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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 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)
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DELAWARE 36-3802419
(State of incorporation) (I.R.S. Employer Identification No.)
13500 SOUTH PERRY AVENUE
RIVERDALE, ILLINOIS 60827-1182
(Address of principal executive offices) (Zip Code)
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(708) 849-2500
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF EACH CLASS
Common Stock, par value $1.00
Preferred Share Purchase Rights
12 1/2% Senior Secured Notes due 2002
13 1/2% Senior Secured Discount Notes due 2004
10 7/8% Senior Unsecured Notes due 2007
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
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 ___
The aggregate market value as of March 13, 2000 of common stock, par value
$1.00, held by nonaffiliates of the Registrant was $4,102,551.
Number of shares of Common Stock outstanding as of March 13, 2000:
11,647,471.
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ACME METALS INCORPORATED
1999 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
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PART I
Item 1. Business.................................................... 3
Item 2. Properties.................................................. 7
Item 3. Legal Proceedings........................................... 8
Item 4. Submission of Matters to a Vote of Security Holders......... 12
PART II
Item 5. Market for the Company's Common Stock and Related
Shareholder Matters......................................... 13
Item 6. Selected Financial Data..................................... 14
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 15
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 20
Item 8. Financial Statements and Supplementary Data................. 20
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.................................... 21
PART III
Item 10. Directors and Executive Officers of the Company............. 22
Item 11. Executive Compensation...................................... 25
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 33
Item 13. Certain Relationships and Related Transactions.............. 34
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form
8-K......................................................... 35
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PART I
ITEM 1. BUSINESS
GENERAL
Acme Metals Incorporated ("Acme Metals") was incorporated as a Delaware
corporation in 1992 as the successor to the original Acme Steel Company which
was a part of Interlake, Inc. from 1964 until spun off as a separate public
company in 1986.
The principal business activities of Acme Metals are conducted through two
separate industry segments:
Steel Making Segment
Acme Steel Company ("Acme Steel") -- integrated iron and steel producer
Steel Fabricating Segment
Acme Packaging Corporation ("Acme Packaging") -- manufacturer of steel
strapping, plastic strapping, and strapping products
Alpha Tube Corporation ("Alpha Tube") -- manufacturer of welded steel
tube products
Acme Metals and all of its direct and indirect subsidiaries report
financial information on a consolidated basis and are together referred to as
the "Company."
CHAPTER 11 BANKRUPTCY FILINGS
On September 28, 1998 ("Petition Date"), Acme Metals and its principal
direct and indirect subsidiaries, Acme Steel, Acme Packaging, 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 ("Bankruptcy Code") in the United
States Bankruptcy Court for the District of Delaware ("Bankruptcy Court"). These
reorganization cases are being jointly administered under Case Number 98-2179
pursuant to Rule 1015 (b) of the Federal Rules of Bankruptcy Procedure and are
collectively referred to as "Chapter 11 Bankruptcy" herein. The Company is in
possession of its properties and assets and continues to manage its businesses
with its existing directors and officers as debtors-in-possession subject to the
supervision of the Bankruptcy Court.
On September 28, 1998, the Company filed for Chapter 11 Bankruptcy after
management determined that action was required to preserve the operational
strength and assets of the Company's businesses while the Company reorganizes
its business and restructures its balance sheet.
Factors contributing to the Company's decision to seek Chapter 11
Bankruptcy protection included a loss of orders from its traditional higher
margin, value-added customers, which, together with the dramatic increase of
imported foreign steel during the last half of 1998, resulted in a weak order
book, an adverse mix of products, substantially lower average selling prices and
production cost inefficiencies. These factors contributed to the Company's
increased operating loss and net loss during 1998. Such losses resulted in
reduced liquidity, breach of certain financial covenants in the Company's loan
agreements, and a projected inability to service ongoing debt obligations. The
rapidly deteriorating steel market and the Company's weakening financial
condition clearly limited the availability of and the time to implement other
options. These factors resulted in the decision of the Board of Directors to
file for Chapter 11 Bankruptcy protection.
Pursuant to the provisions of the Bankruptcy Code, all actions to collect
upon any of the Company's liabilities as of the Petition Date or to enforce
pre-Petition Date contractual obligations were automatically stayed. Absent
approval from the Bankruptcy Court, the Company is prohibited from paying
pre-petition obligations. The Bankruptcy Court has approved payment of certain
pre-petition liabilities such as employee wages and benefits and certain
specified pre-petition obligations to vendors, customers and taxing authorities.
Additionally, the Bankruptcy Court has allowed for the retention of legal and
financial professionals and
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adequate protection payments (payments to adequately protect holders of certain
secured claims against the Company).
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 twenty-one month Loan and Security Agreement ("DIP
Financing Agreement") with Bank of America, which provides for a maximum of $100
million of revolving credit borrowings subject to certain borrowing base
limitations based on inventory and accounts receivable ($2.1 million was
outstanding with $62.4 million available at December 26, 1999). 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 subordinate to pre-petition trade obligations and
Chapter 11 Bankruptcy administrative expenses of Alpha Tube. Further information
about the DIP Financing Agreement is set forth in the Notes to the Consolidated
Financial Statements.
The Company 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 at
the earliest practical date, 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 May 30, 2000, with the exception of Alpha Tube whose
extension is until April 30, 2000. While the Company anticipates requesting
further extensions of the exclusivity period, there can be no assurance the
Bankruptcy Court will grant such further extensions. If the exclusivity period
were to expire or be terminated, other interested parties would have the right
to propose alternative plans of reorganization.
Although the Chapter 11 Bankruptcy raises substantial doubt about the
Company's ability to continue as a going-concern, the accompanying financial
statements have been prepared on a going-concern basis. This basis contemplates
the continuity of operations, realization of assets, and discharge of
liabilities in the ordinary course of business. The statements also present the
assets of the Company at historical cost and the current intention that they
will be realized as a going-concern in the normal course of business. A plan of
reorganization could materially change the amounts currently disclosed in the
financial statements.
The statements do not present the amount which may ultimately be paid to
settle liabilities and contingencies which may be allowed in the Chapter 11
Bankruptcy. Under Chapter 11 Bankruptcy, the rights of and ultimate payment by
the Company to pre-petition creditors may be substantially altered. This could
result in claims being liquidated in the Chapter 11 Bankruptcy at less (and
possibly substantially less) than 100 percent of their face value. At this time,
because of material uncertainties, pre-petition claims are carried at face value
in the accompanying financial statements. Further information about the
financial impact of the Chapter 11 Bankruptcy is set forth in Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations and Notes to Consolidated Financial Statements.
OPERATIONS -- BUSINESS SEGMENTS
The Company operates and reports its operations in two separate business
segments: Steel Making (principally through Acme Metals' wholly-owned subsidiary
Acme Steel), and Steel Fabricating (principally through Acme Metals'
wholly-owned subsidiary, Acme Packaging, and Acme Packaging's wholly-owned
subsidiary, Alpha Tube). Universal Tool & Stamping Company, Inc. ("Universal
Tool") was a wholly-owned subsidiary of Acme Packaging in the Steel Fabricating
Segment until March 9, 1998, when Universal Tool was sold. Financial information
about the Company's business segments is contained in the Business Segments
section of the Notes to the Consolidated Financial Statements and in Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Steel Making Segment
Acme Steel is a fully integrated steel producer in the United States. Acme
Steel's operations are located in Riverdale Illinois and Chicago, Illinois, and
includes: coke ovens, blast furnaces, pigging machines, basic
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oxygen furnaces, ladle metallurgical facilities, a continuous thin slab
caster/hot strip mill ("CSP") and a cold mill.
In the third quarter of 1996, Acme Steel completed construction of its CSP
at its Riverdale plant. In June 1997, Acme Steel completed the decommissioning
of its ingot making operations at its Riverdale plant. Acme Steel manufactures
flat-rolled carbon steel, including sheet and strip steel. Acme Steel has
historically specialized in the production of mid- and high-carbon, alloy, and
high strength low alloy ("HSLA") steels. The principal markets served by Acme
Steel include the automotive, agricultural, industrial fastener, pipe and tube
industries, tool manufacturing industries, processors, and steel service
centers.
