<PAGE> 1
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended June 27, 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 August 2, 1999: 11,647,471.
================================================================================
<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 Six Months Ended
-------------------------- ------------------------
June 27, June 28, June 27, June 28,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $ 125,251 $ 124,339 $ 228,289 $ 269,335
COSTS AND EXPENSES:
Cost of products sold ............................. 109,362 108,583 203,750 238,482
Depreciation expense .............................. 9,609 9,272 19,211 18,531
------------ ------------ ------------ ------------
Gross margin ........................................... 6,280 6,484 5,328 12,322
Selling and administrative expense ................ 9,868 9,463 19,504 19,335
------------ ------------ ------------ ------------
Operating loss ......................................... (3,588) (2,979) (14,176) (7,013)
NON-OPERATING INCOME (EXPENSE):
Interest expense .................................. (5,611) (10,810) (11,917) (21,747)
Interest income ................................... 79 490 175 629
Reorganization charges under
Chapter 11 Bankruptcy ........................... (2,097) (4,328)
Other--net ........................................ 1,241 12,257
------------ ------------ ------------ ------------
Loss before income taxes ............................... (11,217) (13,299) (29,005) (15,874)
Income tax provision (benefit) ......................... 117 (4,656) 138 (5,556)
------------ ------------ ------------ ------------
Net loss .......................................... $ (11,334) $ (8,643) $ (29,143) $ (10,318)
============ ============ ============ ============
LOSS PER SHARE:
BASIC:
Net loss ...................................... $ (0.97) $ (0.74) $ (2.50) $ (0.88)
============ ============ ============ ============
Weighted average outstanding shares ........... 11,664,549 11,679,874 11,666,364 11,670,769
============ ============ ============ ============
DILUTED:
Net loss ...................................... $ (0.97) $ (0.74) $ (2.50) $ (0.88)
============ ============ ============ ============
Weighted average outstanding shares ........... 11,664,549 11,679,874 11,666,364 11,670,769
============ ============ ============ ============
</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)
<TABLE>
<CAPTION>
(Unaudited)
June 27, December 27,
1999 1998
----- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................................................... $ 7,308 $ 18,869
Accounts receivable trade, less allowances of $1,110 and $1,278, respectively ............... 59,138 48,597
Inventories ................................................................................. 80,115 75,664
Other current assets ........................................................................ 7,981 4,733
--------- ---------
Total current assets ..................................................................... 154,542 147,863
--------- ---------
INVESTMENTS AND OTHER ASSETS:
Investments in associated companies ......................................................... 20,158 19,157
Other assets ................................................................................ 18,380 19,640
--------- ---------
Total investments and other assets ....................................................... 38,538 38,797
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment ............................................................... 904,661 902,000
Accumulated depreciation .................................................................... (371,232) (351,572)
--------- ---------
Total property, plant and equipment ...................................................... 533,429 550,428
--------- ---------
$ 726,509 $ 737,088
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ............................................................................ $ 26,058 $ 14,690
Accrued expenses ............................................................................ 43,773 37,961
--------- ---------
Total current liabilities ................................................................ 69,831 52,651
--------- ---------
LONG-TERM LIABILITIES:
Long-term debt .............................................................................. 233,370 233,463
Postretirement benefits other than pensions ................................................. 99,429 97,974
Retirement benefit plans .................................................................... 19,327 19,363
Other long-term liabilities ................................................................. 5,407 5,407
--------- ---------
Total long-term liabilities .............................................................. 357,533 356,207
--------- ---------
LIABILITIES SUBJECT TO COMPROMISE .............................................................. 290,770 290,592
--------- ---------
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, 11,664,371 and
11,674,634 shares issued and outstanding, respectively ...................................... 11,665 11,675
Additional paid-in capital .................................................................. 165,841 165,951
Accumulated deficit ......................................................................... (135,406) (106,263)
Accumulated other comprehensive loss ........................................................ (33,725) (33,725)
--------- ---------
Total shareholders' equity ............................................................... 8,375 37,638
--------- ---------
$ 726,509 $ 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 Six Months Ended
------------------------
June 27, June 28,
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ........................................... $ (29,143) $ (10,318)
ADJUSTMENTS TO RECONCILE NET LOSS TO
NET CASH FROM OPERATING ACTIVITIES:
Gain on sale of assets ...................... (1,241) (12,257)
