
-------- --------- -------- -------- ----------
Net income (loss) before equity
adjustment 2,345 (16,399) 3,514 (10,540)
Equity loss in subsidiaries (12,885) 12,885
-------- --------- -------- -------- ----------
Net income (loss) $(10,540) $ (16,399) $ 3,514 $ 12,885 $ (10,540)
======== ========= ======== ======== ==========
</TABLE>
13
<PAGE> 14
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(dollars in thousands)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 27, 1998
----------------------------------------------------------------------------
SUBSIDIARY
SUBSIDIARY NON TOTAL
PARENT GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales $ $ 255,833 $ 184,548 $(67,586) $ 372,795
Cost and expenses 279,476 153,124 (67,586) 365,014
--------- ---------- --------- -------- ---------
Gross margin (23,643) 31,424 7,781
Selling and administrative expense 14,864 13,749 28,613
--------- ---------- --------- -------- ---------
Operating income (loss) (38,507) 17,675 (20,832)
Interest income (expense) 12,955 (42,105) 9,626 (19,524)
--------- ---------- --------- -------- ---------
Income (loss) before income taxes, 12,955 (80,612) 27,301 (40,356)
Income tax provision (benefit) 29,732 13,782 19,104 62,618
--------- ---------- --------- -------- ---------
Net income (loss) before equity
adjustment (16,777) (94,394) 8,197 (102,974)
Equity loss in subsidiaries (86,197) 86,197
--------- ---------- --------- -------- ---------
Net income (loss) $(102,974) $ (94,394) $ 8,197 $ 86,197 $(102,974)
========= ========== ========= ======== =========
</TABLE>
14
<PAGE> 15
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(dollars in thousands)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 28, 1997
-----------------------------------------------------------------------------
SUBSIDIARY
SUBSIDIARY NON TOTAL
PARENT GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales $ $ 222,230 $ 216,024 $ (74,204) $364,051
Cost and expenses 260,732 180,708 (74,203) 367,237
-------- --------- ---------- ----------- --------
Gross margin (38,502) 35,316 (3,186)
Selling and administrative 14,545 15,221 29,766
-------- --------- ---------- ----------- --------
Operating income (loss) (53,047) 20,095 (32,952)
Net interest income (expense) and 14,293 (41,974) (2,528) (30,209)
-------- --------- ---------- ----------- --------
Income (loss) before income taxes 14,293 (95,021) 17,567 (63,161)
Income tax provision (benefit) 5,431 (36,108) 6,676 (24,001)
-------- --------- ---------- ----------- --------
Net income (loss) before equity
adjustment 8,862 (58,913) 10,891 (39,160)
Equity loss in subsidiaries (48,022) 48,022
-------- --------- ---------- ----------- --------
Net income (loss) $(39,160) $ (58,913) $ 10,891 $ 48,022 $(39,160)
======== ========= ========== =========== ========
</TABLE>
15
<PAGE> 16
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(dollars in thousands)
<TABLE>
<CAPTION>
AS OF SEPTEMBER 27, 1998
----------------------------------------------------------------------------
SUBSIDIARY
SUBSIDIARY NON TOTAL
ASSETS PARENT GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 13,056 $ $ 334 $ $ 13,390
Accounts receivable, net 41 21,004 32,224 53,269
Income tax receivable 230 230
Inventories 50,966 26,194 (1,473) 75,687
Deferred income taxes
Other current assets 415 1,253 36 1,704
Due to (from) affiliates 547,958 (506,044) (43,387) 1,473
---------- ------------- ----------- --------- ---------
Total current assets 561,700 (432,821) 15,401 144,280
---------- ------------- ----------- --------- ---------
INVESTMENTS AND OTHER ASSETS:
Investments in associated companies (46,095) 18,717 46,095 18,717
Other assets 15,908 3,894 1,718 21,520
Deferred income taxes
---------- ------------- ----------- --------- ---------
Total investments and other assets (30,187) 22,611 1,718 46,095 40,237
---------- ------------- ----------- --------- ---------
PROPERTY, PLANT AND EQUIPMENT-Net: 15,970 507,202 34,445 557,617
---------- ------------- ----------- --------- ---------
$ 547,483 $ 96,992 $ 51,564 $ 46,095 $ 742,134
========== ============= =========== ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 5,552 $ 16,466 $ 4,158 $ $ 26,176
