<PAGE> 1
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended September 26, 1999 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 outstanding as of November 8, 1999, 11,647,471.
================================================================================
<PAGE> 2
<TABLE>
<CAPTION>
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)
For the Three Months Ended For the Nine Months Ended
-------------------------- -------------------------
September 26, September 27, September 26, September 27,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $ 118,362 $ 103,460 $ 346,651 $ 372,795
COSTS AND EXPENSES:
Cost of products sold ............................... 113,473 98,777 317,223 337,259
Depreciation expense ................................ 9,746 9,224 28,957 27,755
----------- ----------- ----------- -----------
Gross margin ............................................ (4,857) (4,541) 471 7,781
Selling and administrative expense .................. 8,670 9,278 28,174 28,613
----------- ----------- ----------- -----------
Operating loss............................................ (13,527) (13,819) (27,703) (20,832)
NON-OPERATING INCOME (EXPENSE):
Interest expense .................................... (5,725) (10,931) (17,642) (32,678)
Interest expense-income taxes........................ (10,000) (10,000)
Interest income...................................... 98 268 273 897
Reorganization charges under
Chapter 11 Bankruptcy.............................. (1,582) (5,910)
Other - net ......................................... 1,241 12,257
----------- ----------- ------------ -----------
Loss before income taxes ................................. (30,736) (24,482) (59,741) (40,356)
Income tax provision...................................... 78 68,174 216 62,618
----------- ----------- ----------- -----------
Net loss ............................................ $ (30,814) $ (92,656) $ (59,957) $ (102,974)
=========== =========== =========== ===========
LOSS PER SHARE:
BASIC:
Net loss ........................................ $ (2.64) $ (7.94) $ (5.14) $ (8.82)
=========== ============ ============ ============
Weighted average outstanding shares.............. 11,653,668 11,676,425 11,662,110 11,672,654
=========== ============ ============ ============
DILUTED:
Net loss ........................................ $ (2.64) $ (7.94) $ (5.14) $ (8.82)
=========== ============ ============ ============
Weighted average outstanding shares.............. 11,653,668 11,676,425 11,662,110 11,672,654
============ ============ ============ ============
The accompanying notes are an integral part of this financial statement.
2
</TABLE>
<PAGE> 3
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
(Unaudited)
September 26, December 27,
1999 1998
---- ----
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................................................ $ 7,350 $ 18,869
Accounts receivable trade, less allowances of $1,161 and $1,278, respectively............ 57,264 48,597
Inventories.............................................................................. 76,712 75,664
Other current assets..................................................................... 7,070 4,733
-------- --------
Total current assets.................................................................. 148,396 147,863
-------- --------
INVESTMENTS AND OTHER ASSETS:
Investments in associated companies...................................................... 20,758 19,157
Other assets............................................................................. 17,316 19,640
-------- --------
Total investments and other assets.................................................... 38,074 38,797
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment............................................................ 884,285 902,000
Accumulated depreciation................................................................. (365,129) (351,572)
-------- --------
Total property, plant and equipment................................................... 519,156 550,428
-------- --------
$705,626 $737,088
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable......................................................................... $ 29,743 $ 14,690
Accrued expenses......................................................................... 44,091 37,886
-------- --------
Total current liabilities............................................................. 73,834 52,576
-------- --------
LONG-TERM LIABILITIES:
Long-term debt........................................................................... 233,370 233,463
Postretirement benefits other than pensions.............................................. 100,300 97,974
Retirement benefit plans................................................................. 19,212 19,363
-------- --------
Total long-term liabilities........................................................... 352,882 350,800
-------- --------
LIABILITIES SUBJECT TO COMPROMISE........................................................... 301,923 296,074
-------- --------
Commitments and contingencies (Note)
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, 11,647,471 and
11,674,634 shares issued and outstanding, respectively................................... 11,647 11,675
Additional paid-in capital............................................................... 165,285 165,951
Accumulated deficit...................................................................... (166,220) (106,263)
Accumulated other comprehensive loss..................................................... (33,725) (33,725)
-------- -------
Total shareholders' equity (deficit).................................................. (23,013) 37,638
-------- --------
$705,626 $737,088
======== ========
</TABLE>
The accompanying notes are an integral part of this financial 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 26, September 27,
1999 1998
-------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss......................................................................... $ (59,957) $ (102,974)
ADJUSTMENTS TO RECONCILE NET LOSS TO
NET CASH FROM OPERATING ACTIVITIES:
Net loss (gain) on sale and/or abandonment of assets...................... 6,078 (12,257)
Depreciation.............................................................. 30,363 28,633
Interest expense-income taxes............................................. 10,000
Deferred income taxes..................................................... 62,618
CHANGE IN OPERATING ASSETS AND LIABILITIES:
Accounts receivable................................................ (8,667) 9,860
Income tax receivable.............................................. 66 24,706
Inventories........................................................ (1,048) 7,247
Accounts payable .................................................. 6,062 (8,495)
Other current accounts............................................. 3,802 11,880
Liabilities subject to compromise.................................. (4,151)
Other, net................................................................ 2,202 (2,876)
----------- -----------
Net cash (used for) provided by operating activities............................. (15,250) 18,342
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of assets................................................. 1,928
Capital expenditures............................................................. (7,190) (23,025)
----------- -----------
Net cash used for investing activities........................................... (5,262) (23,025)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of long-term debt........................................................ (1,250)
Proceeds from sale of assets..................................................... 18,000
Borrowings under revolving credit line agreement................................. 129,750
Repayment of revolving credit line agreement..................................... (134,750)
Payment of capital lease......................................................... (131)
Draw from letter of credit....................................................... 8,993
----------- -----------
Net cash provided by financing activities........................................ 8,993 11,619
----------- -----------
Net increase (decrease) in cash and cash equivalents............................. (11,519) 6,936
Cash and cash equivalents at beginning of period................................. 18,869 6,454
----------- -----------
Cash and cash equivalents at end of period....................................... $ 7,350 $ 13,390
=========== ===========
</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
BANKRUPTCY PROCEEDINGS:
On September 28, 1998, Acme Metals Incorporated ("Acme Metals") and its
principal direct and indirect subsidiary companies (Acme Steel Company ("Acme
Steel"), Acme Packaging Corporation ("Acme Packaging"), Alpha Tube Corporation
("Alpha Tube"), Alabama Metallurgical Corporation ("Alabama Metallurgical"), and
Acme Steel Company International, Inc., ("Acme Steel International")) filed
separate voluntary petitions for protection and reorganization under Chapter 11
of Title 11 ("Chapter 11") of the United States Code (the "Bankruptcy Code") in
the United States Bankruptcy Court for the District of Delaware ("Bankruptcy
Court") as previously described in Item I. under the heading "Chapter 11
Bankruptcy Filings" on page 3 of the Company's Annual Report on Form 10-K for
the year ended December 27, 1998 ("1998 Form 10-K"). These bankruptcy
proceedings are collectively referred to as "Chapter 11 Bankruptcy" herein. As a
result of the Chapter 11 Bankruptcy, all of the Company's obligations were
stayed. Without Bankruptcy Court approval, the Company cannot pay pre-petition
obligations. Reference is made to "Liquidity and Capital Resources" beginning on
page 25 for a description of the Loan and Security Agreement with Bank of
America ("DIP Financing Agreement") entered into on December 18, 1998.