Depreciation ................................ 20,233 18,941
Deferred income taxes ....................... (5,556)
CHANGE IN OPERATING ASSETS AND LIABILITIES:
Accounts receivables ................. (10,541) (885)
Income tax receivable ................ 40 23,590
Inventories .......................... (4,451) 15,928
Accounts payable ..................... 2,377 (10,651)
Other current accounts ............... 2,524 13,291
Liabilities subject to compromise .... 178
Other, net .................................. 1,558 (6,061)
--------- ---------
Net cash (used for) provided by operating activities (18,466) 26,022
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of assets ................... 1,928
Capital expenditures ............................... (4,014) (17,242)
--------- ---------
Net cash used for investing activities ............. (2,086) (17,242)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of long-term debt .......................... (1,000)
Proceeds from sale of assets ....................... 18,000
Borrowings under revolving credit line agreement ... 129,750
Repayment of revolving credit line agreement ....... (134,750)
Draw from letter of credit ......................... 8,991
--------- ---------
Net cash provided by financing activities .......... 8,991 12,000
--------- ---------
Net increase (decrease) in cash and cash equivalents (11,561) 20,780
Cash and cash equivalents at beginning of period ... 18,869 6,454
--------- ---------
Cash and cash equivalents at end of period ......... $ 7,308 $ 27,234
========= =========
</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 23 for a description of the Loan and Security Agreement with Bank of
America (formerly "BankAmerica Business Credit, Inc.") ("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, such 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 either
adjustments to assets which may occur pursuant to a plan of reorganization under
Chapter 11 of the Bankruptcy Code or results if the Company is forced to
liquidate all or portions of its operations. A plan of reorganization could
materially change the amounts 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 proceedings. 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,
and are included in the appropriate liability caption on the balance sheet.
5
<PAGE> 6
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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 June 27, 1999 and June 28, 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 19 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.
Second quarter results for 1999 and 1998 each cover 13-week periods.
INVENTORIES:
Inventories, as determined on the last-in, first-out method, are summarized as
follows:
June 27, December 27,
1999 1998
----------- ------------
(unaudited)
(in thousands)
Raw materials.............................. $ 19,703 $ 18,343
Semi-finished and finished products........ 53,769 50,607
Supplies................................... 6,643 6,714
-------- --------
$ 80,115 $ 75,664
======== ========
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 half of 1999.
6
<PAGE> 7
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"
is summarized as follows:
<TABLE>
<CAPTION>
June 27, December 27,
1999 1998
---- ----
(unaudited)
(in thousands)
<S> <C> <C>
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
============= =============
</TABLE>
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 $1.5 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" follow:
<TABLE>
<CAPTION>
June 27, December 27,
1999 1998
---- ----
(unaudited)
(in thousands)
<S> <C> <C>
Accounts payable.................................................... $ 56,204 $ 56,532
Accrued interest.................................................... 6,094 6,094
Accrued utilities................................................... 2,413 2,413
Bond payable and other related liability............................ 2,503 2,503
Other accrued liabilities........................................... 2,905 2,425
Note payable........................................................ 5,500 5,500
10.875 percent Senior Unsecured Notes, net of discount.............. 198,682 198,656
Other long-term liabilities......................................... 16,469 16,469
------------- -------------
$ 290,770 $ 290,592
============= =============
</TABLE>
7
<PAGE> 8
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
CASH FLOWS:
During the second quarter of 1999, the Company made an initial draw of $9.0
million under an irrevocable letter of credit as described in the Company's
Report on Form 8-K filed June 8, 1999. See "Liquidity and Capital Resources"
beginning on page 23 of this Quarterly Report on Form on 10-Q.
Cash payments for Bankruptcy Court approved adequate protection payments on
secured debt were $8.7 million during the first half of 1999 and interest
payments of $15.5 million were made in the first six 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.
No significant changes occurred during the second quarter to "Interlake Matters"
as previously described under the "Commitments and Contingencies" heading on
page 8 of the Company's Quarterly Report of Form 10-Q for the period ending
March 28, 1999.
Raytheon filed various legal actions in the Bankruptcy Court prior to and
subsequent to Acme Steel's draw on the letter of credit seeking to initially
prevent Acme Steel from drawing on the irrevocable letter of credit, to impose a
constructive trust upon any funds drawn, and to seek an early adjudication of
the claims between the parties. To date the Bankruptcy Court has not granted
Raytheon any of the relief it has sought in these legal actions. However, the
time for Raytheon to appeal the Bankruptcy Court's determinations has not
expired. Further, Raytheon may file new actions with the Bankruptcy Court
regarding Acme Steel's draw. Acme Steel has vigorously contested and will
continue to vigorously contest each action filed by Raytheon; however, there are
no assurances Acme Steel will continue to be successful in opposing Raytheon's
legal actions.