Current maturities of long-term debt
---------- ------------- ----------- --------- ---------
Total current liabilities $ 5,552 $ 16,466 $ 4,158 $ $ 26,176
---------- ------------- ----------- --------- ---------
LONG-TERM LIABILITIES:
Long-term debt 233,463 233,463
Other long-term liabilities
Postretirement benefits other than pensions 1,740 81,154 14,341 97,235
Retirement benefit plans 2,456 4,844 (1,389) 5,911
---------- ------------- ----------- --------- ---------
Total long-term liabilities 237,659 85,998 12,952 336,609
---------- ------------- ----------- --------- ---------
LIABILITIES SUBJECT TO COMPROMISE 220,491 60,868 14,209 295,568
SHAREHOLDERS' EQUITY (DEFICIT): 83,781 (66,340) 20,245 46,095 83,781
---------- ------------- ----------- --------- ---------
$ 547,483 $ 96,992 $ 51,564 $ 46,095 $ 742,134
========== ============= =========== ========= =========
</TABLE>
16
<PAGE> 17
ACME METALS INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 28, 1997
---------------------------------------------------------------------
SUBSIDIARY
SUBSIDIARY NON TOTAL
ASSETS PARENT GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ $ 3,016 $ 3,438 $ $ 6,454
Accounts receivable, net 33,154 26,492 59,646
Income tax receivable 24,936 24,936
Inventories 58,657 23,990 (1,017) 81,630
Net assets held for sale 3,808 3,808
Deferred income taxes 14,082 14,082
Other current assets 614 1,145 128 1,887
Due to (from) affiliates 460,541 (434,649) (26,909) 1,017
--------- --------- --------- --------- ---------
Total current assets 500,173 (338,677) 30,947 192,443
--------- --------- --------- --------- ---------
INVESTMENTS AND OTHER ASSETS:
Investments in associated companies 60,882 17,395 (60,882) 17,395
Other assets 14,629 4,391 1,337 20,357
Deferred income taxes 48,536 48,536
--------- --------- --------- --------- ---------
Total investments and other assets 124,047 21,786 1,337 (60,882) 86,288
--------- --------- --------- --------- ---------
PROPERTY, PLANT AND EQUIPMENT 217 522,096 28,037 550,350
--------- --------- --------- --------- ---------
$ 624,437 $ 205,205 $ 60,321 $ (60,882) $ 829,081
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 5,157 79,310 14,333 98,800
Current installments of long-term debt 1,000 500 1,500
--------- --------- --------- --------- ---------
Total current liabilities 6,157 79,810 14,333 100,300
--------- --------- --------- --------- ---------
LONG-TERM LIABILITIES:
Long-term debt 412,743 10,500 423,243
Other long-term liabilities 14,939 2,852 17,791
Postretirement benefits other than pensions 1,731 79,803 14,280 95,814
Retirement benefit plans 2,524 4,186 (1,120) 5,590
--------- --------- --------- --------- ---------
Total long-term liabilities 431,937 97,341 13,160 542,438
--------- --------- --------- --------- ---------
SHAREHOLDERS' EQUITY (DEFICIT): 186,343 28,054 32,828 (60,882) 186,343
--------- --------- --------- --------- ---------
$ 624,437 $ 205,205 $ 60,321 $ (60,882) $ 829,081
========= ========= ========= ========= =========
</TABLE>
17
<PAGE> 18
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(dollars in thousands)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 27, 1998
---------------------------------------------------------------------------
SUBSIDIARY
SUBSIDIARY NON TOTAL
PARENT GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
NET CASH FLOWS (USED FOR) PROVIDED BY
OPERATING ACTIVITIES $ (7,243) $ 19,458 $ 5,716 $ $ 17,931
--------- ----------- ---------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (142) (16,974) (5,909) (23,025)
--------- ----------- ---------- --------- ---------
Net cash used for investing activities (142) (16,974) (5,909) (23,025)
--------- ----------- ---------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit agreement 129,750 129,750
Repayments of revolving credit agreement (134,750) (134,750)
Payment of long term debt (750) (500) (1,250)
Proceeds from assets held for sale 18,000 18,000
Payment of capital lease (131) (131)
Payment of intercompany dividend 20,780 (20,780)
Exercise of stock options and other 411 411