Acme Steel accounted for approximately 51.0 percent of the Company's total
sales during 1999. Acme Steel's order backlogs for its products were $71.5
million and $25.6 million at December 26, 1999 and December 27, 1998,
respectively.
In 1996, Acme Steel, as a 40 percent equity participant in NACME Steel
Processing, LLC ("NACME"), a limited liability company, constructed a steel coil
processing plant on land owned by Acme Steel in Chicago, Illinois adjacent to
Acme Steel's Riverdale steel making operations. NACME pickles, oils, slits and
packages steel coils produced at Acme Steel's CSP. Pursuant to a steel
processing agreement between Acme Steel and NACME, Acme Steel has agreed to
certain tonnage provision and a cost plus return guarantee.
Steel Fabricating Segment
Acme Packaging is one of the two major domestic producers of steel
strapping and strapping tools in North America. In addition, Acme Packaging
began manufacturing plastic strapping during 1998. Acme Packaging's operations
are located in Riverdale, Illinois; New Britain, Connecticut; Leeds, Alabama;
and Bay Point, California. The principal markets served by Acme Packaging
include the agricultural, automotive, brick, construction, fabricated and
primary metals, forest products, paper and wholesale industries.
Alpha Tube is a leading producer of high quality welded carbon steel tube
and pipe. Alpha Tube's operations are located in Walbridge, Ohio. The principal
markets served by Alpha Tube are the appliance, automotive, construction,
heating and cooling equipment, household and leisure furniture, material
handling, recreational products, truck exhaust industries and service centers.
Universal Tool, which was sold in March 1998, produced automotive and light
truck jacks, tire wrenches and accessories for the original equipment
manufacturer market in North America. Universal Tool accounted for approximately
1.7 percent of the Company's total sales during 1998.
Acme Packaging and Alpha Tube accounted for approximately 31.0 percent and
18.0 percent, respectively, of the Company's total sales during 1999. Alpha
Tube's order backlogs were $13.8 million at December 26, 1999 and $12.6 million,
at December 27, 1998. Due to the nature of its business, Acme Packaging does not
have a significant order backlog.
EMPLOYEES
As of December 26, 1999, the Company had 1,741 active employees of which
459 were salaried and 1,282 were hourly. All of the hourly employees are
represented by unions. None of the salaried employees are represented by a
union.
The current collective Bargaining Agreement between the Company and the
United Steelworkers of America covering the Chicago and Riverdale plants became
effective September 1, 1993, and has been extended with a termination date of no
later than October 30, 2000. The Company and the United Steelworkers of America
have negotiated a new tentative Collective Bargaining Agreement for the Chicago
and Riverdale plants, with a termination date of December 31, 2005, subject to
successful emergence from bankruptcy. A Collective Bargaining Agreement with a
termination date of January 29, 2006, has also been negotiated with the United
Steelworkers of America covering the hourly employees at Alpha Tube and has been
approved by the Bankruptcy Court.
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Existing labor agreements covering Acme Packaging Corporation hourly
employees at Bay Point, California; New Britain, Connecticut; and Leeds,
Alabama, are scheduled to expire on October 31, 2000, March 31, 2001 and April
30, 2001, respectively.
COMPETITION
Steel Making Segment
Acme Steel faces intense competition from domestic and foreign flat-rolled
carbon steel producers, steel service centers, and producers of plastics,
ceramics, aluminum and other materials which can be used in place of flat-rolled
steel in manufactured products. The primary competitive factors faced by Acme
Steel are price, quality, reliability of supply, and timeliness of delivery and
customer service.
For commercial sales, Acme Steel currently competes in the low-, mid-,
high-carbon, HSLA and alloy steel markets. Acme Steel has numerous competitors
composed principally of steel service centers, other small integrated mills, and
mini-mills. Recently improved thin slab casting practices, such as those
utilized in the CSP, have allowed mini-mill producers to enter certain sectors
of the flat-rolled market, including a portion of Acme Steel's niche market,
which had traditionally been supplied by integrated steel makers.
Domestic steel producers have faced significant competition from foreign
steel producers who typically have lower labor costs, currently benefit from
foreign exchange rates, and may have less stringent environmental compliance
regulations. Additional information is set forth in Item 7. Management's
Discussion and Analysis of Financial Conditions and Results of Operations.
During 1999, foreign imports of flat-rolled steel began to recede from the
record high volumes experienced in 1998; however, during 1999 total imports of
foreign flat-rolled steel exceeded historical norms. As a result, while market
prices for the Company's products have partially recovered from the levels
experienced in 1998 and early 1999, they have not returned to pre-1998 levels
and continue to adversely affect pricing. According to data published by the
United States Department of Commerce, steel imports for 1998 were 41.5 million
tons, an all-time record high, representing an increase of 33 percent over 1997
which resulted in 30 percent of apparent domestic consumption being supplied by
foreign steel. Steel imports increased steadily in each quarter of 1998, and
during the fourth quarter accounted for 11 million tons, an increase of 65
percent over the fourth quarter of 1997. The main sources of steel imports were
Japan, Russia and Korea, which together accounted for approximately 80 percent
of the surge in foreign imports during 1998. This glut of "dumped" foreign steel
caused a sharp drop in the price of domestic steel and forced domestic steel
companies to cut production and lower capacity utilization.
Steel Fabricating Segment
Acme Packaging has one primary competitor in the steel strapping market.
The Company believes that these two steel strapping companies share
approximately 80 percent of the domestic steel strapping and strapping tool
market. During recent years, steel strapping has experienced competition from
plastic strapping, especially high strength polyester product. Many of Acme
Packaging's historical steel strapping customers also purchase plastic
strapping. As a result, in 1998 Acme Packaging installed two plastic strapping
extrusion lines at its Riverdale facility to strengthen its competitive position
and distribution efficiencies in the marketplace.
Alpha Tube operates in a highly competitive market characterized by
numerous participants with widely varying capabilities. In 1998 Alpha Tube
consolidated its operations into one modern manufacturing facility and upgraded
the capability of its large diameter tube mill, which resulted in increased
capacity and a reduction of various operating costs.
RAW MATERIALS AND ENERGY SOURCES
Raw materials and energy represent a major component of production costs in
the steel industry. The principal raw materials used by Acme Steel are iron ore,
coal and scrap. Acme Steel obtains its iron ore requirements through Acme
Steel's indirect 15.1 percent participation in Wabush Mines, an iron ore mining
venture in Eastern Canada ("Wabush"), and through contracts. Acme Steel is
required to pay its
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proportionate share of the fixed operating costs of Wabush, regardless of the
quantity of ore received, plus the variable operation costs of minimum ore
production by Wabush for Acme Steel. Acme Steel reimburses the joint venture for
these costs through its purchase of ore. There is currently a worldwide surplus
of metallurgical coal. As a result, Acme Steel is able to satisfy its coal
requirements at competitive prices through short-term contracts and purchases on
the open market. Acme Steel purchases steel scrap from external sources and
believes adequate supplies of steel scrap are readily available at competitive
prices. The Company uses large amounts of electricity and natural gas and is
able to satisfy its requirements at prevailing market rates and in adequate
quantities.
Raw materials, primarily steel, for the Fabricating Segment are principally
supplied by contracts with the Steel Segment and, if necessary, other outside
producers or suppliers.
ENVIRONMENTAL COMPLIANCE
The operations of Acme Steel, Acme Packaging and Alpha Tube are subject to
numerous federal, state and local laws and regulations providing a comprehensive
program of controlling the discharge of materials into the environment and
remediation of certain waste sites by responsible parties for the protection of
public health and the environment. In addition, various federal and state
occupational safety and health laws and regulations apply to the workplace
environment. See Item 3. Legal Proceedings, Environmental.
TRADEMARKS AND PATENTS
The Company has the trademarks, patents and licenses necessary for the
operation of its businesses as presently conducted. The Company does not hold
any patents, trademarks or licenses which are deemed material to its businesses.
ITEM 2. PROPERTIES
The Company has facilities throughout the United States. The Company
believes its manufacturing facilities are being properly maintained and their
production capability is adequate to meet current customer orders.