BUSINESS SEGMENTS:
The Company presents its operations in two segments, Steel Making and Steel
Fabricating, as previously disclosed in the Company's 1998 Form 10-K.
8
<PAGE> 9
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(dollars in thousands)
Unaudited operating segment information based on operating income is as follows:
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
-------------------------- ------------------------
June 27, June 28, June 27, June 28,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
STEEL MAKING:
Sales to unaffiliated customers .... $ 66,048 $ 66,939 $ 115,333 $ 144,312
Intersegment sales ................. 18,657 20,248 37,968 44,768
--------- --------- --------- ---------
Net sales ...................... $ 84,705 $ 87,187 $ 153,301 $ 189,080
========= ========= ========= =========
Depreciation ....................... $ 8,570 $ 8,482 $ 17,132 $ 16,967
Loss from operations ............... (9,066) (8,879) (24,794) (19,298)
Total assets ....................... 564,748 664,955 564,748 664,995
Capital expenditures ............... 1,800 3,064 2,091 5,108
Operating data (in tons)
Steel production (hot band) .... 261,964 231,137 506,230 452,591
Steel shipments (flat rolled) .. 249,892 212,695 471,147 465,426
STEEL FABRICATING:
Sales to unaffiliated customers .... $ 59,203 $ 57,400 $ 112,956 $ 125,023
Intersegment sales ................. 165 183 325 390
--------- --------- --------- ---------
Net sales ...................... $ 59,368 $ 57,583 $ 113,281 $ 125,413
========= ========= ========= =========
Depreciation ....................... $ 1,357 $ 974 $ 2,579 $ 1,938
Income from operations ............. 5,478 5,900 10,618 12,285
Total assets ....................... 118,296 90,349 118,296 90,349
Capital expenditures ............... 1,095 4,876 2,387 8,979
</TABLE>
9
<PAGE> 10
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 is as follows:
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
-------------------------- ------------------------
June 27, June 28, June 27, June 28,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales:
Steel Making .................... $ 84,705 $ 87,187 $ 153,301 $ 189,080
Steel Fabricating ............... 59,368 57,583 113,281 125,413
Intersegment sales .............. (18,822) (20,431) (38,293) (45,158)
--------- --------- --------- ---------
$ 125,251 $ 124,339 $ 228,289 $ 269,335
========= ========= ========= =========
Income (loss) before income taxes and
extraordinary loss:
Operating income (loss):
Steel Making ................ $ (9,066) $ (8,879) $ (24,794) $ (19,298)
Steel Fabricating ........... 5,478 5,900 10,618 12,285
--------- --------- --------- ---------
(3,588) (2,979) (14,176) (7,013)
Less:
Interest expense ............ (5,611) (10,810) (11,917) (21,747)
Reorganization charges under
Chapter 11 Bankruptcy .... (2,097) (4,328)
Add:
Interest income ............. 79 490 175 629
Other, net .................. 1,241 12,257
--------- --------- --------- ---------
Loss before income taxes $ (11,217) $ (13,299) $ (29,005) $ (15,874)
========= ========= ========= =========
Total assets:
Steel Making .................... $ 564,748 $ 664,955 $ 564,748 $ 664,955
Steel Fabricating ............... 118,296 90,349 118,296 90,349
Corporate ....................... 43,465 58,409 43,465 58,409
--------- --------- --------- ---------
$ 726,509 $ 813,713 $ 726,509 $ 813,713
========= ========= ========= =========
</TABLE>
10
<PAGE> 11
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.