--------- ----------- ---------- --------- ---------
Net cash (used for) provided by
financing activities 20,441 (5,500) (2,911) 12,030
--------- ----------- ---------- --------- ---------
Net increase (decrease) in cash and
cash equivalents 13,056 (3,016) (3,104) 6,936
Cash and cash equivalents at
beginning of period 3,016 3,438 6,454
--------- ----------- ---------- --------- ---------
Cash and cash equivalents at
end of period $ 13,056 $ $ 334 $ $ 13,390
========= =========== ========== ========= =========
</TABLE>
18
<PAGE> 19
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(dollars in thousands)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 28, 1997
-------------------------------------------------------------------
SUBSIDIARY
SUBSIDIARY NON TOTAL
PARENT GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
NET CASH FLOWS (USED FOR) PROVIDED BY
OPERATING ACTIVITIES $ (51,771) $ (10,777) $ 19,873 $ $ (42,675)
---------- ---------- ---------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales and/or maturities of
investments, net of purchases 11,817 11,817
Capital expenditures (57) (25,030) (6,388) (31,475)
---------- ---------- ---------- --------- ----------
Net cash (used for) provided by investing activities 11,760 (25,030) (6,388) (19,658)
---------- ---------- ---------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit agreement 67,500 6,000 73,500
Repayments of revolving credit agreement (38,000) (38,000)
Exercise of stock options and other 18,300 (18,300)
---------- ---------- ---------- --------- ----------
Net cash provided by financing activities 324 324
---------- ---------- ---------- --------- ----------
18,624 29,500 (12,300) 35,824
Net increase decrease in cash and
cash equivalents (21,387) (6,307) 1,185 (26,509)
Cash and cash equivalents at
beginning of period 24,306 6,307 2,611 33,224
---------- ---------- ---------- --------- ----------
Cash and cash equivalents at
end of period $ 2,919 $ $ 3,796 $ $ 6,715
========== ========== ========== ========= ==========
</TABLE>
19
<PAGE> 20
SUBSEQUENT EVENTS
On September 30, 1998, the United States Environmental Protection Agency ("EPA")
served Acme Steel with a notice and opportunity to show cause with respect to
Acme Steel's operations at its coke plant and its compliance with the Resource
Conservation and Recovery Act. Representatives of the Company have met with
representatives of the EPA. While no agreement has been reached and the terms of
any such resolution cannot be know at this time, the Company believes resolution
of this matter will not have a material adverse effect on Acme Steel's
operations or the Company's financial condition.
On October 22, 1998, the Company received notice from the EPA that the Company
has been determined to be a potentially responsible part with respect to the
Casmalia Disposal site in Santa Barbara County, California. The Company has
commenced an investigation into this matter. At this time, the Company is unable
to predict the outcome of this investigation, whether it in fact has any
liability with respect to the Casmalia Disposal Site, and if so, the amount of
any costs which might be incurred.
20
<PAGE> 21
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of
Acme Metals Incorporated
We have reviewed the accompanying consolidated balance sheet as of September 27,
1998, the consolidated statements of operations for the three and nine-month
periods ended September 27, 1998 and September 28, 1997, and the consolidated
statements of cash flows for the nine-month periods ended September 27, 1998 and
September 28, 1997 (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 28, 1997, 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 23, 1998, except as to the Note entitled "Assets Held for Sale," which
is as of March 10, 1998, and except as to the Note entitled "Summary of
Significant Accounting Policies - Comprehensive Income", which is as of May 8,
1998, 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 28, 1997, is fairly stated
in all material respects in relation to the consolidated balance sheet from
which it has been derived.