Acme Steel
Acme Steel's principal properties are located in Chicago, Illinois and
Riverdale, Illinois. The facilities in Chicago include coke ovens, blast
furnaces and pigging machines. The facilities in Riverdale include basic oxygen
furnaces, the CSP, and a cold mill. The facilities in both Chicago and Riverdale
are owned in fee simple, subject to mortgages held by certain secured creditors.
In addition, Acme Steel owns the land on which NACME is located and leases it to
NACME. This land, together with the improvements on it, is subject to a
leasehold mortgage. See discussion of NACME in Item 1
Business-Operations -- Business Segments.
Acme Packaging
Acme Packaging's principal properties consist of a steel strapping plant
(which includes slitting and painting equipment) and a leased plastic strapping
plant in Riverdale, Illinois, steel strapping plants (which include slitting and
painting equipment and warehouses) in Leeds, Alabama, and Bay Point, California,
and a strapping tool plant in New Britain, Connecticut. The property in
Riverdale is owned in fee simple by Acme Steel, subject to a mortgage held by
certain secured creditors, and leased to Acme Packaging. The properties in
Leeds, Alabama; Bay Point, California; and New Britain, Connecticut, are owned
in fee simple. In addition, Acme Packaging leases five regional sales offices
throughout the United States.
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Alpha Tube
Alpha Tube's state-of-the-art facility is located in Walbridge, Ohio, and
consists of five tube mills for the production of steel tube and pipe and a
steel slitting operation. This facility is owned by Acme Metals, subject to a
mortgage held by a secured creditor, and is leased to Alpha Tube.
ITEM 3. LEGAL PROCEEDINGS
GENERAL
For information concerning the Company's Chapter 11 Bankruptcy, see Item 1.
Business-Chapter 11 Bankruptcy Filings.
Reorganization in connection with Spin-off. Pursuant to an Agreement and
Plan of Reorganization as of March 5, 1986, the Company (prior to the Company's
1992 reorganization, the Company was Acme Steel Company, now a subsidiary and
formerly called Interlake, Inc., hereinafter referred to as the "Company") and
The Interlake Company ("Interlake"), its former parent company, entered into a
Tax Indemnification Agreement ("TIA"). The TIA generally provides for Interlake
to indemnify the Company for certain tax matters. Per the TIA, Interlake is
solely responsible for any additional income taxes it is assessed for
adjustments relating to all tax years prior to 1982. With respect to any
additional income taxes that are finally determined to be due with respect to
the tax years beginning in 1982 through the date of the "Spin-Off" (as said term
is identified in the Reorganization documents), the Company is responsible for
taxes relating to "Timing Differences" related to the Company's "Continuing
Operations." A "Timing Difference" is defined generally as an adjustment to
income, deductions or credits which is required to be reported in a tax year
beginning subsequent to 1981 through the Spin-Off, but which will reverse in a
subsequent year. "Continuing Operations" is defined generally as any business
and operations conducted by the Company as of the Spin-Off date. Interlake is
principally responsible for any additional income taxes the Company is assessed
relating to all other adjustments prior to the Spin-Off. The Company currently
believes amounts are owed by Interlake pursuant to the TIA.
On March 18, 1999, the U.S. Tax Court entered an opinion 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 and the IRS did not appeal this opinion.
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, the Company
recognized an income tax related interest charge of $10 million as other
long-term liabilities subject to compromise in the third quarter of 1999. 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, the
Company will vigorously pursue all remedies against third parties, including
Interlake pursuant to the TIA. In the first quarter of 2000, the Company
received an assessment of $3.5 million plus accrued interest for a portion of
the 1987 refund related to the 1985 tax year. The remaining refund relates to
1981 and 1984; both years are before the Tax Court. The entire liability is
stayed as the result of the Company's Chapter 11 Bankruptcy.
Other Matters. The Company's subsidiaries also have various litigation
matters pending which arise out of the ordinary course of their businesses. In
the opinion of management, the ultimate resolution of these matters will not
have a material adverse effect on the financial position or results of
operations of the Company.
ENVIRONMENTAL
In addition to the general matters noted above, the operations of the
Company is subject to numerous federal, state and local laws and regulations
providing a comprehensive program of controlling the discharge of materials into
the environment and remediation of certain waste disposal sites by responsible
parties for the
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protection of public health and the environment. Various federal and state
occupational safety and health laws and regulations also apply to the workplace
environment.
These current environmental control requirements are comprehensive and
continue to reflect a long-term trend towards increasing stringency. The Company
expects these requirements will continue to become even more stringent in future
years. The U.S. EPA's proposal for revision of the National Ambient Air Quality
Standards for particulate matter and ozone are recent examples of this trend.
The Company is and, from time to time, will be involved in administrative
proceedings involving the issuance, or renewal, of environmental permits
relating to the conduct of its business. The final issuance of these permits is
generally resolved on terms satisfactory to the Company. In the future, the
Company expects such permits will be similarly resolved on satisfactory terms;
however, from time to time, the Company is required to pursue administrative
and/or judicial appeals prior to achieving a resolution of the terms of such
permits.
The Company, from time to time, may be involved in administrative or
judicial proceedings with various regulatory agencies or private parties
claiming that the Company's operations have violated certain environmental laws,
conditions of existing permits, or the disposal of materials at waste disposal
sites. The resolution of such matters may involve the payment of civil
penalties, damages, remediation expenses and/or the expenditure of funds to add
or modify pollution control equipment.
The Company has made substantial capital investments in environmental
control facilities to achieve compliance with these laws, incurring expenditures
of $10.3 million for environmental projects (exclusive of any such expenditures
related to the CSP) in the period from 1996 through 1999. The CSP was
constructed under a lump sum fixed price contract of which it is estimated that
$9.8 million was capitalized in 1996 for environmental compliance excluding
capitalized interest. A nominal amount was expended during 1997 through 1999 to
maintain environmental compliance at the CSP. The Company anticipates making
nominal capital expenditures for environmental projects during 2000. In
addition, maintenance, depreciation and operating expenses attributable to
installed environmental control facilities are having, and will continue to
have, an adverse effect upon the Company's earnings. Although all of the
Company's operating subsidiary companies are affected by these laws and
regulations, similar to other steel manufacturing operations, the laws and
regulations have had, and are expected to continue to have, a greater impact
upon the Company's steel manufacturing subsidiary than on the Company's other
operating subsidiaries.
Waste Remediation Matters
Pursuant to the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986, 42 U.S.C., Section 9601 et seq. ("Superfund") and
similar state statutes, liability for remediation of property, including waste
disposal sites, contaminated by hazardous materials may be imposed on present
and former owners or operators of such property and generators or transporters
of such materials to a waste disposal site (i.e., Potentially Responsible
Parties, "PRPs"). The Company and its operating subsidiaries have been named as
PRPs with respect to several such sites. In each instance, the Company's
investigation has evidenced either: i) the Company had not disposed of waste
materials at the site and was not properly named as a PRP; or, ii) the Company's
proportion of materials disposed of at such sites is of sufficiently small
volume to qualify the Company as a de minimis contributor of waste material at
such sites. This de minimis status has been confirmed at essentially all of the
applicable sites.
Although no assurances can be given that new information will not be
uncovered which would cause the Company and its subsidiaries to lose their de
minimis status at these sites, or, that the Company would not be named as PRPs
at additional sites, the Company presently believes its total costs for existing
sites will not be material.
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Administrative and Litigation Matters
The Company is currently involved in the following matters relating to
administrative regulations which affect, or may affect, the operations, the
permits or the issuance of permits, or litigation relating to the Company:
Removal Credits and Pretreatment. The Metropolitan Water Reclamation
District of Greater Chicago ("MWRD") is a publicly owned treatment works
("POTW"). The MWRD applied to the U.S. Environmental Protection Agency ("U.S.
EPA") for authority to revise categorical pretreatment standards to reflect the
actual treatment provided by the MWRD for waste water discharged to the MWRD's
POTW by industrial users ("Removal Credits"). These revised categorical
standards, reflecting Removal Credits are essential for Acme Steel to avoid
expenditures for control of 4AAP phenol found in discharges from its coke
by-products plant and for control of certain other pollutants. In 1987, the
MWRD's application was denied by the U.S. EPA and the denial was upheld by the
United States Court of Appeals for the Seventh Circuit. The U.S. EPA maintained
that, under the Clean Water Act and decisions of U.S. District Courts, it could
not approve Removal Credits until it promulgated "sludge criteria."