Although the Chapter 11 Bankruptcy raises substantial doubt about the Company's
ability to continue as a going concern, the accompanying consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles applicable to a company on a going-concern basis which contemplates
the continuity of operations, realization of assets and the liquidation of
liabilities in the ordinary course of business. As a result of the Chapter 11
Bankruptcy, realization of assets and liquidation of liabilities are subject to
significant uncertainties. Specifically, the financial statements do not present
the amount which will be paid to settle liabilities and contingencies which may
be allowed in Chapter 11 Bankruptcy reorganization cases. Also the consolidated
financial statements do not reflect (a) adjustments to assets and liabilities
which may occur in accordance with generally accepted accounting principles
Statement of Position 90-7 Financial Reporting by Entities in Reorganization
under the Bankruptcy Code (SoP 90-7) following the confirmation of a plan of
reorganization or (b) the realizable value of assets which would be required to
be recorded if the Company presents a plan which contemplates the disposal of
all or portions of its assets and operations. The filing of a plan of
reorganization could materially effect the carrying value of the assets and
liabilities currently disclosed in the consolidated financial statements.
The consolidated financial statements include adjustments and reclassifications
to reflect liabilities as "Liabilities Subject to Compromise" under the Chapter
11 Bankruptcy. Certain pre-petition liabilities have been approved for payment
by the Bankruptcy Court, such as employee wages and benefits, and specified
pre-petition obligations to vendors, customers and taxing authorities.
5
<PAGE> 6
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Since the filing of the consolidated 1998 Form 10-K, the Alpha Tube subsidiary
has reached an agreement with its Official Creditors' Committee, subject to
approval of the Bankruptcy Court and other interested parties, to pay
pre-petition trade debt. The payment of claims would depend on, among other
conditions, the acceptance by 90 percent in value of trade claims and would
provide for payment at 85 percent of allowed claims, capped at an aggregate
payment of $6.0 million. The payment would be made in two equal installments,
the first, five business days after Bankruptcy Court approval and the second,
four months later.
Additionally, during the third quarter of 1999, Alpha Tube and the Official
Creditors' Committee came to an agreement concerning the settlement of
reclamation claims. With the Bankruptcy Court's approval, Alpha Tube paid $0.5
million representing 90 percent of the total reclamation claims.
BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements for Acme Metals
include its wholly owned operating subsidiaries, Acme Steel, Acme Packaging, and
Alpha Tube, hereinafter collectively referred to as "the Company," for the
periods ended September 26, 1999 and September 27, 1998. The statements should
be read in conjunction with the audited financial statements included in the
Company's 1998 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.
Certain prior year amounts have been reclassified to conform to the current
year's presentation.
The Company's fiscal year ends on December 26, 1999 and will contain 52 weeks.
Third quarter results for 1999 and 1998 each cover 13-week periods.
6
<PAGE> 7
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
INVENTORIES:
Inventories, as determined on the last-in, first-out method:
<TABLE>
<CAPTION>
September 26, December 27,
1999 1998
------------- -------------
(unaudited)
(in thousands)
<S> <C> <C>
Raw materials............................. $ 17,700 $ 18,343
Semi-finished and finished products....... 52,800 50,607
Supplies.................................. 6,212 6,714
------------ -------------
$ 76,712 $ 75,664
============= =============
</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 Bankruptcy Filings on
September 28, 1998, the Company recorded a valuation allowance in 1998 against
its entire net deferred tax assets. The Company continued to fully reserve any
net deferred tax assets incurred in the first three quarters of 1999.
ABANDONMENT OF ASSETS:
In July of 1999, Acme Steel reached agreement with its labor unions to close
down substantially all of its cold mill finishing operations in Riverdale and
during the third quarter management approved and committed to a plan for the
abandonment of the related assets operations. This decision was pursuant to a
plan to rationalize its assets and take advantage of more efficient operations
available from an outsourced basis. Substantially all cold mill operations
ceased at Acme Steel during the third quarter with only minor run-out operations
occurring until complete shut down, which is expected in the fourth quarter of
fiscal 1999. The equipment and building will be abandoned, there being no market
for the outdated equipment, and written down to net realized value. This
decision resulted in a write down of $7.7 million recorded as an increase in
cost of products sold. Annual depreciation and amortization on the equipment,
buildings and assets abandoned aggregated $0.9 million.
7
<PAGE> 8
<TABLE>
<CAPTION>
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
LONG-TERM DEBT:
The Company's long-term debt not recorded as "Liabilities Subject to Compromise:"
<S> <C> <C>
September 26, December 27,
1999 1998
------------- -------------
(unaudited)
(in thousands)
Senior Secured Credit Agreement................................... $174,250 $174,250
12.5 percent Senior Secured Notes................................. 17,623 17,623
13.5 percent Senior Secured Discount Notes........................ 669 669
Environmental Improvement Bonds 7.95 percent...................... 11,345 11,345
Environmental Improvement Bonds 7.90 percent...................... 8,585 8,585
Walbridge Facility................................................ 14,700 14,700
Other long-term debt.............................................. 6,198 6,291
------------- -------------
$233,370 $233,463
============= =============
As a result of the Chapter 11 Bankruptcy proceedings, all of the long-term debt
was in default as of the Bankruptcy filing date. Scheduled principal payments on
debt including capital lease obligations, which have not been made during the
post-petition period, totaled $2.0 million. The reduction in the long-term debt
balance from December 27, 1998 results from balance sheet reclassifications, not
payments.