As discussed within the Note entitled "Reorganization under Chapter 11,
Bankruptcy Proceedings," the Company voluntarily filed for protection under
Chapter 11 of the Bankruptcy Code on September 28, 1998.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Chicago, Illinois
November 10, 1998
21
<PAGE> 22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
SIGNIFICANT EVENT
On September 28, 1998, Acme Metals Incorporated and its subsidiary companies,
Acme Steel, Acme Packaging, Alpha Tube, Alabama Metallurgical Corporation and
Acme Steel Company International, Inc., voluntarily filed separate petitions for
protection under Chapter 11 of the Federal Bankruptcy Code ("Bankruptcy Code")
in the U.S. Bankruptcy Court for the District of Delaware. These petitions are
being jointly administered under Case 98-2179 pursuant to Rule 1015(b) of the
Federal Rules of Bankruptcy Procedure. The Company is in possession of its
properties and assets and continues to operate with its existing directors and
officers as debtors-in-possession ("DIP") subject to the Bankruptcy Court's
("Court") supervision and orders.
Pursuant to the provisions of the Bankruptcy Code, all of the Company's
liabilities as of September 28, 1998 were automatically stayed. Moreover, absent
approval from the Court, the Company is prohibited from paying any pre-petition
obligations. As debtors-in-possession, the Company has the right, subject to
Court approval and certain other conditions, to assume or reject any
pre-petition executory contracts and unexpired leases. Parties affected by such
rejections may file pre-petition claims with the Court in accordance with
bankruptcy procedures. The Court has approved payment of certain pre-petition
liabilities such as employee wages and benefits and certain specified
pre-petition obligations to vendors, customers, and taxing authorities.
Additionally, the Court has allowed for the retention of legal and financial
professionals.
The Company intends to present a plan of reorganization to the Court to
reorganize the Company's core businesses and to restructure the Company's
long-term debt, revolving credit, and trade obligations. Under the provisions of
the Bankruptcy Code, the Company has the exclusive right to file such plan at
any time during the 120 day period following September 28, 1998. The exclusive
filing time period may be extended by the Court at the Company's request.
OVERVIEW
The Company's operations are divided into two segments, the Steel Making Segment
and the Steel Fabricating Segment. The Steel Making Segment consists of Acme
Steel and includes all of the facilities used in the manufacturing and finishing
of flat rolled steel. The Steel Fabricating Segment includes the operations of
Acme Packaging and Alpha Tube, both of which use flat rolled steel in their
respective fabricating processes. Universal, which was sold on March 9, 1998,
was an operating subsidiary within the Steel Fabricating Segment prior to that
date.
Steel Making Segment. During the first nine months of 1998, Acme Steel's product
mix continued to be adversely affected by a substantial reduction of orders from
its traditional niche customers in the high- and mid-carbon, alloy, HSLA and
processed, value-added steel product markets principally due to production prior
year start-up issues at the New Facility, and imports of foreign steel creating
a significant oversupply in the steel market.
22
<PAGE> 23
In addition, ongoing production cost inefficiencies resulting from the New
Facility operating at less than planned production levels (e.g., higher than
anticipated unplanned delay rates and slower than expected improvement in
material yield performance), an adverse mix of products resulting in lower
selling prices, operational issues at the NACME facility which led to reduced
shipments and higher than desired inventory levels, and increased depreciation
and interest expense related to the New Facility. The production inefficiencies
of the New Facility and adverse mix of products sold are expected to continue
throughout 1998, adversely affecting the Company's results of operations and
cash flow. (See "Outlook")
Steel Fabricating Segment. The Steel Fabricating Segment recorded strong
operating results, despite a decrease in sales volume. The operating income of
these companies partially offset the operating losses of Acme Steel during the
first nine months of 1998 and was relatively unaffected by the transitional
issues faced by the Steel Making Segment.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Nine Months Ended For the Years Ended
Sept. 27, Sept. 28, Dec. 28, Dec. 29, Dec. 31,
1998 1997 1997 199 1995
-------- -------- ------- ------- -------
<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 90.5 92.8 91.3 86.7 81.3
Depreciation expense 7.4 8.0 7.9 3.2 2.5
----- ----- ----- ----- -----
Gross margin 2.1 (0.8) 0.8 10.1 16.2
Training and Pre-start-up-
New Facility 2.0
Selling and administrative expense 7.7 8.2 8.0 7.1 6.8
----- ----- ----- ----- -----
Operating income (loss) (5.6) (9.0) (7.2) 1.0 9.4
Interest expense, net (8.5) (8.2) (8.4) (0.1) (1.3)
Other non-operating income (expense), net 3.3 (0.1) 0.1 0.3
Income tax (benefit) provision 16.8 (6.6) (5.9) 0.5 3.0
----- ----- ----- ----- -----
Income (loss) before extraordinary item
and cumulative effect of a change in
accounting principle (27.6) (10.7) (9.7) 0.5 5.4
Extraordinary item, net of taxes (4.8)
Cumulative effect of a change in accounting
principle, net of tax (1.3)
----- ----- ----- ----- -----
Net income (loss) (27.6)% (10.7)% (15.8)% 0.5% 5.4%
===== ===== ===== ===== =====
</TABLE>
Third Quarter 1998 as compared to Third Quarter 1997
NET SALES. Consolidated net sales of $103.5 million in the third quarter of 1998
were $11.8 million lower than third quarter 1997 net sales. Both the Steel
Making Segment and the Steel Fabricating Segment experienced lower sales.