In 1993, the U.S. EPA promulgated sludge criteria, which included the
possibility of granting Removal Credits for phenols in certain circumstances.
Acme Steel petitioned the MWRD for Removal Credits. Following this petition, the
MWRD again applied to the U.S. EPA for authority to grant Removal Credits. While
this application was denied, the U.S. EPA stated that if the Agency amends its
regulations with respect to phenol 4AAP, either as a result of the petition
filed by the MWRD or independently, the MWRD may then resubmit its application.
Acme Steel, together with a similarly situated steel company, filed Comments and
a Request for Reconsideration and Clarification concerning the 4AAP phenol
component of the U.S. EPA's Standards for Disposal of Sludges with the U.S. EPA
and filed a Petition for Review of the U.S. EPA's decision with the Court of
Appeals for the DC Circuit. Both the Comments and Request for Reconsideration
and the Petition for Review are pending. The steel companies filed a motion with
the DC Circuit Court to stay the appeal pending the U.S. EPA's consideration of
the Comments and Administrative Request for Reconsideration and Clarification.
The Court granted this Motion on September 14, 1994. On September 10, 1996 Acme
Steel filed, along with the other steel company, with the U.S. EPA a phenol risk
assessment document supporting the granting of Removal Credits for 4AAP phenol.
To date, there has been no decision by the U.S. EPA. Acme Steel continues to
challenge the U.S. EPA's denial of the Removal Credits application and pursue
administrative and legal remedies. The U.S. EPA is currently preparing a
proposed administrative rule intended to address the Removal Credits issue,
however, at this time Acme Steel is unable to determine whether such an
administrative rule, if promulgated and adopted, will adequately address Acme
Steel's 4AAP phenol Removal Credits issues. Acme Steel could be subject to
allegations it is in violation of currently applicable pretreatment standards
and could be required to negotiate appropriate resolutions with the U.S. EPA and
the MWRD resulting in the payment of penalties if its administrative and/or
legal challenges are unsuccessful.
Although Acme Steel is vigorously pursuing its administrative and judicial
remedies and would vigorously contest any action to assess civil penalties
against Acme Steel, the Company does not have sufficient information to estimate
its potential liability, if any, if Acme Steel's efforts to obtain such relief,
or contest such penalty assessments, are not successful.
Recycling of Coke Plant By-Product Residues. By letter dated September 30,
1998, the U.S. EPA issued a notice and opportunity to show cause why Acme Steel
qualifies for the coke plant by-product residue recycling exemption in 40 CFR
261.4 (a)(10) and why, therefore, its facility is not a treatment, storage or
disposal facility operating in violation of the Resource Conservation and
Reclamation Act of 1976, 42 U.S.C. Section 6901 et seq. ("RCRA"). This notice
relates to a process operated by an outside contractor at the coke plant, which
prepares coke plant by-product residues for recycling to the coke ovens. On
August 25, 1999, the U.S. EPA filed an administrative complaint against Acme
Steel related to the same issues and is seeking a $1.6 million penalty. Acme
Steel is involved in discussions with the U.S. EPA, and based on the discussions
to date, believes the matter can be resolved by minor modification to the
process and a nominal penalty.
10
<PAGE> 11
OTHER MATTERS
1986 Reorganization Matters. Pursuant to an Agreement and Plan of
Reorganization dated as of March 5, 1986, (the "Reorganization") between the
Company and Interlake (pursuant to the Spin-off), both parties entered into a
Cross-Indemnification Agreement, dated May 29, 1986, (the "Agreement") more
specifically described in Exhibit 10.2 to the Company's Annual Report/Form 10-K
filed with the SEC for the fiscal year 1992, SEC file no. 0-14727.
Pursuant to the terms of this Agreement, for a period of ten (10) years
following the date of the Spin-Off (as that term is identified in the
Reorganization documents), the Company undertook to defend, indemnify and hold
Interlake and its affiliates harmless from and against any and all Claims, as
that term is defined in the Agreement, occurring either before or after the date
of the Reorganization and which arose out of or are related to the Acme
Business, as that term is defined in the Agreement. The Acme Business is more
specifically defined in the Agreement as the iron and steel and domestic U.S.
steel strapping business as conducted by the Company on or about May 29, 1986.
Similarly, and for the same period of time, Interlake undertook to defend,
indemnify and hold the Company harmless from and against all Claims, as that
term is defined in the Agreement, occurring either before or after the date of
the Reorganization related to the operation of all businesses and properties
currently owned, directly or indirectly, by Interlake or any subsidiary of
Interlake (other than the Company and its affiliates) and relating to the
Transferred Property, as that term is defined in the Reorganization Agreement
(but excluding the Acme Business), and any business and properties discontinued
or sold by Interlake prior to May 29, 1986, including any discontinued or sold
businesses or property which, if continued, would be part of the Acme Business.
The indemnification by Interlake with respect to any Claims incurred in
connection with or arising out of or related to the Interlake Business, as that
term is defined more specifically in the Agreement, includes but is not limited
to environmental matters relating to the Interlake Business whether brought by
governmental agencies or private entities. These environmental matters include,
without limitation, the lawsuit captioned People of the State of Illinois v.
Waste Management of Illinois, Interlake, Inc. and First National Bank of Western
Springs, Circuit Court of Cook County, Illinois (No. 85 L 30162); the disposal
of materials at the landfill operated by Conservation Chemical located at Gary,
Indiana, to the extent such materials originated at the plant of Gary Steel
Company; and operation of facilities by predecessors of Interlake at Duluth,
Minnesota.
Interlake also has and continues to provide indemnification to the Company
for the Duluth, Minnesota, facility which has been designated as a Superfund
Site pursuant to the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986, 42 U.S.C. Section 9601, et seq. (the "Duluth
Site"). Interlake reported the soil remediation was substantially completed in
1997. The Minnesota environmental agency ("MPCA") also requested Interlake to
investigate and evaluate remediation alternatives for the underwater sediments
at the Duluth Site. Interlake reports that consultants have substantially
completed an investigation of the sediments; and based on this investigation
Interlake has commenced reviewing potential remediation alternatives with the
MPCA and other parties. Interlake indicates it is unable to provide meaningful
estimates of the potential cost estimates of such remediation, if any is deemed
appropriate, until the investigation is complete and remediation alternatives
are reviewed with the MPCA.
In March 1996, the MPCA named the successors of certain coal tar processors
as additional parties responsible for a portion of the underwater sediments at
the Duluth Site.
Merger of The Interlake Corporation and GKN North America Manufacturing
Inc. On February 10, 1999, GKN North American Manufacturing Inc. ("GKN") was
merged into Interlake. The Company believes the acquisition of Interlake by GKN
will not alter the obligations and rights of the Company and Interlake as
described herein.
11
<PAGE> 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the last quarter of the last fiscal year.
12
<PAGE> 13
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
The following table presents the high and low sales or bid information on a
quarterly basis for the Company's Common Stock for the two fiscal years
beginning December 29, 1997 through December 26, 1999. From December 29, 1997
through September 29, 1998, the Common Stock traded on the New York Stock
Exchange under the symbol AMI. Subsequent to September 29, 1998 and continuing
to date, the Common Stock has traded on the Bulletin Board Quotation System of
the National Association of Securities Dealers under the symbol AMIIQ. In
addition, from December 30, 1996 through December 8, 1998, the Company's Common
Stock traded on the Toronto Stock Exchange under the symbol AMK. As of March 13,
2000 there were 11,647,471 shares of Common Stock outstanding held by 4,471
shareholders of record.
<TABLE>
<CAPTION>
QUARTER 1999 1998
- ------- --------- -------------
<S> <C> <C>
First.............................................. .24 - .37 10.62 - 14.50
Second............................................. .24 - .32 9.38 - 3.38
Third.............................................. .24 - .65 5.00 - 1.63
Fourth............................................. .23 - .50 1.00 - .10
</TABLE>
No dividends have been declared or paid on the Common Stock since the
Company became a public company in 1986. Special payments in 1992 and 1988
reflected the redemption of preferred stock purchase rights. Certain covenants
in the Company's debt instruments and agreements have limited the Company's
ability to pay dividends. Currently, the Company's status under Chapter 11 of
the Bankruptcy Code and the DIP Financing Agreement prohibit the payment of
dividends and the repurchase of shares.