LIABILITIES SUBJECT TO COMPROMISE:
Items classified as "Liabilities Subject to Compromise:"
September 26, December 27,
1999 1998
------------- -------------
(unaudited)
(in thousands)
Accounts payable.................................................... $ 58,928 $ 56,532
Accrued interest.................................................... 6,094 6,094
Accrued utilities................................................... 2,413
Bond payable and other related liability............................ 2,488 2,503
Other accrued liabilities........................................... 2,039 2,340
Taxes other than income............................................. 1,728 5,567
Note payable........................................................ 5,500 5,500
10.875 percent Senior Unsecured Notes, net of discount.............. 198,682 198,656
Other long-term liabilities......................................... 26,464 16,469
------------- -------------
$ 301,923 $ 296,074
============= =============
</TABLE>
8
<PAGE> 9
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
CASH FLOWS:
Cash payments for Bankruptcy Court approved adequate protection payments on
secured debt were $16.2 million during the first nine months of 1999 and
interest payments of $23.0 million were made in the first nine months of 1998.
COMMITMENTS AND CONTINGENCIES:
The Company is subject to various commitments and contingencies as previously
described in the Company's 1998 Form 10-K. To date, the Company has neither
assumed nor rejected any material executory contracts.
As disclosed under the "Environmental" subheading on page 9 of the Company's
1998 Form 10-K, the Company is subject to numerous federal, state, and local
laws and regulations concerning environmental matters and may be involved in
administrative or judicial proceedings with various environmental regulatory
agencies. In August 1999, Region V of the United States Environmental Protection
Agency ("U.S. EPA") served the Company with an administrative complaint alleging
hazardous waste containment violations at Acme Steel's coke plant. Included in
the complaint is a $1.6 million proposed fine. The Company is currently in
negotiations with the U.S. EPA to both cost effectively resolve the alleged
violation and to reduce or eliminate the proposed fine. The Company cannot
estimate the outcome of the negotiations but expects the fine to be eliminated
or substantially reduced. Any fine would be considered a prepetition liability
and would not be paid until Bankruptcy Court approval.
On March 18, 1999, the U.S. Tax Court entered judgment in the case of The
Interlake Corporation, et. al. v. Commissioner of Internal Revenue. The U.S. Tax
Court held the Company's authority to act for the affiliated group terminated
and the Company was not an authorized recipient of the $6.7 million refund it
received in 1987 and the Internal Revenue Service ("IRS") cannot seek recovery
from Interlake of the refund issued to the Company. The statutory period for
appeals expired September 30, 1999 and the IRS did not appeal this decision.
9
<PAGE> 10
As a result of the Tax Court opinion, the expiration of the statutory appeals
period, and the IRS advising the Company that it intends to proceed against the
Company to recover the $6.7 million plus interest, in the third quarter the
Company has recognized as income tax related interest charge of $10.0 million
as other long-term liability subject to compromise. The Company believes it has
defenses against this claim and will defend itself against any such action by
the IRS. In the event of an unfavorable outcome with the IRS, the Company will
vigorously purse all remedies against third parties, including Interlake
Corporation pursuant to the 1986 Tax Idemnification Agreement.
Upon spin-off from Interlake Corporation in 1986, the Company entered into a Tax
Idemnification Agreement with Interlake Corporation, which generally provides
tax sharing arrangements related to prespin-off taxes. The Company currently
believes amounts are owed by Interlake Corporation pursuant to the Tax
Idemnification Agreement.
Also refer to Merging The Interlake Corporation and GKN North American
Manufacturing Inc., Notes to Consolidated Financial Statements, as reported on
page 50 of the Company's 1998 Form 10-K.
There have been no further actions to prevent Acme Steel from drawing on the
letter of credit as described under the heading "Commitments and Contingencies"
on page 8 of the Company's Form 10-Q for the period ending June 27, 1999
occurred during the third quarter of 1999.
BUSINESS SEGMENTS:
As previously disclosed in the Company's 1998 Form 10-K, the Company presents
its operations in two segments, Steel Making and Steel Fabricating.
10
<PAGE> 11
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(dollars in thousands)
Unaudited operating segment information based on operating income:
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
------------------------------- --------------------------------
September 26, September 27, September 26, September 27,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
STEEL MAKING:
Sales to unaffiliated customers....... $ 61,670 $ 44,482 $177,003 $188,794
Intersegment sales.................... 21,359 22,271 59,327 67,039
-------- -------- -------- --------
Net sales........................... $ 83,029 $ 66,753 $236,330 $255,833
======== ======== ======== ========
Depreciation.......................... $ 8,564 $ 8,508 $ 25,696 $ 25,475
Loss from operations.................. (18,283) (19,209) (43,077) (38,507)
Total assets.......................... 545,377 653,654 545,377 653,654
Capital expenditures.................. 1,676 5,504 3,767 10,612
Operating data (in tons)
Steel production (hot band)......... 251,585 166,963 757,815 619,554
Steel shipments (flat rolled)....... 247,920 161,806 719,067 627,232
STEEL FABRICATING:
Sales to unaffiliated customers....... $ 56,692 $ 58,978 $169,648 $184,001
Intersegment sales.................... 226 157 551 547
-------- -------- -------- --------
Net sales........................... $ 56,918 $ 59,135 $170,199 $184,548
======== ======== ======== ========
Depreciation.......................... $ 1,497 $ 1,166 $ 4,076 $ 3,104
Income from operations................ 4,756 5,390 15,374 17,675
Total assets.......................... 123,239 112,578 123,239 112,578
Capital expenditures.................. 1,500 15,075 3,887 24,054
</TABLE>
11
<PAGE> 12
<TABLE>
<CAPTION>
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(dollars in thousands)
Reconciliation of the unaudited segment information to the Company's unaudited consolidated financial statements:
For the Three Months Ended For the Nine Months Ended
-------------------------- -------------------------
September 26, September 27, September 26, September 27,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales:
Steel Making................................ $ 83,029 $ 66,753 $ 236,330 $ 255,833
Steel Fabricating........................... 56,918 59,135 170,199 184,548
Intersegment sales.......................... (21,585) (22,428) (59,878) (67,586)
---------- --------- --------- ---------
$ 118,362 $ 103,460 $ 346,651 $ 372,795
========== ========= ========= =========
Income (loss) before income taxes and extraordinary
loss:
Operating income (loss):
Steel Making............................ $ (18,283) $ (19,209) $ (43,077) $ (38,507)
Steel Fabricating....................... 4,756 5,390 15,374 17,675
----------- --------- --------- ---------
(13,527) (13,819) (27,703) (20,832)
Less:
Interest expense........................ (5,725) (10,931) (17,642) (32,678)
Interest expense-income taxes........... (10,000) (10,000)
Reorganization charges under
Chapter 11 Bankruptcy................ (1,582) (5,910)
Add:
Interest income......................... 98 268 273 897
Gain from sale of assets................ 1,241 12,257
----------- --------- --------- ---------
Loss before income taxes............. $ (30,736) $ (24,482) $ (59,741) $ (40,356)
----------- --------- --------- ---------
Total assets:
Steel Making................................ $ 545,377 $ 653,654 $ 545,377 $ 653,654
Steel Fabricating........................... 123,239 112,578 123,239 112,578
Corporate................................... 37,010 37,043 37,010 37,043
---------- --------- --------- ---------
$ 705,626 $ 803,275 $ 705,626 $ 803,275
========== ========= ========= =========
</TABLE>
12
<PAGE> 13
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, as issuer, and Acme Steel, 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"). In June 1998, Acme Metals registered the Senior Unsecured Notes under
the Act.