Steel Making Segment. Net sales for the Steel Making Segment were $66.8 million
in the third quarter of 1998, a $1.4 million, or 2.0 percent, decrease from last
year's comparable period. Sales to unaffiliated customers remained constant
while intersegment sales of $22.3 million fell below the third quarter 1997
level by 5.7 percent due to lower sales at the Steel Fabricating Segment. Due to
an influx of foreign steel saturating the domestic market at extremely low
prices, traditional
23
<PAGE> 24
customers began holding back on purchases while waiting for further price
declines. These adverse market conditions coupled with an adverse product mix
account for the unimproved sales results.
Steel Fabricating Segment. The Steel Fabricating Segment net sales of $59.1
million in the third quarter of 1998 were $11.8 million, or 16.7 percent, below
the comparable period in the prior year. The decrease in sales volume is
primarily a result of the absence of Universal, which was sold during the first
quarter of 1998. The sale of Universal accounted for 77.1 percent of the
decrease in volume in Fabricating sales. The remaining 22.9 percent is primarily
due to lower sales volume at Acme Packaging.
GROSS MARGIN. The gross loss for the third quarter of 1998 totaled $4.5 million
which was $4.8 million worse than the gross profit recorded during last year's
comparable period. The decrease was due primarily to lower sales as compared to
the same period last year. The gross margin, as a percentage of sales, was 4.6
percent lower in the third quarter of 1998 than in the third quarter of 1997.
SELLING AND ADMINISTRATIVE EXPENSE. Selling and administrative expense was $9.3
million in the third quarter of 1998, consistent with the third quarter of 1997.
OPERATING LOSS. The operating loss for the Company in the third quarter of 1998
of $13.8 million was $4.7 million worse than the $9.1 million loss recorded
during the same period in 1997.
Steel Making Segment. The Steel Making Segment recorded a $19.3 million loss
from operations in the third quarter of 1998 which was $2.9 million worse than
the loss recorded in the third quarter of 1997. The additional loss in the third
quarter of 1998 as compared to 1997 was due to decreased sales. Approximately 70
percent of steel shipments and 63 percent of gross margin in 1998 was
attributable to external customers, as compared to 63 percent of shipments and
60 percent of gross margin in the prior year. The remainder of sales in both
periods was generated by sales to the Steel Fabricating Segment. (See
"Outlook-Operating Losses")
Steel Fabricating Segment. The Steel Fabricating Segment recorded operating
income of $5.5 million in the third quarter of 1998 which was $1.8 million less
than the comparable period in 1997. This decline is attributable to the sale of
Universal on March 9, 1998 which had a third quarter 1997 operating income of
$1.1 million as well as slightly lower selling prices and volume at Acme
Packaging.
INTEREST INCOME. Interest income for the third quarter of 1998 exceeded the
third quarter of 1997 by $0.2 million.
INTEREST EXPENSE. Interest expense of $10.9 million for the third quarter of
1998 increased as compared to the same period of the prior year by $0.4 million.
The increase resulted from additional long-term debt, partially offset by lower
interest rates.