OTHER EVENTS
On January 20, 2000, the Bankruptcy Court denied a motion of certain equity
holders of the Company to appoint an equity committee to represent the interest
of the Company's equity security holders (the "Stockholders") in the Company's
pending bankruptcy proceedings. In the course of the Court's consideration of
this motion, the Company's financial advisor presented evidence indicating it
now appears likely, under current circumstances, that at the time the final plan
of reorganization is filed, there will not be sufficient reorganization value in
the bankruptcy proceedings to provide a distribution to Stockholders. In denying
the motion, the Court did not comment on the financial advisor's conclusion,
ruling instead that the Company and its advisors were fulfilling their fiduciary
duty in seeking to represent all interests and, therefore, no need for a
separate equity committee to represent the Stockholders existed.
13
<PAGE> 14
ITEM 6. SELECTED FINANCIAL DATA
FIVE YEARS IN REVIEW (dollars in thousands except for per share data)
Certain amounts have been reclassified to conform with the 1999 presentation.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCOME DATA
Net sales $468,385 $459,920 $488,030 $498,242 $521,619
- ----------------------------------------------------------------------------------------------
Income (loss) from operations (23,721) (39,482) (35,057) 5,036 48,812
- ----------------------------------------------------------------------------------------------
Income (loss) before income taxes,
extraordinary loss and a cumulative
effect of a change in accounting
principle (62,880) (71,954) (76,642) 5,093 44,135
- ----------------------------------------------------------------------------------------------
Income tax provision (benefit) 284 55,736 (29,124) 2,426 15,889
- ----------------------------------------------------------------------------------------------
Net income (loss) before
extraordinary loss and a cumulative
effect of a change in accounting
principle (63,164) (127,690) (47,518) 2,667 28,246
- ----------------------------------------------------------------------------------------------
Extraordinary loss, net of taxes (23,411)
- ----------------------------------------------------------------------------------------------
Cumulative effect of a change in
accounting principle, net of tax (6,276)
- ----------------------------------------------------------------------------------------------
Net income (loss) (63,164) (127,690) (77,205) 2,667 28,246
==============================================================================================
PER SHARE DATA -- BASIC
Income (loss) before extraordinary
loss and a cumulative effect of a
change in accounting principle $ (5.42) $ (10.94) $ (4.09) $ 0.23 $ 2.44
- ----------------------------------------------------------------------------------------------
Extraordinary loss (2.01)
- ----------------------------------------------------------------------------------------------
Cumulative effect of a change in
accounting principle (0.54)
- ----------------------------------------------------------------------------------------------
Net income (loss) (5.42) (10.94) (6.64) 0.23 2.44
- ----------------------------------------------------------------------------------------------
Shareholders' equity (1.27) 3.22 16.02 22.45 21.42
- ----------------------------------------------------------------------------------------------
Weighted average shares outstanding
(in thousands) 11,658 11,673 11,628 11,598 11,574
==============================================================================================
PER SHARE DATA -- DILUTED
Income (loss) before extraordinary
loss and a cumulative effect of a
change in accounting principle $ (5.42) $ (10.94) $ (4.09) $ 0.23 $ 2.44
- ----------------------------------------------------------------------------------------------
Extraordinary loss (2.01)
- ----------------------------------------------------------------------------------------------
Cumulative effect of a change in
accounting principle (0.54)
- ----------------------------------------------------------------------------------------------
Net income (loss) (5.42) (10.94) (6.64) 0.23 2.44
- ----------------------------------------------------------------------------------------------
Shareholders' equity (1.27) 3.22 16.02 22.45 21.42
- ----------------------------------------------------------------------------------------------
Weighted average shares outstanding
(in thousands) 11,658 11,673 11,628 11,663 11,596
==============================================================================================
BALANCE SHEET
Current assets $155,891 $147,863 $192,443 $182,837 $258,787
- ----------------------------------------------------------------------------------------------
Property, plant and equipment, net 516,299 550,428 550,350 560,725 379,178
- ----------------------------------------------------------------------------------------------
Total assets 707,988 737,088 829,081 805,749 754,743
- ----------------------------------------------------------------------------------------------
Current liabilities 81,203 52,576 100,300 115,940 108,330
- ----------------------------------------------------------------------------------------------
Long-term debt 233,370 233,463 424,743 310,085 276,831
- ----------------------------------------------------------------------------------------------
Liabilities subject to compromise 300,072 296,074
- ----------------------------------------------------------------------------------------------
Shareholders' equity (14,805) 37,638 186,343 260,701 248,111
==============================================================================================
CASH FLOWS
Net cash provided by (used for)
operating activities $(19,556) $ 11,687 $(60,712) $ 46,034 $ 59,541
- ----------------------------------------------------------------------------------------------
Net cash used for investing
activities (10,356) (11,291) (28,599) (85,562) (83,547)
- ----------------------------------------------------------------------------------------------
Net cash provided by financing
activities 11,043 12,019 62,541 19,709 410
- ----------------------------------------------------------------------------------------------
Net increase (decrease) in cash (18,869) 12,415 (26,770) (19,819) (23,596)
==============================================================================================
ADDITIONAL INFORMATION
Depreciation $ 39,321 $ 37,920 $ 39,410 $ 16,591 $ 13,613
- ----------------------------------------------------------------------------------------------
Capital expenditures 12,284 37,808 45,929 119,122 244,374
- ----------------------------------------------------------------------------------------------
Working capital 74,688 95,287 92,143 66,897 150,457
==============================================================================================
</TABLE>
14
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 financial data in the table included below and in
conjunction with the consolidated financial statements and notes thereto. See
Item 1. Business -- Chapter 11 Bankruptcy Filings.
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 of
hot-rolled sheet and strip steel. The Steel Fabricating Segment includes the
operations of Acme Packaging, Alpha Tube and, prior to its sale, Universal Tool.
Each fabricating segment company uses flat-rolled steel in their respective
fabricating processes, with the exception of Acme Packaging, which uses both
steel and plastic for its operations.
Acme Steel experienced a reduced average selling price per ton due to
competitive pressure, primarily steel imports, during the third quarter of 1998
and extending into 1999. Although the Segment was able to restore its sales
volume to acceptable capacity levels, selling prices in 1999 did not rebound to
those in the first half of 1998. During the third quarter of 1999, imports began
to slow and the Segment saw a rise in its average selling price, with this trend
continuing into the fourth quarter and into 2000. However, 1999 average selling
prices still fell short of 1998 average selling prices while volume increased
substantially.
The 1997 CSP start-up issues and the late delivery and slower than expected
ramp-up of the slitting capabilities at NACME caused an initial reduction in
higher margin sales. During 1998 and 1999, the Segment improved its ability to
produce and finish the higher margin products. However, intense competition from
foreign producers and new domestic entrants coupled with lower demand in certain
segments of the market did not allow the Segment to materially improve its
product mix. Although the Steel Segment's total sales volume increased during
1999, orders from its traditional higher margin value-added customers did not
reach the percentage of the product mix previously attained by the Segment
before building the CSP.
Acme Steel's CSP operated at an average of 97 percent capacity for 1999.
Improved cost control coupled with operations at near full capacity resulted in
improved CSP cost efficiencies and lower unit costs.
Despite increased volume, rising prices, and operations at full capacity,
the Steel Segment continued to incur significant losses. Prices, although
improved, did not reach early 1998 levels.
The Steel Fabricating Segment recorded strong operating results. However,
the operating income of this Segment was unable to offset the significant
operating losses of the Steel Making Segment.