For purposes of preparation of these guarantor statements, the $10.0 million
interest expense-income taxes recorded in third quarter of fiscal 1999 has been
reflected in the financial statements of the parent.
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 26, 1999
---------------------------------------------------------------------
Subsidiary
Subsidiary Non Total
Parent Guarantor Guarantors Eliminations Consolidated
--------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales $ $ 83,029 $ 56,918 $ (21,585) $ 118,362
Costs and expenses 97,337 47,467 (21,585) 123,219
--------- --------- -------- ---------- -----------
Gross margin (14,308) 9,451 (4,857)
Selling and administrative expense 3,975 4,695 8,670
--------- --------- -------- ---------- -----------
Operating income (loss) (18,283) 4,756 (13,527)
Reorganization charges under
Chapter 11 Bankruptcy (439) (814) (329) (1,582)
Net interest income (expense) and other (15,621) (510) 504 (5,627)
--------- --------- -------- ---------- -----------
Income (loss) before income taxes (16,060) (19,607) 4,931 (20,736)
Income tax provision (benefit) (1,517) 1,595 78
--------- --------- -------- ---------- -----------
Net income (loss) before equity
adjustment (14,543) (19,607) 3,336 (30,814)
Equity loss in subsidiaries (16,271) 16,271
--------- --------- -------- ------------ -----------
Net income (loss) $ (30,814) $ (19,607) $ 3,336 $ 16,271 $ (30,814)
========= ========= ======== ============ ===========
</TABLE>
13
<PAGE> 14
ACME METALS INCORPORATED
(Debtor-in-Possession)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands)
<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
Costs and expenses 81,297 49,132 (22,428) 108,001
--------- --------- --------- ---------- ---------
Gross margin (14,544) 10,003 (4,541)
Selling and administrative 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
--------- --------- --------- ---------- ---------
(22,003) (63,934) (6,719) (92,656)
Equity loss in subsidiaries (70,653) 70,653
--------- --------- --------- ---------- ---------
Net income (loss) $ (92,656) $ (63,934) $ (6,719) $ 70,653 $ (92,656)
========= ========= ========= ========== =========
</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 26, 1999
---------------------------------------------------------------------
Subsidiary
Subsidiary Non Total
Parent Guarantor Guarantors Eliminations Consolidated
--------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales $ $ 236,330 $ 170,199 $ (59,878) $ 346,651
Costs and expenses 266,059 139,999 (59,878) 346,180
--------- --------- --------- ---------- ---------
Gross margin (29,729) 30,200 471
Selling and administrative expense 13,348 14,826 28,174
--------- --------- --------- ---------- ---------
Operating income (loss) (43,077) 15,374 (27,703)
Reorganization charges under
Chapter 11 Bankruptcy (1,354) (2,523) (2,033) (5,910)
Net interest income (expense) and other (26,427) (1,287) 1,586 (26,128)
--------- --------- --------- ---------- ---------
Income (loss) before income taxes (27,781) (46,887) 14,927 (59,741)
Income tax provision (benefit) (4,988) 5,204 216
--------- --------- --------- ---------- ---------
Net income (loss) before equity
adjustment (22,793) (46,887) 9,723 (59,957)
Equity loss in subsidiaries (37,164) 37,164
--------- --------- --------- ---------- ---------
Net income (loss) $ (59,957) $ (46,887) $ 9,723 $ 37,164 $ (59,957)
========= ========= ========= ========== =========
</TABLE>
15
<PAGE> 16
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
Costs and expenses 279,476 153,124 (67,586) 365,014
--------- --------- --------- ---------- ----------
Gross margin (23,643) 31,424 7,781
Selling and administrative 14,864 13,749 28,613
--------- --------- --------- ---------- ----------
Operating income (loss) (38,507) 17,675 (20,832)
Net interest income (expense) and other 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
--------- --------- --------- ---------- ----------
(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>
16
<PAGE> 17
ACME METALS INCORPORATED
(Debtor-in-Possession)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands)
<TABLE>
<CAPTION>
As of September 26, 1999
---------------------------------------------------------------------
Subsidiary
Subsidiary Non Total
ASSETS Parent Guarantor Guarantors Eliminations Consolidated
--------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 7,350 $ $ $ $ 7,350
Accounts receivable, net 411 26,926 29,927 57,264
Inventories 48,370 30,106 (1,764) 76,712
Other current assets 707 5,740 623 7,070
Due to (from) affiliates 471,345 (30,608) 30,422 (471,159)
--------- ---------- ---------- ---------- -----------
Total current assets 479,813 50,428 91,078 (472,923) 148,396
--------- ---------- ---------- ---------- -----------
INVESTMENTS AND OTHER ASSETS:
Investments in associated companies (46,243) 21,522 45,479 20,758
Other assets 12,314 3,417 1,585 17,316
--------- ---------- ---------- ---------- -----------
Total investments and other assets (33,929) 24,939 1,585 45,479 38,074
--------- ---------- ---------- ---------- -----------
PROPERTY, PLANT AND EQUIPMENT-Net: 14,363 470,577 34,216 519,156
--------- ---------- ---------- ---------- -----------
$ 460,247 $ 545,944 $ 126,879 $ (427,444) $ 705,626
========= ========== ========== ========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 15,607 $ 44,387 $ 10,154 $ $ 70,148
--------- ---------- ---------- ---------- -----------
Total current liabilities 15,607 44,387 10,154 70,148
--------- ---------- ---------- ---------- -----------
LONG-TERM LIABILITIES:
Long-term debt 233,370 233,370