INCOME TAXES. As a result of the losses incurred to date, the related negative
effect on the Company's overall liquidity position and the Chapter 11 filing on
September 28, 1998, the Company recorded a valuation allowance against its
entire net deferred assets No income tax benefits have been recorded in the
quarter.
24
<PAGE> 25
NET LOSS. The Company recorded a net loss, excluding any tax benefits for losses
incurred and including the valuation allowance against its deferred tax assets,
of $7.94 per share in the third quarter of 1998 versus a loss of $10.5 million,
or $0.91 per share, recorded in the third quarter of 1997. Per share amounts for
1998 and 1997 are based on the weighted average number of common shares and
dilutive common equivalent shares outstanding during the three-month periods
(11,676,425 in 1998 and 11,629,281 in 1997).
Nine Months Ended September 27, 1998 as compared to Nine Months Ended September
28, 1997
NET SALES. Consolidated net sales of $372.8 million for the nine months ended
September 27, 1998 were $8.7 million higher than the prior year's comparable
period. An increase in flat rolled product shipments as compared to the first
nine months of 1997 was somewhat offset by lower Fabricating Segment sales
volume.
Steel Making Segment. Net sales for the Steel Making Segment were $255.8
million in the first nine months of 1998, a $33.6 million, or 15 percent,
increase over last year's comparable period. Sales to unaffiliated customers
increased 27 percent or $40.0 million while intersegment sales of $67.0 million
fell below the first nine months of 1997 level by 9 percent. An increase in the
flat rolled shipments to unaffiliated customers accounted for the increased
sales in the first nine months of 1998 versus the first nine months of 1997,
partially offset by lower selling prices and an unfavorable product mix.
Steel Fabricating Segment. The Steel Fabricating Segment net sales of $184.6
million in the first nine months of 1998 were $31.5 million, or 15 percent,
below the comparable period in the prior year. Both the March 9, 1998 sale of
Universal and decreased sales volume at Acme Packaging accounted for this
decrease in sales.
GROSS MARGIN. The gross margin for the first nine months of 1998 was $7.8
million which was $11.0 million better than the gross loss recorded during last
year's comparable period. The increase in margin was due to lower operating
costs and increased Steel Making sales, partially offset by decreased realized
selling prices.
SELLING AND ADMINISTRATIVE EXPENSE. Selling and administrative expense was $28.6
million in the first nine months of 1998, $1.2 million lower than the first nine
months of 1997, primarily resulting from the absence of Universal which was sold
March 9, 1998.
OPERATING LOSS. The operating loss for the Company in the first nine months of
1998 of $20.8 million was $12.2 million better than the $33.0 million loss
recorded during the same period in 1997.
Steel Making Segment. The Steel Making Segment recorded a $38.5 million loss
from operations in the first nine months of 1998, which was $14.5 million better
than the loss recorded in the comparable period in 1997.
The decreased loss in the first nine months of 1998 as compared to 1997 was due
to increased flat rolled shipments combined with lower operating costs. The
decrease in operating costs resulted from improved efficiency and increased
production utilization at the New Facility along with the shut-down of Acme
Steel's old ingot based primary rolling and hot-strip mill in mid-year 1997.
25
<PAGE> 26
Approximately 76 percent of steel shipments and 69 percent of gross margin in
1998 was attributable to external customers, as compared to 65 percent of
shipments and 55 percent of gross margin in the prior year. The remainder of
sales in both periods was generated by sales to the Steel Fabricating Segment.
(See "Outlook-Operating Losses")
Steel Fabricating Segment. The Steel Fabricating Segment's operating income
of $17.7 million for the first nine months of 1998 was $2.4 million lower than
in last year's comparable period. The absence of Universal primarily accounted
for the change.
INTEREST INCOME. Interest income for the first nine months of 1998 totaled $0.9
million, compared to $0.5 million in the first nine months of 1997.
INTEREST EXPENSE. Interest expense of $32.7 million for the first nine months
of 1998 increased $2.5 million as compared to the same period of the prior year.
The increase resulted principally from additional long-term debt, partially
offset by lower interest rates.
INCOME TAXES. As a result of the losses incurred to date, the related negative
effect on the Company's overall liquidity position and the Chapter 11 filing on
September 28, 1998, the Company recorded a valuation allowance against its
entire net deferred assets.