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 JUNE 27, 1999
==============================================================================
SUBSIDIARY
SUBSIDIARY NON TOTAL
PARENT GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales $ $ 84,705 $ 59,368 $ (18,822) $ 125,251
Costs and expenses 89,005 48,788 (18,822) 118,971
--------- --------- -------- --------- ---------
Gross margin (4,300) 10,580 6,280
Selling and administrative expense 4,766 5,102 9,868
--------- --------- -------- --------- ---------
Operating income (loss) (9,066) 5,478 (3,588)
Reorganization charges under
Chapter 11 Bankruptcy (317) (930) (850) (2,097)
Net interest income (expense) and other (4,830) (472) (230) (5,532)
--------- --------- -------- --------- ---------
Income (loss) before income taxes (5,147) (10,468) 4,398 (11,217)
Income tax provision (benefit) (2,935) 3,052 117
--------- --------- -------- --------- ---------
Net income (loss) before equity
adjustment (2,212) (10,468) 1,346 (11,334)
Equity loss in subsidiaries (9,122) 9,122
--------- --------- -------- --------- ---------
Net income (loss) $ (11,334) $ (10,468) $ 1,346 $ 9,122 $ (11,334)
========= ========= ======== ========= =========
</TABLE>
11
<PAGE> 12
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(dollars in thousands)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 28, 1998
=============================================================================
SUBSIDIARY
SUBSIDIARY NON TOTAL
PARENT GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales $ $ 87,187 $ 57,583 $ (20,431) $ 124,339
Costs and expenses 90,999 47,287 (20,431) 117,855
--------- --------- -------- --------- ---------
Gross margin (3,812) 10,296 6,484
Selling and administrative 5,067 4,396 9,463
--------- --------- -------- --------- ---------
Operating income (loss) (8,879) 5,900 (2,979)
Net interest income (expense) and other 4,446 (14,036) (730) (10,320)
--------- --------- -------- --------- ---------
Income (loss) before income taxes 4,446 (22,915) 5,170 (13,299)
Income tax provision (benefit) 1,582 (8,111) 1,873 (4,656)
--------- --------- -------- --------- ---------
2,864 (14,804) 3,297 (8,643)
Equity loss in subsidiaries (11,507) 11,507
--------- --------- -------- --------- ---------
Net income (loss) $ (8,643) $ (14,804) $ 3,297 $ 11,507 $ (8,643)
========= ========= ======== ========= =========
</TABLE>
12
<PAGE> 13
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(dollars in thousands)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 27, 1999
============================================================================
SUBSIDIARY
SUBSIDIARY NON TOTAL
PARENT GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales $ $ 153,301 $ 113,281 $ (38,293) $ 228,289
Costs and expenses 168,722 92,532 (38,293) 222,961
--------- --------- --------- --------- ---------
Gross margin (15,421) 20,749 5,328
Selling and administrative expense 9,373 10,131 19,504
--------- --------- --------- --------- ---------
Operating income (loss) (24,794) 10,618 (14,176)
Reorganization charges under
Chapter 11 Bankruptcy (915) (1,709) (1,704) (4,328)
Net interest income (expense) and other (10,806) (777) 1,082 (10,501)
--------- --------- --------- --------- ---------
Income (loss) before income taxes (11,721) (27,280) 9,996 (29,005)
Income tax provision (benefit) (3,471) 3,609 138
--------- --------- --------- --------- ---------
Net income (loss) before equity
adjustment (8,250) (27,280) 6,387 (29,143)
Equity loss in subsidiaries (20,893) 20,893
--------- --------- --------- --------- ---------
Net income (loss) $ (29,143) $ (27,280) $ 6,387 $ 20,893 $ (29,143)
========= ========= ========= ========= =========
</TABLE>
13
<PAGE> 14
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(dollars in thousands)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 28, 1998
==========================================================================
SUBSIDIARY
SUBSIDIARY NON TOTAL
PARENT GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales $ $ 189,080 $ 125,413 $ (45,158) $ 269,335
Costs and expenses 198,179 103,992 (45,158) 257,013
--------- --------- --------- --------- ---------
Gross margin (9,099) 21,421 12,322
Selling and administrative 10,199 9,136 19,335
--------- --------- --------- --------- ---------
Operating income (loss) (19,298) 12,285 (7,013)
Net interest income (expense) and other 8,263 (27,507) 10,383 (8,861)
--------- --------- --------- --------- ---------
Income (loss) before income taxes 8,263 (46,805) 22,668 (15,874)
Income tax provision (benefit) 3,037 (16,345) 7,752 (5,556)
--------- --------- --------- --------- ---------
5,226 (30,460) 14,916 (10,318)
Equity loss in subsidiaries (15,544) 15,544
--------- --------- --------- --------- ---------