Other long-term liabilities 5,414 5,414
Post-retirement benefits other than pensions 1,578 83,989 14,733 100,300
Retirement benefit plans 2,394 17,672 (854) 19,212
--------- ---------- ---------- ---------- -----------
Total long-term liabilities 237,342 107,075 13,879 358,296
--------- ---------- ---------- ---------- -----------
LIABILITIES SUBJECT TO COMPROMISE: 230,311 495,153 48,418 (473,687) 300,195
--------- ---------- ---------- ---------- -----------
SHAREHOLDERS' EQUITY (DEFICIT): (23,013) (100,671) 54,428 46,243 (23,013)
--------- ---------- ---------- ---------- -----------
$ 460,247 $ 545,944 $ 126,879 $ (427,444) $ 705,626
========= ========== ========== ========== ===========
</TABLE>
17
<PAGE> 18
ACME METALS INCORPORATED
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(dollars in thousands)
<TABLE>
<CAPTION>
As of December 27, 1998
---------------------------------------------------------------------
Subsidiary
Subsidiary Non Total
ASSETS Parent Guarantor Guarantors Eliminations Consolidated
--------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 18,457 $ $ 412 $ $ 18,869
Accounts receivable, net (7) 18,690 29,914 48,597
Inventories 49,076 28,352 (1,764) 75,664
Other current assets 949 3,474 310 4,733
Due to (from) affiliates 469,351 (17,317) 20,084 (472,118)
--------- ---------- ---------- ----------- -----------
Total current assets 488,750 53,923 79,072 (473,882) 147,863
--------- ---------- ---------- ----------- -----------
INVESTMENTS AND OTHER ASSETS:
Investments in associated companies (9,079) 19,157 9,079 19,157
Other assets 14,125 3,792 1,723 19,640
--------- ---------- ---------- ----------- -----------
Total investments and other assets 5,046 22,949 1,723 9,079 38,797
--------- ---------- ---------- ----------- -----------
PROPERTY, PLANT AND EQUIPMENT- Net: 15,603 500,144 34,681 550,428
--------- ---------- ---------- ----------- -----------
$ 509,399 $ 577,016 $ 115,476 $ (464,803) $ 737,088
========= ========== ========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 14,238 $ 30,274 $ 8,064 $ $ 52,651
--------- ---------- ---------- ----------- -----------
Total current liabilities 14,238 30,274 8,064 52,651
--------- ---------- ---------- ----------- -----------
LONG-TERM LIABILITIES:
Long-term debt 233,463 233,463
Post-retirement benefits other than pensions 1,593 82,007 14,374 97,974
Retirement benefit plans 2,423 17,454 (514) 19,363
--------- ---------- ---------- ----------- -----------
Total long-term liabilities 237,479 99,461 13,860 350,800
--------- ---------- ---------- ----------- -----------
LIABILITIES SUBJECT TO COMPROMISE: 220,044 501,065 48,847 (473,882) 296,074
--------- ---------- ---------- ----------- -----------
SHAREHOLDERS' EQUITY (DEFICIT): 37,638 (53,784) 44,705 9,079 37,638
--------- ---------- ---------- ----------- -----------
$ 509,399 $ 577,016 $ 115,476 $ (464,803) $ 737,088
========= ========== ========== =========== ===========
</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 26, 1999
---------------------------------------------------------------------
Subsidiary
Subsidiary Non Total
Parent Guarantor Guarantors Eliminations Consolidated
--------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
NET CASH FLOWS (USED FOR) PROVIDED BY
OPERATING ACTIVITIES $ (11,107) $ (5,690) $ 1,547 $ $ (15,250)
--------- ---------- --------- ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of assets 1,928 1,928
Capital expenditures (3,303) (3,887) (7,190)
--------- ---------- --------- ------------ -----------
Net cash used for investing activities (3,303) (1,959) (5,262)
--------- ---------- --------- ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Other 8,993 8,993
--------- ---------- --------- ------------ -----------
Net cash provided by financing activities 8,993 8,993
--------- ---------- --------- ------------ -----------
Net decrease in cash and cash equivalents (11,107) (412) (11,519)
Cash and cash equivalents at
beginning of period 18,457 412 18,869
--------- ---------- --------- ------------ -----------
Cash and cash equivalents at
end of period $ 7,350 $ $ $ $ 7,350
========= ========== ========= ============ ===========
</TABLE>
19
<PAGE> 20
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 $ (6,832) $ 19,458 $ 5,716 $ $ 18,342
--------- ---------- --------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Reclassification to restricted cash -
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:
Payment of long-term debt (750) (500) (1,250)
Borrowings under revolving credit agreement 129,750 129,750
Repayments of revolving credit agreement (134,750) (134,750)
Proceeds from assets held for sale 18,000 18,000
Payment of capital lease (131) (131)
Payment of intercompany dividend 20,780 (20,780)
--------- ---------- --------- ------------ ------------
Net cash (used for) provided by 20,030 (5,500) (2,911) 11,619
financing activities --------- ---------- --------- ------------ ------------
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>
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 26,
1999, and the related consolidated statements of operations for each of the
three and nine-month periods ended September 26, 1999 and September 27, 1998,
and the consolidated statements of cash flows for the nine-month periods ended
September 26, 1999 and September 27, 1998 (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 27, 1998, 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, 1999, 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 27, 1998, is
fairly stated in all material respects in relation to the consolidated balance
sheet from which it has been derived.