NET LOSS. The Company recorded a loss of $103.0 million, or $8.82 per share in
the first nine months of 1998 versus a $39.2 million loss, or $3.37 per share,
recorded in the first nine months of 1997. Without the deferred tax asset
adjustment and with a tax benefit for losses incurred, the Company would have
recorded a $26.3 million, or $2.25 per share net loss. Per share amounts for
1998 and 1997 are based on the weighted average number of common shares and
dilutive common equivalent shares outstanding during the nine-month periods
(11,672,654 in 1998 and 11,628,556 in 1997).
LIQUIDITY AND CAPITAL RESOURCES
At the end of the third quarter, the Company's cash and cash equivalents balance
was $13.4 million, up $6.9 million from the December 28, 1997 balance.
Operating activities provided $17.9 million of cash in the first nine months of
1998 primarily due to a combination of the receipt of an income tax refund, a
reduction of inventory levels, and decreased receivables.
Capital expenditures totaled $35.8 million in the first nine months of 1998.
Capital expenditures were primarily for the Alpha Tube Facility, the plastic
strapping lines, update of the management information systems, and the
replacement and rehabilitation of various production facilities.
Working capital of $44.5 million at the end of the third quarter of 1998 was
$47.6 million lower than the year-end 1997 balance. The Company is currently
finalizing a DIP Financing Agreement which provides each operating subsidiary
borrowing availability with an overall limitation of $100 million.
The Company's current liquidity requirements include working capital needs, cash
interest payments on DIP Financing Agreement, capital investments, and may
include certain adequate
26
<PAGE> 27
protection payments. At September 27, 1998, the Company had no outstanding
borrowings against its Working Capital Facility which will be entirely replaced
by the DIP Financing Agreement. The Company intends to finance its current
operating and investing activities with existing cash balances, cash from
operations and, if necessary, by borrowing from its DIP Financing Agreement.
Although the Company believes the anticipated cash used for future operations
and borrowings under the DIP Financing Agreement will provide sufficient
liquidity for the Company to meet its debt service requirements and fund ongoing
operations, including required capital expenditures, there can be no assurance
these or other possible sources will be adequate. (See "Operating Losses")
YEAR 2000 COMPLIANCE. The Company and each of its operating subsidiaries are in
the process of implementing and executing a Year 2000 assessment with the
objective of having all of their significant business systems, including those
that affect facilities and manufacturing activities, functioning properly with
respect to the Year 2000 issue before January 1, 2000. As part of this
assessment, significant service providers, vendors, suppliers and customers that
are believed to be critical to business operations after January 1, 2000, have
been identified and steps are being undertaken in an attempt to reasonably
ascertain their stage of Year 2000 readiness through questionnaires, interviews,
on-site visits and other available means.
The Company has implemented a Year 2000 compliant SAP business system at Acme
Metals and its Acme Steel and Acme Packaging subsidiaries. The proposed
implementation of a Year 2000 compliant business system at Alpha Tube is
expected to cost approximately $2.0 million. Costs to update other production
software and hardware are not expected to be material to the Company.
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. The Company believes
that, with the implementation of new business systems and the completion of its
Year 2000 assessment as scheduled, the possibility of significant interruptions
of normal operations should be reduced.
STEEL MAKING SEGMENT. The Steel Making Segment is seeing signs of continued
price pressure and a softer order book in the steel markets as imports and
domestic supplies continue to increase.
Customers and Product Mix. During the first nine months of 1998, Acme Steel
experienced a substantial reduction in the average selling price per ton for
sales to external customers due to competitive pressures and a substantial
reduction in orders from its traditional higher margin niche customers in the
markets for high- and mid-carbon, alloy, HSLA and processed valued-added
products. Additionally, increased imports selling at below market prices
adversely affected Acme Steel sales. Acme Steel continues working to improve its
operating levels and performance.
Operating Losses. It is unlikely that Acme Steel will achieve the production and
performance levels necessary to achieve profits for the remainder of 1998.