15
<PAGE> 16
SUMMARY RESULTS OF OPERATIONS
The summary of the Company's results of operations:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
------------------------------------------
DECEMBER 26, DECEMBER 27, DECEMBER 28,
1999 1998 1997
------------ ------------ ------------
(IN MILLIONS)
<S> <C> <C> <C>
Sales:
Steel Making Segment................................. $319.8 $ 310.1 $299.6
Steel Fabricating Segment............................ 230.3 239.8 286.7
Intersegment sales................................... (81.7) (90.0) (98.3)
------ ------- ------
Sales............................................. $468.4 $ 459.9 $488.0
====== ======= ======
Operating income (loss):
Steel Making Segment................................. $(45.5) $ (62.1) $(61.9)
Steel Fabricating Segment............................ 21.8 22.6 26.8
------ ------- ------
Operating loss.................................... (23.7) (39.5) (35.1)
Non-operating income (expense):
Interest expense -- net............................. (33.0) (38.0) (41.1)
Reorganization charges under Chapter 11 Bankruptcy... (7.4) (6.7)
Other -- net......................................... 1.2 12.2 (0.4)
------ ------- ------
Loss before income taxes.......................... (62.9) (72.0) (76.6)
Income tax (benefit) provision....................... 0.3 55.7 (29.1)
------ ------- ------
Loss before extraordinary loss and cumulative effect
of a change in accounting principle............... (63.2) (127.7) (47.5)
Extraordinary loss, net of tax....................... (23.4)
Change in accounting principle, net of tax........... (6.3)
------ ------- ------
Net loss.......................................... $(63.2) $(127.7) $(77.2)
====== ======= ======
</TABLE>
Fiscal 1999 as compared to fiscal 1998
The Company. For the fiscal year ended December 26, 1999, the Company's
consolidated net sales increased 1.8 percent from $459.9 million in 1998 to
$468.4 million in 1999. The sales increase was due to stronger volume, partially
offset by weaker prices. In 1999, the Company incurred a net loss of $63.2
million, or $5.42 per diluted share. The 1999 net loss compares favorably by
$64.5 million to the 1998 net loss of $127.7 million, or $10.94 per diluted
share. The 1999 net loss includes a $10 million charge to interest expense due
to the Tax Court decision discussed in Item 3. Legal Proceedings. The 1998 net
loss included an income tax provision of $55.7 million primarily related to a
full valuation reserve recorded against net income tax benefits previously
recognized, while 1999 recorded a $0.3 million income tax provision. The
remaining improvement is primarily due to increased sales volume and decreased
operating costs at the Steel Segment.
The operating loss in 1999 was $23.7 million compared to the 1998 operating
loss of $39.5 million, a 39.9 percent improvement. The operating loss improved
primarily due to increased sales volume and improved cost efficiencies,
partially offset by the abandonment of the finishing mill causing a $7.7 million
charge to operating loss.
The 1999 results reflect operations under Chapter 11 Bankruptcy for the
entire year. Results for 1998 reflect operations prior to Chapter 11 Bankruptcy
for the period December 29, 1997 through September 28, 1998 and operations under
Chapter 11 Bankruptcy for the remainder of the year. Certain expenses, primarily
interest expense on unsecured debt, have been reduced or eliminated since the
Chapter 11 Bankruptcy filings.
Steel Making. Steel sales of $319.8 million in 1999 were up 3.1 percent
over 1998 sales of $310.1 million. The increase is attributable to a 21.5
percent increase in shipment volume. Offsetting that higher level of
16
<PAGE> 17
shipments was a 12.2 percent decrease in average selling price per ton related
to lower selling prices and a weaker sales mix. The lower average selling price
was caused by the competition from lower priced imported steel entering the
market in the first half of 1999 coupled with lower demand for Acme Steel's
higher margin product.
The CSP operated at 97 percent of capacity in 1999, the third full year of
operation, compared to 76 percent in 1998 and 59 percent in 1997.
The 1999 loss from operations was $45.5 million compared to a loss in 1998
of $62.1 million, a 26.7 percent improvement. This improvement is primarily due
to increased sales volume, decreased operating costs and year-end improvements
of price and product mix. Offsetting these improvements was the third quarter of
1999 abandonment of the Segment's finishing operations negatively impacting
operations by $7.7 million.
Steel Fabricating. Sales of $230.3 million in 1999 were down $9.5 million
or 4 percent from the $239.8 million in 1998. Acme Packaging sales were down 2.7
percent due to lower average selling prices. Alpha Tube sales were slightly
above the 1998 level with higher shipment volumes.
In 1999 operating income of $21.8 million was essentially flat with 1998.
Lower raw material and operating costs nearly offset the sales declines in Acme
Packaging. The increased volume, richer sales mix, and lower material costs more
than offset the price declines in the tube and pipe market as income from
operations at Alpha Tube was up over $3.4 million from the prior year. The
improvements at the Alpha Tube facility offset the elimination of operating
income at Universal ($1.8 million in 1998) due to its sale in March of 1998.
Net Interest Expense. Net interest expense of $33 million in 1999 was $5
million lower than net interest expense of $38 million in 1998. Interest expense
relating to unsecured debt was not accrued during 1999 due to the Chapter 11
Bankruptcy filings, while unsecured debt interest was accrued for the first
three quarters of 1998.
Reorganization Charges under Chapter 11 Bankruptcy. The $7.4 million of
reorganization charges remained essentially flat with 1998 reorganization
charges. Although 1998 experienced only one fiscal quarter of reorganization
charges, it incurred large one-time costs, including the unwinding of certain
hedging transactions.
Income Taxes. The provision for income taxes in 1999 was $0.3 million. For
the year ended December 27, 1998, the Company recorded an income tax provision
of $55.7 million. As a result of the losses incurred and its Chapter 11
Bankruptcy filings, the Company recorded a full valuation reserve against its
deferred net income tax asset balance in 1998.
Fiscal 1998 as compared to fiscal 1997
The Company. For the fiscal year ended December 27, 1998 the Company's
consolidated net sales decreased 5.7 percent to $459.9 million from $488.0
million in 1997. The decline was primarily due to the absence of Universal Tool
which was sold in the first quarter of 1998. In 1998, the Company incurred a net
loss of $127.7 million, or $10.94 per diluted share, which included an income
tax provision of $55.7 million relating to a full valuation reserve recorded
against net income tax benefits previously recognized. The 1998 net loss
compares unfavorably by $50.5 million with a 1997 net loss of $77.2 million, or
$6.64 per share. The 1997 net loss included a $29.1 million income tax benefit,
a $23.4 million (net of tax) extraordinary loss from a restructuring of debt,
and a $6.3 million (net of tax) charge due to a change in accounting principle.
The operating loss in 1998 was $39.5 million compared to the 1997 operating
loss of $35.1 million. The operating loss in 1997 included Universal Tool
operating income of $3.9 million.
The results for 1998 reflect operations prior to Chapter 11 Bankruptcy for
the period December 29, 1997 through September 28, 1998 and operations under
Chapter 11 Bankruptcy for the remainder of the year. Certain expenses, primarily
interest expense on unsecured debt, have been reduced since the Bankruptcy
filings.
17
<PAGE> 18
Steel Making. Steel sales of $310.1 million in 1998 were up more than 3.5
percent over 1997 sales of $299.6 million. The increase is attributable to a
21.5 percent increase in shipment volume. Offsetting that higher level of
shipments was a 9.4 percent per ton decrease in average selling price related to
lower prices and a weaker sales mix. The lower average selling price was caused
by the competition from lower priced imported steel entering the market in the
second half of 1998 coupled with lower demand for Acme Steel's product.
The CSP operated at 76 percent of capacity in 1998, the second full year of
operation, compared to 59 percent in 1997. During early periods of 1998, the
mill operated at near 90 percent levels with the last half of 1998 utilization
falling to 63 percent due to the lower demand for Acme Steel's products and
record high import levels.
The 1998 loss from operations was $62.1 million compared to a loss in 1997
of $61.9 million.
Steel Fabricating. Sales of $239.8 million in 1998 were down $46.9 million
or 16.4 percent from the $286.7 million in 1997. The absence of Universal Tool,
which was sold in the first quarter of 1998, accounted for $32.9 million of the
change. Acme Packaging sales were down 8.0 percent due to sales volume declines
and lower average selling prices. Alpha Tube sales were slightly below the 1997
level with lower shipment volumes.
In 1998 operating income of $22.6 million was down $4.2 million from $26.8
million in 1997 which approximated the change in operating income generated by
Universal Tool. Lower raw material and operating costs nearly offset the sales
declines in Acme Packaging. The richer sales mix and lower material costs more
than offset the volume and price declines in the tube and pipe market as income
from operations at Alpha Tube were up over $1.0 million from the prior year.