Net income (loss) $ (10,318) $ (30,460) $ 14,916 $ 15,544 $ (10,318)
========= ========= ========= ========= =========
</TABLE>
14
<PAGE> 15
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(dollars in thousands)
<TABLE>
<CAPTION>
AS OF JUNE 27, 1999
============================================================================
SUBSIDIARY
SUBSIDIARY NON TOTAL
ASSETS PARENT GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 7,210 $ $ 98 $ $ 7,308
Accounts receivable, net 172 30,613 28,353 59,138
Inventories 51,661 30,218 (1,764) 80,115
Other current assets 927 6,352 702 7,981
Due to (from) affiliates 476,425 (33,225) 27,958 (471,158)
--------- --------- --------- ---------- ---------
Total current assets 484,734 55,401 87,329 (472,922) 154,542
--------- --------- --------- ---------- ---------
INVESTMENTS AND OTHER ASSETS:
Investments in associated companies (29,972) 20,923 29,207 20,158
Other assets 13,220 3,532 1,628 18,380
--------- --------- --------- ---------- ---------
Total investments and other assets (16,752) 24,455 1,628 29,207 38,538
--------- --------- --------- ---------- ---------
PROPERTY, PLANT AND EQUIPMENT-Net: 14,755 484,736 33,938 533,429
--------- --------- --------- ---------- ---------
$ 482,737 $ 564,592 $ 122,895 $ (443,715) $ 726,509
========= ========= ========= ========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 17,161 $ 42,700 $ 9,970 $ $ 69,831
--------- --------- --------- ---------- ---------
Total current liabilities 17,161 42,700 9,970 69,831
--------- --------- --------- ---------- ---------
LONG-TERM LIABILITIES:
Long-term debt 233,370 233,370
Other long-term liabilities 5,374 33 5,407
Post-retirement benefits other than pensions 1,607 83,169 14,653 99,429
Retirement benefit plans 2,457 17,611 (741) 19,327
--------- --------- --------- ---------- ---------
Total long-term liabilities 237,434 106,154 13,945 357,533
--------- --------- --------- ---------- ---------
LIABILITIES SUBJECT TO COMPROMISE 219,767 496,803 47,887 (473,687) 290,770
--------- --------- --------- ---------- ---------
SHAREHOLDERS' EQUITY (DEFICIT): 8,375 (81,065) 51,093 29,972 8,375
--------- --------- --------- ---------- ---------
$ 482,737 $ 564,592 $ 122,895 $ (443,715) $ 726,509
========= ========= ========= ========== =========
</TABLE>
15
<PAGE> 16
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 $ 14,313 $ 30,274 $ 8,064 $ $ 52,651
---------- --------- --------- ---------- ---------
Total current liabilities 14,313 30,274 8,064 52,651
---------- --------- --------- ---------- ---------
LONG-TERM LIABILITIES:
Long-term debt 233,463 233,463
Other long-term liabilities 5,374 33 5,407
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 237,479 104,835 13,893 356,207
---------- --------- --------- ---------- ---------
LIABILITIES SUBJECT TO COMPROMISE 219,969 495,691 48,814 (473,882) 290,592
---------- --------- --------- ---------- ---------
SHAREHOLDERS' EQUITY (DEFICIT): 37,638 (53,784) 44,705 9,079 37,638
---------- --------- --------- ---------- ---------
$ 509,399 $ 577,016 $ 115,476 $ (464,803) $ 737,088
========== ========= ========= ========== =========
</TABLE>
16
<PAGE> 17
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(dollars in thousands)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 27, 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 $ (11,245) $ (7,366) $ 145 $ $ (18,466)
--------- -------- --------- ------------ ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of assets 1,928 1,928
Capital expenditures (1,627) (2,387) (4,014)
--------- -------- --------- ------------ ---------
Net cash used for investing activities (1,627) (459) (2,086)
--------- -------- --------- ------------ ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Other (2) 8,993 8,991
--------- -------- --------- ------------ ---------
Net cash (used for) provided by financing activities (2) 8,993 8,991
--------- -------- --------- ------------ ---------
Net decrease in cash and cash equivalents (11,247) (314) (11,561)
Cash and cash equivalents at
beginning of period 18,457 412 18,869
--------- -------- --------- ------------ ---------
Cash and cash equivalents at
end of period $ 7,210 $ $ 98 $ $ 7,308
========= ======== ========= ============ =========
</TABLE>
17
<PAGE> 18
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(dollars in thousands)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 28, 1998
=======================================================================
SUBSIDIARY
SUBSIDIARY NON TOTAL
PARENT GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
NET CASH FLOWS PROVIDED BY
OPERATING ACTIVITIES $ 6,518 $ 13,964 $ 5,540 $ $ 26,022
-------- ---------- --------- ------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Reclassification to restricted cash -