STEEL FABRICATING SEGMENT. For 1998, Steel Fabricating Segment earnings
(excluding Universal) are expected to remain relatively steady. Alpha Tube has
completed the relocation and consolidation of its tube mills. The consolidation
project will improve material handling capability,
27
<PAGE> 28
provide increased capacity of large diameter tubing and lower operating costs.
Acme Packaging has completed the new plastic strapping lines and has begun to
sell commercial product.
FORWARD LOOKING STATEMENTS:
Actual events might materially differ from those projected in the above forward
looking statements. Reference is made to "Forward Looking Statements" in Item 7
of the Company's Report on Form 10-Q for the quarterly period ended June 28,
1998. In addition, the Company may be adversely impacted as a result of its
status as DIP pursuant to Chapter 11 of U.S. Bankruptcy Code, or if it is unable
to conclude final agreements and Court approval of the DIP Financing Agreement.
There can be no assurances the results of these factors will conform with the
Company's assumptions and projections. If one or more of these factors fails to
meet the Company's projections, the adverse impact on the Company's business and
financial results could be significant. Similarly, in the event the Company's
assumptions and projections are too conservative, the Company's performance may
exceed these forecasts.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information", issued in June 1997, established standards for reporting
information about operating segments in annual financial statements and interim
financial reports. It also establishes standards fro related disclosures about
products and service, geographic areas and major customers. Operating segments
are components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. Generally,
financial information is required to be reported on the basis that is used
internally for evaluating segment performance and deciding how to on the basis
that is used internally for evaluating segment performance and deciding how to
allocate resources to segments. The Company is currently evaluating its
disclosure requirements and expects to adopt this standard in its financial
statements for the year ending December 27, 1998.
28
<PAGE> 29
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS
(a) Exhibit 10.1 - DIP Commitment Letter and attached Term Sheet
(incorporated by reference to the Company's Report on Form 10-Q for the
quarter ended September 27, 1998 filed with the Securities and Exchange
Commission on November 12, 1998)
Exhibit 15 - Letter regarding unaudited interim financial information
Exhibit 27 - Financial data schedule
(b) Reports on Form 8-K
Report on Form 8-K filed on October 8, 1998 reported the voluntary
filing by the Company for protection under Chapter 11 of the Federal
Bankruptcy Code in the United State Bankruptcy Court for the District of
Delaware.
29
<PAGE> 30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACME METALS INCORPORATED
Date: November 10, 1998 By: /s/ Jerry F. Williams
------------------------------------------
Jerry F. Williams
Vice President - Finance and
Administration and Chief Financial
Officer
(Principal Financial Officer)
By: /s/ Derrick T. Bay
------------------------------------------
Derrick T. Bay
Controller and Chief Accounting
Officer
(Principal Accounting Officer)
30
<PAGE> 31
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: December 16, 1998 By: /s/ Derrick T. Bay
---------------------------------
Derrick T. Bay
Controller and Chief Accounting
Officer
(Principal Accounting Officer)
<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
November 10, 1998 (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/ PricewaterhouseCoopers LLP
- ----------------------------------
PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
November 10, 1998
31
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED CONSOLIDATED BALANCE SHEETS AT SEPTEMBER 27, 1998 AND
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 27, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-27-1998
<PERIOD-START> DEC-27-1997
<PERIOD-END> SEP-27-1998
<CASH> 13,390
<SECURITIES> 0
<RECEIVABLES> 54,646
<ALLOWANCES> (1,377)
<INVENTORY> 75,687
<CURRENT-ASSETS> 144,280
<PP&E> 899,902
<DEPRECIATION> (342,285)
<TOTAL-ASSETS> 742,134
<CURRENT-LIABILITIES> 26,176
<BONDS> 233,463
0
0
<COMMON> 11,676
<OTHER-SE> 72,106
<TOTAL-LIABILITY-AND-EQUITY> 742,134
<SALES> 372,795
<TOTAL-REVENUES> 372,795
<CGS> 365,014
<TOTAL-COSTS> 393,627
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32,678
<INCOME-PRETAX> (40,356)
<INCOME-TAX> 62,618
<INCOME-CONTINUING> (102,974)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (102,974)
<EPS-PRIMARY> (8.82)
<EPS-DILUTED> (8.82)
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