Net Interest Expense. Net interest expense of $38 million in 1998 was $3
million lower than net interest expense of $41 million in 1997. Interest expense
relating to unsecured debt was not accrued during the fourth quarter of 1998 due
to the Chapter 11 Bankruptcy filings.
Reorganization Charges under Chapter 11 Bankruptcy. The $6.7 million of
reorganization charges consists of costs related to unwinding certain hedging
transactions along with administrative professional and legal fees associated
with the Chapter 11 Bankruptcy filings.
Income Taxes. The Company recorded an income tax provision of $55.7
million for the year ended December 27, 1998 as compared to an income tax
benefit of $29.1 million in 1997, excluding the 1997 tax effect associated with
an extraordinary loss and the cumulative effect of a change in accounting
principle. As a result of the losses incurred to date and its Chapter 11
Bankruptcy filings, the Company recorded a full valuation reserve against its
deferred net income tax asset balance.
LIQUIDITY AND CAPITAL RESOURCES
The most significant factors affecting the Company's liquidity and capital
resources are the adverse market conditions for its products in the first half
of the year and operating under the protection of the Bankruptcy Code.
Additional information and discussions concerning the circumstances which led to
the filings under Chapter 11 Bankruptcy are contained in Item 1.
Business-Chapter 11 Bankruptcy Filings, and elsewhere in this Item 7. The
Company held no cash and cash equivalents balances at the end of 1999 with a
1998 year-end balance of $18.9 million. The lower cash level at the end of 1999
is a direct result of the continuing losses and operating under Chapter 11
Bankruptcy.
The Company's current liquidity requirements include funding losses,
working capital needs, Chapter 11 Bankruptcy administrative expenses, payments
to adequately protect holders of certain secured claims against the Company 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 twenty-one month DIP Financing Agreement with
Bank of America, 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 ($62.4 million available at
December 26, 1999). Should the Company's plan of reorganization not be
implemented prior to the September 27, 2000 expiration date, the Company plans
to apply for an extension of the current facility. Alpha Tube, whose inventory
and accounts receivable
18
<PAGE> 19
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 DIP Financing Agreement is effectively subordinate 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 Company will borrow and repay amounts from time to time as conditions
warrant. At December 26, 1999, the Company had $2.1 million in DIP borrowings.
At February 27, 2000, the Company had $8.0 million in outstanding borrowings and
approximately $58.4 million was available for borrowing under its DIP Financing
Agreement.
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, among others, include debt
service, pre-petition trade payables, and amounts related to executory
contracts. The post-petition trade payables at the end of 1999 and 1998 amounted
to $32.8 and $14.7 million, respectively.
Capital expenditures are expected to be approximately $26 million in 2000
and will be principally for necessary replacement projects. The Company has
agreed to make approximately $16 million of adequate protection payments during
the first six calendar months of 2000 pursuant to stipulations approved by the
Bankruptcy Court. The Company expects to enter into additional adequate
protection agreements, which will require payments in 2000.
Although the Company currently believes the anticipated cash provided by
future operations and borrowings under the DIP Financing Agreement will provide
sufficient liquidity for the Company to meet its adequate protection payments
and fund ongoing operations in Chapter 11 Bankruptcy (including required capital
expenditures) there can be no assurance these or other possible sources will be
adequate or that an extension of the current DIP Financing Agreement would be
obtained.
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 at the earliest practical date. 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 May 30, 2000, with the exception of
Alpha Tube whose extension is until April 30, 2000. While the Company
anticipates requesting further extensions of the exclusivity period, there can
be no assurance the Bankruptcy Court will grant such further extensions. If the
exclusivity period 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 value of
the estate, including shareholder value, however, a plan of reorganization
could, among other things, result in material dilution or potentially the
elimination of the equity of existing shareholders of the Company as a result of
the issuance of equity to creditors or new investors. See Item 5. Market for the
Company's Common Stock and Related Shareholders Matters.
Steel Making Segment
For this Outlook section, the Company is contemplating the continuation of
business without restructuring its balance sheet due to its possible emergence
from Chapter 11 Bankruptcy during 2000. The Steel Making Segment continues to
incur operating losses and may not achieve the sales, production, and
performance levels necessary to achieve an operating profit for the year 2000.
Competition from foreign steel continues to adversely affect Acme Steel sales.
Additionally, the Company believes that a structural change in the pricing of
products occurred, compressing the premium received by Acme Steel for
traditionally high-margin products. On the other hand, the cost position of Acme
Steel has substantially improved since the CSP
19
<PAGE> 20
began operations. The Company continues to place maximum effort on optimizing
the operating performance of its facilities, reducing cash manufacturing costs,
and optimizing its mix of higher margin productions to return the Steel Making
Segment to profitability.
Steel Fabricating Segment
Steel Fabricating Segment earnings in 2000 are expected to remain
relatively steady. Acme Packaging will increase the utilization of the plastic
strapping lines in the second full year of operations. Alpha Tube will continue
its strong sales volume while improving margins.
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 CSP fails to achieve
production utilization and material yield goals, the competitive and financial
position of the Company could be materially adversely affected. In addition to
uncertainties with respect to the CSP, 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Exchange. Until its Chapter 11 Bankruptcy filings, the Company
used foreign exchange forward contracts on the Canadian Dollar to hedge its
exposure from changes in foreign exchange rates for the purchase of raw
materials from its Wabush joint venture. Upon filing for Chapter 11 Bankruptcy
protection, the Company unwound its forward positions. A 10 percent movement in
the Canadian Dollar could affect annual raw material costs by approximately $3.0
million.
Interest Rates. Until its Chapter 11 Bankruptcy filings, the Company used
interest rate swaps to fix its exposure to interest rate movements. Upon filing
for Chapter 11 Bankruptcy protection, the Company unwound its interest rate
swaps.
The Company's net exposure to interest rate risk 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 entered into adequate protection agreements with
secured lenders. See footnote entitled "Debt Refinancing and Long-Term Debt"
contained in the accompanying financial statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to Item 8 is submitted in a separate section of this Annual
Report on Form 10-K. See the audited Consolidated Financial Statements and
Financial Statement Schedule of Acme Metals Incorporated attached hereto and
listed in the index.
20
<PAGE> 21
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
21
<PAGE> 22
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth, as of March 13, 2000 with respect to each
director of the Company, his name and all positions held during the last five
years. The directors are divided into three classes, as nearly equal in member
as possible, designated Class I, Class II and Class III. At each Annual Meeting
successors to the class of directors whose term expires at the Annual Meeting
are elected.
CLASS II DIRECTORS TERM EXPIRING IN 2000
<TABLE>
<S> <C>
Stephen D. Bennett (50)................... Director since January 1993
Member: Executive (Chairman), Finance and Nominating (ex
officio) Committees
Chairman, President and Chief Executive Officer of the
Company since April 22, 1999; President and Chief
Executive Officer of the Company April 15, 1996 to April
22, 1999; President and Chief Operating Officer of the
Company January 1993 to April 15, 1996.
Buddy W. Davis (70)....................... Director since June 1996
Member: Audit Review and Nominating Committees
District 34 Director of the United Steelworkers of
America, AFL-CIO-CLC from 1977 to 1993.
Andrew R. Laidlaw (53).................... Director since May 1987
Member: Audit Review (Chairman), Executive and
Nominating Committee
Chairman of the Executive Committee or Partner at the
firm of Seyfarth, Shaw, Fairweather & Geraldson (law
firm) since 1978.
Frank A. LePage (72)...................... Director since May 1987
Member: Audit Review, Compensation, and Nominating
Committees
Retired Director and Executive Vice President of the
Firestone Tire & Rubber Company (manufacturer of tires
and related products) since 1982.
</TABLE>
CLASS III DIRECTORS TERM EXPIRING IN 2001
<TABLE>
<S> <C>
Reynold C. MacDonald (81)................. Director since June 1986
Member: Executive, Finance and Nominating Committees
Retired Chairman of the Board of Acme Steel Company
since May 1992; Chairman of the Board of Acme Steel
Company June 1986 to May 1992. He is a director of
Kaiser Ventures Inc.