Capital expenditures (142) (11,480) (5,620) (17,242)
-------- ---------- --------- ------------ ----------
Net cash used for investing activities (142) (11,480) (5,620) (17,242)
-------- ---------- --------- ------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of long-term debt (500) (500) (1,000)
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 intercompany dividend 20,780 (20,780)
-------- ---------- --------- ------------ ----------
Net cash (used for) provided by financing activities 20,280 (5,500) (2,780) 12,000
-------- ---------- --------- ------------ ----------
Net increase (decrease) in cash and
cash equivalents 26,656 (3,016) (2,860) 20,780
Cash and cash equivalents at
beginning of period 3,016 3,438 6,454
-------- ---------- --------- ------------ ----------
Cash and cash equivalents at
end of period $ 26,656 $ $ 578 $ $ 27,234
======== ========== ========= ============ ==========
</TABLE>
18
<PAGE> 19
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of
Acme Metals Incorporated
We have reviewed the accompanying consolidated balance sheet as of June 27,
1999, and the related consolidated statements of operations for each of the
three and six-month periods ended June 27, 1999 and June 28, 1998, and the
consolidated statements of cash flows for the six-month periods ended June 27,
1999 and June 28, 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
July 20, 1999
19
<PAGE> 20
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, 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 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 half of 1999, the Steel Making Segment continued to experience an
adverse product mix and reduced selling prices principally resulting from
competitive pressure from imported steel. However, the first half of 1999 saw an
increase in the Steel Making Segment's order book over the third and fourth
quarters of 1998 levels. The Continuous Steel Making Plant ("CSP," formerly the
"New Facility") operated at an average of 99.3 percent of capacity for the first
half 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 half of 1999 due to lower selling prices and an adverse
product mix.
The Steel Fabricating Segment continued to record positive operating results.
During the first half of 1999, the Segment experienced weakened selling prices
offset by lower raw material costs.
Second Quarter 1999 as compared to Second Quarter 1998
NET SALES. Consolidated net sales of $125.3 million for the second quarter of
1999 were essentially flat with the same period in the prior year. An increase
in total tons shipped was offset by lower selling prices.
Steel Making Segment. In the second quarter of 1999, net sales for the Steel
Making Segment were $84.7 million, a $2.5 million or 2.8 percent decrease from
the previous year. Of the $2.5 million, $9.7 million is attributable to price
declines, offset by $6.9 million in volume increases. Sales to unaffiliated
customers decreased 1.3 percent or $0.9 million, while intersegment sales of
$18.7 million were lower than the second quarter of 1998 by $1.6 million, or 7.9
percent, primarily due to lower prices.
20
<PAGE> 21
Steel Fabricating Segment. The Steel Fabricating Segment net sales of $59.4
million in the second quarter of 1999 were $1.8 million, or 3.1 percent, above
the comparable period in the prior year. An increase in sales volume for the
fabricating businesses resulted from increased orders for steel strapping ($1.0
million) and stronger tubing volume ($3.0 million) partially offset by lower
selling prices ($2.2 million).
SELLING AND ADMINISTRATIVE EXPENSE. Selling and administrative expense was $9.9
million in the second quarter of 1999, $0.4 million higher than the prior year.
The increase in administrative charges mainly relates to $0.7 million in
additional depreciation expense at Acme Metals for assets capitalized as a
result of the Company's Chapter 11 Bankruptcy Filings.
OPERATING INCOME/LOSS. The operating loss of $3.6 million for the Company in the
second quarter of 1999 is $0.6 million worse than the $3.0 million loss recorded
during the same period in 1998.
Steel Making Segment. The Steel Making Segment recorded a $9.1 million loss from
operations in the second quarter of 1999, essentially flat with the loss
recorded in the comparable period in 1998. The loss in the second quarter of
1999 reflected decreased prices, offset by increased volume and lower operating
costs. The decrease in operating costs resulted from improved efficiency and
increased production at the CSP.
Steel Fabricating Segment. The Steel Fabricating Segment's operating income of
$5.5 million for the second quarter of 1999 was also essentially flat with last
year's comparable period.