On September 28, 1998, the Company filed voluntary petitions for protection and
reorganization under Chapter 11 of the Bankruptcy Code. The accompanying
consolidated financial statements have been prepared on the basis that the
Company will continue as a going-concern.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Chicago, Illinois
November 12, 1999
21
<PAGE> 22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
- ------- --------------------------------------------------
OPERATIONS AND FINANCIAL CONDITION
----------------------------------
OVERVIEW
On September 28, 1998, the Company filed voluntary petitions for protection and
reorganization under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court.
This discussion and analysis of results of operations should be read in
conjunction with the unaudited consolidated financial statements and notes
thereto.
The Company's operations are divided into two segments, Steel Making Segment and
Steel Fabricating Segment. The Steel Making Segment consists of Acme Steel and
includes all of the facilities used in the manufacturing and finishing of sheet
and strip steel. The Steel Fabricating Segment includes the operations of Acme
Packaging and Alpha Tube which use flat rolled steel in their respective
fabricating processes.
In the first nine months of 1999, the Steel Making Segment continued to
experience the adverse impact of shipping a lower margin product mix coupled
with overall lower average selling prices, the latter still primarily related to
competitive pressures from imported steel. However, the first nine months of
1999 saw an increase in the Steel Making Segment's order book over levels in the
same period in 1998. The Continuous Steel Making Plant ("CSP") operated at an
average of 98.7 percent of capacity for the first three quarters of 1999. By
operating at near full capacity and by experiencing related improvement in
material yield, the CSP experienced improvement in its cost structure over 1998.
Despite an increase in production (primarily non-niche products) and cost
improvements, the Steel Making Segment continued to incur losses in the first
nine months of 1999.
The Steel Fabricating Segment continued to record positive operating results.
During the first three quarters of 1999, the Segment experienced weakened
selling prices offset by lower raw material costs.
Third Quarter 1999 as compared to Third Quarter 1998
- ----------------------------------------------------
NET SALES. Consolidated net sales of $118.4 million for the third quarter of
1999 were $14.9 million or 14.4 percent better than the same period in the prior
year. An increase in total tons shipped was partially offset by lower selling
prices.
Steel Making Segment. In the third quarter of 1999, net sales for the Steel
Making Segment were $83.0 million; a $16.3 million or 24.4 percent increase from
the previous year. Of the $16.3 million improvement, $22.7 million is
attributable in volume increases, offset by $6.4 million in price declines.
Sales to unaffiliated customers increased 38.6 percent or $17.2 million, while
intersegment sales of $21.4 million were lower than the third quarter of 1998 by
$0.9 million, or 4.1 percent, primarily due to lower prices.
22
<PAGE> 23
Steel Fabricating Segment. The Steel Fabricating Segment net sales of $56.7
million in the third quarter of 1999 were $2.3 million, or 3.9 percent, below
the comparable period in the prior year. A decrease in sales volume for the
fabricating businesses resulted from decreased orders for steel strapping ($0.5
million) and lower selling prices ($2.9 million), partially offset by stronger
tubing volume ($1.1 million).
SELLING AND ADMINISTRATIVE EXPENSE. Selling and administrative expense was $8.7
million in the third quarter of 1999, $0.6 million lower than the prior year.
OPERATING INCOME/LOSS. The operating loss of $13.5 million for the Company in
the third quarter of 1999 is flat with the loss recorded during the same period
in 1998.
Steel Making Segment. The Steel Making Segment recorded an $18.3 million loss
from operations in the third quarter of 1999, essentially flat with the loss
recorded in the comparable period in 1998. The loss in the third quarter of 1999
reflected a $7.7 million non-cash loss from the abandonment of the finishing
mill and decreased prices, partially offset by increased volume and lower
operating costs. The decrease in operating costs resulted primarily from
improved efficiency and increased production at the CSP.
Steel Fabricating Segment. The Steel Fabricating Segment's operating income of
$4.8 million for the third quarter of 1999 was essentially flat with last year's
comparable period.
INTEREST EXPENSE. Interest expense of $5.7 million for the three months ended
September 26, 1999 was $5.2 million lower compared to the same period of the
prior year. The lower interest expense in 1999 resulted from the Company's
continued nonrecognition of interest on unsecured debt due to its Chapter 11
Bankruptcy status.
INTEREST EXPENSE-INCOME TAXES. During the third quarter of 1999, the Company
recorded a $10.0 million charge to interest expense associated with the
Interlake Tax Matters. See the footnote on pages 9 and 10 for further detail.
REORGANIZATION CHARGES UNDER CHAPTER 11 BANKRUPTCY. The $1.6 million of
reorganization charges in the third quarter of 1999 primarily consists of
administrative, professional, and legal fees associated with the Chapter 11
Bankruptcy proceedings.
NET LOSS. The Company recorded a loss of $30.8 million, or $2.64 per share in
the third quarter of 1999 versus a loss of $92.7 million, or $7.94 per share,
recorded in the third quarter of the prior year. The net loss in the third
quarter of 1998 included a valuation allowance against the Company's entire net
deferred tax asset. Per share amounts for 1999 and 1998 are based on the
weighted average number of common shares calculated on both the basic and fully
diluted methods, which are equivalent in amount.
23
<PAGE> 24
Nine Months ended September 26, 1999 as compared to Nine Months ended September
27, 1998
NET SALES. Consolidated net sales of $346.7 million for the first nine months of
1999 were $26.1 million lower than the same period in the prior year, reflecting
lower net sales in the first quarter. Lower selling prices, partially offset by
increased shipments, were the primary reasons for the decrease in sales.
Steel Making Segment. In the first nine months of 1999, net sales for the Steel
Making Segment were $236.3 million; a $19.5 million or 7.6 percent decrease from
the comparable period last year. Of the $19.5 million decline, $30.1 million is
attributable to a less profitable price and mix which was offset by $10.6
million volume increase. Sales to unaffiliated customers decreased 6.2 percent
or $11.8 million, while intersegment sales of $59.3 million were lower than the
first nine months of 1998 by $7.7 million, or 11.5 percent.