INTEREST EXPENSE. Interest expense of $5.6 million for the three months ended
June 27, 1999 was $5.2 million lower compared to the same period of the prior
year. The lower interest expense in the second quarter of 1999 resulted from the
Company's continued nonrecognition of interest on unsecured debt due to its
Chapter 11 Bankruptcy status.
REORGANIZATION CHARGES UNDER CHAPTER 11 BANKRUPTCY. The $2.1 million of
reorganization charges in the second 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 $11.3 million, or $0.97 per share in
the second quarter of 1999 versus a loss of $8.6 million, or $0.74 per share,
recorded in the second quarter of the prior year. 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.
21
<PAGE> 22
Six Months ended June 27, 1999 as compared to Six Months ended June 28, 1998
NET SALES. Consolidated net sales of $228.3 million for the first half of 1999
were $41.0 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 six months of 1999, net sales for the Steel
Making Segment were $153.3 million, a $35.8 million or 18.9 percent decrease
from the comparable period last year. Of the $35.8 million decline, $12.1
million and $23.7 million is attributable to a less profitable mix and price,
respectively. Sales to unaffiliated customers decreased 20.1 percent or $29.0
million, while intersegment sales of $38.0 million were lower than the first
half of 1998 by $6.8 million, or 15.2 percent. The decrease in the shipments was
partially offset by improved cost performance over 1998.
Steel Fabricating Segment. The Steel Fabricating Segment net sales of $113.3
million in 1999 were $12.1 million, or 9.7 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 ($3.9 million), and lower selling prices ($4.1 million),
partially offset by stronger tubing volume ($3.7 million).
SELLING AND ADMINISTRATIVE EXPENSE. Selling and administrative expense was $19.5
million in the first half of 1999, $0.2 million higher than the prior year, due
to increased depreciation at Acme Metals.
OPERATING INCOME/LOSS. The operating loss of $14.2 million for the Company in
the first half of 1999 represents a $7.2 million decline (of which $6.6 million
occurred in the first quarter) from the loss recorded during the same period in
1998.
Steel Making Segment. The Steel Making Segment recorded a $24.8 million loss
from operations in the first two quarters of 1999, which was $5.6 million worse
than the loss recorded in the comparable period in 1998. The increased loss in
the first half of 1999 was due to decreased prices offset by stronger volumes
and lower operating costs. The decrease in operating costs 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 made during the first half of 1999.
Steel Fabricating Segment. The Steel Fabricating Segment's operating income of
$10.6 million for the first two quarters of 1999 was $1.6 million lower than in
last year's comparable period, due primarily to the absence of Universal Tool
results and reduced prices.
OTHER INCOME. Other non-operating income of $1.2 million in the first two
quarters of 1999 includes the gain on the sale of a building. The other
non-operating income in 1998 includes the gain of $12.0 million from the sale of
Universal Tool.
22
<PAGE> 23
INTEREST EXPENSE. Interest expense of $12.0 million for the six months ended
June 27, 1999 was $9.8 million lower compared to the same period of the prior
year. The lower interest expense in the first two quarters of 1999 resulted from
the Company's nonrecognition of post-petition interest on unsecured debt.
REORGANIZATION CHARGES UNDER CHAPTER 11 BANKRUPTCY. The $4.3 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 $29.1 million, or $2.50 per share in
the first half of 1999 versus a loss of $10.3 million, or $0.88 per share,
recorded in the first half of the prior year. 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 products and operating under
the protection of the Bankruptcy Code. Cash and cash equivalents balances at the
end of the second quarter of 1999 and year-end 1998 were $7.3 million and $18.9
million, respectively. The lower level at June 27, 1999 is a direct result of
ongoing operating losses (including working capital and capital expenditures),
adequate protection payments, and Chapter 11 Bankruptcy administrative costs.
During the second quarter of 1999, Acme Steel made an initial draw of $9.0
million under an irrevocable letter of credit in the approximate amount of $32.0
million issued by the Chase Manhattan Bank in favor of Acme Steel to secure
performance by Raytheon Engineers & Contractors, Inc. ("Raytheon") of its
obligations under a certain Engineering, Procurement and Construction Contract
dated July 28, 1994 ("EPC Contract") under which Raytheon engineered and
constructed a Compact Strip Production Plant, Roller Hearth Furnace, Ladle
Metallurgy Furnaces, Hot Rolling Mill and Related Support and Ancillary
Facilities at Acme Steel's Riverdale facility. The funds were drawn as a result
of Acme Steel's position that Raytheon failed to cure certain defaults under the
EPC Contract.