Steel Fabricating Segment. The Steel Fabricating Segment 1999 year-to-date net
sales of $170.2 million were $14.3 million, or 7.8 percent, below the comparable
period in the prior year. A decrease in sales volume for the fabricating
businesses resulted from the absence of Universal Tool ($7.8 million), reduced
orders for steel strapping ($4.4 million), and lower selling prices ($7.0
million), partially offset by stronger tubing volume ($4.9 million).
SELLING AND ADMINISTRATIVE EXPENSE. Selling and administrative expense was $28.2
million in the first nine months of 1999, $0.4 million lower than the prior
year.
OPERATING INCOME/LOSS. The 1999 year-to-date operating loss of $27.7
million represents a $6.9 million decline as compared with the loss recorded
during the same period in 1998.
Steel Making Segment. The Steel Making Segment recorded a $43.1 million loss
from operations in the first three quarters of 1999, which was $4.6 million
worse than the loss recorded in the comparable period in 1998. The increased
loss in the first nine months of 1999 was due to a $7.7 million non-cash loss
from the abandonment of the finishing mill and lower prices, partially offset by
stronger volumes and lower operating costs. The decrease in operating costs
primarily resulted from improved efficiency and increased production at the CSP.
Included in the Segment's operating loss is a first quarter severance charge of
$1.0 million for workforce reductions.
Steel Fabricating Segment. The Steel Fabricating Segment's operating income of
$15.4 million for the first three quarters of 1999 was $2.3 million lower than
in last year's comparable period, due primarily to the absence of Universal
Tool, a Fabricating Segment subsidiary sold in March of 1998, results and
reduced prices.
OTHER INCOME. Other non-operating income of $1.2 million in the first three
quarters of 1999 includes the gain on the sale of a Fabricating Segment
building. The other non-operating income in 1998 includes the gain of $12.0
million from the sale of Universal Tool.
24
<PAGE> 25
INTEREST EXPENSE. Interest expense of $17.6 million for the nine months ended
September 26, 1999 was $15.0 million lower compared to the same period of the
prior year. The lower interest expense in the first three quarters of 1999
resulted from the Company's nonrecognition of post-petition interest on
unsecured debt.
INTEREST EXPENSE-INCOME TAXES. During the third quarter of 1999, the Company
recorded a $10.0 million charge to interest expense associated with the
Interlake Tax Matters. See the footnote on pages 9 and 10 for further detail.
REORGANIZATION CHARGES UNDER CHAPTER 11 BANKRUPTCY. The $5.9 million of
reorganization charges primarily consists of administrative, professional, and
legal fees associated with the Chapter 11 Bankruptcy proceedings.
NET LOSS. The Company recorded a loss of $60.0 million, or $5.14 per share in
the first three quarters of 1999 versus a loss of $103.0 million, or $8.82 per
share, recorded in the first nine months of the prior year. The 1998 loss
reflected a valuation allowance against the entire net deferred tax asset
balance. Per share amounts for 1999 and 1998 are based on the weighted average
number of common shares calculated on both the basic and fully diluted methods,
which are equivalent in amount.
LIQUIDITY AND CAPITAL RESOURCES
The most significant factors affecting the Company's liquidity and capital
resources are the adverse market conditions for its steel products, primarily
selling prices, and operating under the protection of the Bankruptcy Code. Cash
and cash equivalents balances at the end of the third quarter of 1999 and
year-end 1998 were $7.4 million and $18.9 million, respectively. The lower level
at September 26, 1999 is a direct result of ongoing operating losses (including
working capital uses and capital expenditures), adequate protection payments,
and Chapter 11 Bankruptcy administrative costs, partially offset by the $9.0
million letter of credit draw and $1.9 million in proceeds from an asset sale.
The Company's current liquidity requirements include funding losses, working
capital, and payments to adequately protect holders of certain secured claims,
Chapter 11 Bankruptcy administrative expenses, and capital investments. On
December 18, 1998, with the approval of the Bankruptcy Court, Acme Metals, Acme
Steel, Acme Packaging, Alabama Metallurgical and Acme Steel International
entered into a DIP Financing Agreement, which provides for a maximum of $100
million of revolving credit borrowings subject to certain borrowing base
limitations based on inventory and accounts receivable, less reserves. Alpha
Tube, whose inventory and accounts receivable are excluded from the borrowing
base computation, has guaranteed the obligations incurred under the DIP
Financing Agreement. Alpha Tube's guaranty obligation with respect to the DIP
Financing Agreement is effectively subordinated to pre-petition trade
obligations and Chapter 11 Bankruptcy administrative expenses of Alpha Tube. The
Company intends to finance its current operating and investment activities with
cash from operations and, to the extent necessary, by borrowing against its DIP
Financing Agreement. Consistent with this strategy, the
25
<PAGE> 26
Company will borrow and repay amounts from time to time as conditions
warrant. At September 26, 1999, there were no borrowings against the DIP
Financing Agreement with $56.4 million available based on borrowing base
limitations.
During the period of operation under the protection of Chapter 11 Bankruptcy,
the Company is precluded from paying most pre-petition liabilities. Although
payments to creditors have been deferred and collection of pre-petition
liabilities by creditors has been stayed, the Bankruptcy Court authorized
payments of wages and benefits and payment of certain other amounts, including
reclamation claims of the Alpha Tube subsidiary. The pre-petition obligations
which are not being paid include among others, certain debt service,
pre-petition trade payables, and amounts related to executory contracts.
Capital expenditures are expected to be approximately $14.5 million in 1999 and
will be principally for necessary replacement projects. The Company expects to
make approximately $19.4 million of adequate protection payments during 1999
pursuant to stipulations with various secured parties which have been or will be
presented to the Bankruptcy Court for approval.
Although the Company believes the anticipated cash for future operations and
borrowings under the DIP Financing Agreement will provide sufficient liquidity
for the Company while in Chapter 11 Bankruptcy to fund ongoing operations, to
meet its adequate protection payments, and to finance its Chapter 11 Bankruptcy
administrative costs, there can be no assurance these or other possible sources
will be adequate.