The Company's current liquidity requirements include funding losses, working
capital, 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
23
<PAGE> 24
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 Company will borrow and repay amounts from
time to time as conditions warrant. At June 27, 1999, there were no borrowings
against the DIP Financing Agreement with $53.4 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. 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.
In the second quarter of 1999, the Company received approval from the Internal
Revenue Service for a change in its pension funding calculation method as of
January 1, 1998 to recognize the current market value of the assets held in
trust rather than the previously elected actuarially smoothed value method. As a
result of this change, the Company expects minimal, if any, funding requirements
in 1999.
Capital expenditures are expected to be approximately $20.0 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 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 July 26, 1999. The Company has requested another
extension to September 30, 1999 for which a hearing is scheduled for August 9,
1999. The Company anticipates exclusivity will be granted through that date. 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.
24
<PAGE> 25
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 achieve a profit
for the year 1999. A weaker market resulting primarily from ongoing foreign
steel imports continues to adversely affect Acme Steel sales. The Company also
believes a structural change in the pricing of niche products has occurred which
has and will 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 productions.
As part of the ongoing cost reduction strategy, the Company intends to shut down
certain of its finishing operations and to have such operations performed by
related or third party vendors. If the Company proceeds with the planned
shutdown of all identified operations, the Company will incur a one-time charge
which cannot be determined at this time.
The Company is engaged in negotiations with the United Steelworkers of America.
The current agreement terminates at the expiration of sixty days after either
party has given written notice of termination to the other party, but in any
event shall not terminate earlier than August 31, 1999. Neither party has given
the other party notice of termination of the current agreement.
Steel Fabricating Segment
Steel Fabricating Segment earnings in the second half of 1999 should improve
over the first half. Acme Packaging expects increased sales volume in both its
steel and plastic strapping products with selling prices remaining steady. 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 these improvements through the second half of 1999.
Sales volume and prices for Alpha Tube are 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 are being 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's current
desktop computers are not Year 2000 compliant. The Company will obtain compliant
machinery at a cost of approximately $1.5 million before year end. Alpha Tube is
in the process of implementing a
25
<PAGE> 26
Year 2000 compliant system (at a cost of approximately $2.0 million) and expects
implementation to be materially completed before January 1, 2000.
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.
FORWARD LOOKING STATEMENT
Actual events might materially differ from those projected in the above forward
looking statements. If there are substantial unexpected production interruptions
or other operating difficulties, or if the Company fails to achieve production
and material goals, 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
26
<PAGE> 27
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.
27
<PAGE> 28
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS
(a) 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 June 8, 1999 reported the initial draw by
the Company of approximately $9.0 million under an irrevocable letter
of credit in the approximate amount of $32.0 million issued by the
Chase Manhattan Bank to secure performance by Raytheon Engineers &
Constructors, Inc. of its obligations under its contract with the
Company for the construction of the CSP.
28
<PAGE> 29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACME METALS INCORPORATED
Date: August 6, 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)
29
<PAGE> 1
Exhibit 15
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Dear Sirs:
We are aware that Acme Metals Incorporated has included our report dated July
20, 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
July 20, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Unaudited Consolidated Balance Sheets at June 27, 1999 and Unaudited
Consolidated Statements of Operations for the Six Months Ended June 27, 1999 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-26-1999
<PERIOD-START> DEC-28-1998
<PERIOD-END> JUN-27-1999
<CASH> 7,308
<SECURITIES> 0
<RECEIVABLES> 60,248
<ALLOWANCES> 1,110
<INVENTORY> 80,115
<CURRENT-ASSETS> 154,542
<PP&E> 904,661
<DEPRECIATION> (371,232)
<TOTAL-ASSETS> 726,509
<CURRENT-LIABILITIES> 69,831
<BONDS> 233,370
0
0
<COMMON> 11,665
<OTHER-SE> (3,290)
<TOTAL-LIABILITY-AND-EQUITY> 726,509
<SALES> 228,289
<TOTAL-REVENUES> 228,289
<CGS> 222,961
<TOTAL-COSTS> 242,465
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,917
<INCOME-PRETAX> (29,005)
<INCOME-TAX> 138
<INCOME-CONTINUING> (29,143)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (29,143)
<EPS-BASIC> (2.50)
<EPS-DILUTED> (2.50)
</TABLE>