OUTLOOK
The Company currently intends to present a plan of reorganization to the
Bankruptcy Court to reorganize the Company's businesses and to restructure the
Company's balance sheet. Although management expects to file a plan of
reorganization, there can be no assurance at this time that a plan of
reorganization will be proposed by the Company, approved or confirmed by the
Bankruptcy Court, or that such plan will be consummated. The Bankruptcy Court
has granted the Company's request to extend its exclusive right to file a plan
of reorganization through January 31, 2000. If the exclusivity period, as it has
been extended and may be further extended, were to expire or be terminated,
other interested parties, such as creditors of the Company, would have the right
to propose alternative plans of reorganization. The Board of Directors strives
to maximize the enterprise value, and a plan of reorganization could, among
other things, result in material dilution or elimination of the equity of
existing shareholders of the Company as a result of the issuance of equity to
creditors or new investors.
Steel Making Segment
Acme Steel continues to incur operating losses and does not expect to achieve
the sales, production and cost performance levels necessary to reach profitable
levels in 1999. The impact of foreign steel imports continue to adversely affect
Acme Steel selling prices. The Company also believes a structural change in the
pricing of niche products has occurred which has and will
26
<PAGE> 27
compress the premium received by Acme Steel for most of its niche steel
products. The Company is working to optimize the operating performance of its
facilities, reduce cash manufacturing costs and optimize its mix of higher
margin products.
Steel Fabricating Segment
Steel Fabricating Segment earnings in the fourth quarter of 1999 should continue
to improve. Acme Packaging expects increased sales volume in both its steel and
plastic strapping products with selling prices remaining firm. Alpha Tube
completed the relocation and consolidation of its tube mills during 1998,
improving material handling capability and lowering operating costs. Alpha Tube
expects to continue seeing improvements through the fourth quarter of 1999.
Sales volume and prices for Alpha Tube are also expected to remain steady.
Year 2000 Compliance
The Company is in the process of implementing and executing a Year 2000
assessment with the objective of having all of its significant business systems
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 believed to be critical to business operations after January 1,
2000, have been identified and steps have been taken to reasonably ascertain
their stage of Year 2000 readiness through questionnaires, interviews, on-site
visits, and other available means. At this time, the Company believes its
significant service providers, vendors, suppliers, and customers' readiness
issues will not materially affect the Company.
The Company has implemented a Year 2000 compliant business system at Acme Metals
and its Acme Steel and Acme Packaging subsidiaries. The Company has
substantially completed the replacement of its non-compliant desktop computers.
The Company's total cost of this replacement is approximately $1.5 million.
Alpha Tube has partially completed its implementation of a Year 2000 compliant
system and expects to be materially complete by the end of November 1999 at a
cost of approximately $2.0 million.
Other areas of operations have been tested and are, at this time, considered to
be materially Year 2000 compliant. The Company, however, continues testing its
manufacturing and other systems to ensure continued compliance.
The failure to correct a material Year 2000 problem could result in an
interruption in, or 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. Numerous factors could
cause the expected cost and completion dates to differ from the above estimates.
Contingency plans, if needed, will be in place prior to January 1, 2000.
However, the Company currently believes that the Year 2000 issues will not have
a material adverse impact on the Company's financial conditions, results of
operations, or cash flow.
27
<PAGE> 28
FORWARD LOOKING STATEMENT
Actual events might materially differ from those projected in the above forward
looking statements. If there are substantial production interruptions or other
operating difficulties, or if the Company fails to achieve production goals and
material yields, the competitive and financial position of the Company could be
materially adversely affected. In addition to uncertainties with respect to
production, forward looking statements regarding all of the Company's
businesses, but particularly the Steel Making Segment, are based on various
economic assumptions. These assumptions include projections regarding: selling
prices for the Company's products, costs for labor, energy, raw material,
supplies, pensions and active and retiree medical care, volume or units of
product sales, competitive developments in the marketplace by domestic and
foreign competitors, including import levels, and the competitive impact of the
facilities which are expected to compete with the Company's products, general
economic developments in the United States or abroad affecting the business of
the Company's customers, including the strength of the U.S. dollar against other
currencies and similar events which may affect the costs, price or volume of
products sold by the Company.
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.
Furthermore, the Chapter 11 Bankruptcy Filings introduce numerous uncertainties
which may affect the Company's businesses, results of operations and prospects.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Exchange. The Company has exposure from changes in foreign exchange
rates for the purchase of raw materials from its Wabush joint venture. A 10
percent unfavorable movement in the Canadian Dollar would affect raw material
costs by approximately $2.5 million on an annual basis.
Interest Rates. The Company's net interest rate risk exposure consists of
floating rate debt instruments linked to LIBOR. The Company, while under Chapter
11 Bankruptcy, is prohibited from making interest payments but with the approval
of the Bankruptcy Court, has or expects to enter into adequate protection
agreements with secured lenders.
28
<PAGE> 29
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS
(a) Exhibit 15 - Letter regarding unaudited interim financial information
Exhibit 27 - Financial data schedule
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 15, 1999 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> 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 5, 1999 (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 12, 1999
31
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED CONSOLIDATED BALANCE SHEETS AT SEPTEMBER 26, 1999 AND
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 26, 1999 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-26-1999
<PERIOD-START> DEC-28-1998
<PERIOD-END> SEP-26-1999
<CASH> 7,350
<SECURITIES> 0
<RECEIVABLES> 58,425
<ALLOWANCES> (1,161)
<INVENTORY> 76,712
<CURRENT-ASSETS> 148,396
<PP&E> 884,285
<DEPRECIATION> (365,129)
<TOTAL-ASSETS> 705,626
<CURRENT-LIABILITIES> 73,834
<BONDS> 233,370
0
0
<COMMON> 11,647
<OTHER-SE> (34,660)
<TOTAL-LIABILITY-AND-EQUITY> 705,626
<SALES> 346,651
<TOTAL-REVENUES> 346,651
<CGS> 346,180
<TOTAL-COSTS> 374,354
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,642
<INCOME-PRETAX> (59,741)
<INCOME-TAX> 21
<INCOME-CONTINUING> (59,957)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (59,957)
<EPS-BASIC> (5.14)
<EPS-DILUTED> (5.14)
</TABLE>