Brian W. H. Marsden (68).................. Director since June 1986
Member: Audit Review, Executive and Nominating
Committees
Retired Chairman of the Board since April 22, 1999;
Chairman of the Board (non-employee) of the Company
March 1, 1997 to April 22, 1999; Chairman of the Board
of the Company April 15, 1996 to April 22, 1999;
Chairman of the Board and Chief Executive Officer of the
Company January 1, 1993 to April 15, 1996.
</TABLE>
22
<PAGE> 23
<TABLE>
<S> <C>
William P. Sovey (66)..................... Director since June 1991
Member: Compensation, Finance, Executive and Nominating
(Chairman) Committees
Chairman of the Board of Newell Co. (manufacturing and
marketing company for high volume hardware and
housewares, office and industrial products) since
January 1, 1998; Vice Chairman of the Board and Chief
Executive Officer of Newell Co. 1992 through 1997. He is
a director of Newell Co. and Teco Energy, Inc.
William R. Wilson (72).................... Director since July 1992
Member: Audit Review, Compensation and Nominating
Committees
Retired Chairman of the Board and Chief Executive
Officer of Lukens, Inc. (manufacturer and seller of
plate steel and stainless steel products) since December
1991.
</TABLE>
CLASS I DIRECTORS TERM EXPIRING IN 2002
<TABLE>
<S> <C>
John T. Lane (57)......................... Director since April 1997
Member: Compensation, Finance, Nominating Committees
Organizational Consultant; Managing Director and Head of
U.S. Private Banking of J. P. Morgan & Co. (investment
banking firm) from 1990 to 1994. He is a director of
Biospecifics Technologies Corp. and Medix Resources,
Inc.
Allan L. Rayfield (64).................... Director since April 1996
Member: Compensation (Chairman), Finance, Nominating
Committees
Chief Executive Office and Director of M/A Com, Inc.
(microwave manufacturer) November 1993 to December 1994.
He is a director of Parker-Hannifin Corporation and Arch
Communications Group, Inc.
L. Frederick Sutherland (48).............. Director since January 1995
Member: Compensation, Finance (Chairman) and Nominating
Committees
Executive Vice President and Chief Financial Officer of
ARAMARK Corporation (diversified services management
company) since May 1997; President of Uniform Services
Group of ARAMARK Corporation April 1993 to May 1997.
</TABLE>
23
<PAGE> 24
The following table sets forth, as of March 13, 2000 with respect to each
executive officer of the Company, his name and all positions held during the
last five years. Executive Officers are elected annually by the Board of
Directors of the Company to serve for a term of office of one year and until
their successors are elected.
<TABLE>
<CAPTION>
NAME AND AGE POSITIONS DURING LAST 5 YEARS
------------ -----------------------------
<S> <C>
Brian W. H. Marsden (68).................. Non-employee Chairman of the Company March 1, 1997 to
April 22, 1999; Chairman of the Company April 15, 1996
to April 22, 1999; Chairman and Chief Executive Officer
of the Company January 1, 1993 to April 15, 1996.
Stephen D. Bennett (50)................... Chairman, President and Chief Executive Officer of the
Company since April 22, 1999; President and Chief
Executive Officer of the Company April 15, 1996 to April
22, 1999; President and Chief Operating Officer of the
Company January 1, 1993 to April 15, 1996.
Derrick T. Bay (52)....................... Controller and Chief Accounting Officer of the Company
since January 19, 1998; Vice President -- Finance of
Acme Steel Company January 1992 to January 1998.
Anthony C. Capito (52).................... Vice President -- Strategic Planning of the Company
since January 1999; Vice President -- Phase II Expansion
of Acme Steel Company November 1997 to December 1998;
Vice President -- Steel Production of Acme Steel Company
June 1996 to November 1997; General Manager -- Iron &
Steel Operations May 1996 to January 1992.
Robert W. Dyke (52)....................... Senior Vice President -- Fabricating of the Company
since February 1, 1998; Group Vice President of the
Company September 1, 1997 to January 31, 1998. President
of Acme Packaging Corporation since January 1993.
James W. Hoekwater (53)................... Treasurer of the Company since July 1, 1994.
James N. Howell (58)...................... Senior Vice President -- Steel of the Company and
President of Acme Steel Company since February 1, 1998;
Executive Vice President of Acme Steel Company September
1, 1997 to January 31, 1998.
Gerald J. Shope (56)...................... Vice President -- Human Resources of the Company since
April 1, 1995; Vice President -- Human Resources of Acme
Steel Company January 1, 1992 to March 31, 1995.
Edward P. Weber, Jr. (62)................. Vice President, General Counsel and Secretary of the
Company since May 25, 1992.
Jerry F. Williams (60).................... Vice President, Finance and Administration and Chief
Financial Officer of the Company since May 25, 1992.
</TABLE>
24
<PAGE> 25
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information with respect to the compensation
of the Company's Chief Executive Officer and each of the four other most highly
compensated executive officers during 1999 for services for all capacities in
the fiscal years 1997, 1998 and 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
--------------------------
ANNUAL COMPENSATION OTHER SECURITIES
---------------------------- ANNUAL UNDERLYING ALL OTHER
SALARY BONUS COMPENSATION OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($)(1) ($) (#) ($)(2)
- --------------------------- ---- ------- ------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Stephen D. Bennett...... 1999 445,000 217,571 (3) -0- 36,441
President and Chief 1998 445,000 -0- (3) 20,000 27,661
Executive Officer 1997 405,000 133,875(6) (3) 24,000 26,180
Robert W. Dyke.......... 1999 204,000 61,372 (3) -0- 14,595
Senior Vice President -- 1998 204,000 57,108 (3) 8,000 17,258
Fabricating 1997 177,340 69,828 (3) 7,000 12,311
James N. Howell(4)...... 1999 210,000 61,374 42,331(4) -0- 14,926
Senior Vice President -- 1998 210,000 -0- 58,205(4) 8,000 14,438
Steel 1997 70,000 43,688(4) 16,131(4) 15,000 -0-
Edward P. Weber, Jr..... 1999 180,000 61,603 (3) -0- 13,288
Vice President, General 1998 180,000 30,812 (3) 5,000 14,162
Counsel and Secretary 1997 170,000 66,938(6) 18,714(5) 7,000 12,412
Jerry F. Williams....... 1999 215,000 73,583 (3) -0- 15,872
Vice President-Finance and 1998 215,000 36,804 (3) 5,000 16,366
Administration and Chief 1997 203,000 66,938(6) (3) 7,000 14,814
Financial Officer
</TABLE>
- ---------------
(1) Except as otherwise footnoted, amounts in this column are for cash bonuses
paid pursuant to the Company's 1994 Executive Incentive Compensation Plan,
as amended and restated.
(2) Amounts in this column are Company contributions to the Company's (i)
Salaried Employees' Retirement Savings Plan ("SERSP"), (ii) Employee Stock
Ownership Plan ("ESOP"), and, (iii) until the date of the Chapter 11
Bankruptcy, where the annual compensation of the individual exceeds the IRS
statutory limit for 1998 of $160,000, to the Company's Deferred Compensation
Plan ("DCP"), based on amounts earned by such executive officers during
1999. The Company contributions to the SERSP, ESOP and DCP for executive
officers are based on the same percentages as for all other eligible
employees of the Company. The ESOP was merged into the SERSP effective March
1, 1999 and no further contributions have been made to the ESOP by the
Company.
(3) Except as indicated, the dollar value of perquisites and other personal
benefits for such executive officers was less than the established reporting
thresholds.
(4) Mr. Howell became an executive officer of the Company on February 1, 1998.
From September 1, 1997 through January 1998 he was an officer of Acme Steel
Company, a subsidiary of the Company. His compensation and benefits reported
for 1997 and a portion of his compensation and benefits reported for 1998
were paid by Acme Steel Company. The amount reported for Mr. Howell under
Bonus in 1997 includes a $15,000 sign-on bonus paid to him in September 1997
when he joined the Company and the dollar value of stock awards granted to
him on January 28, 1998 at $9.5625, the average of the high and low prices
of the Company's Common Stock on the New York Stock Exchange on the date, as
reported in The Wall Street Journal, in lieu of a cash bonus for 1997. The
vesting schedule was 50 percent of the
25
<PAGE> 26
shares granted on the date of grant and 50 percent of the shares on January 28,
1999. The amount reported for Mr. Howell under Other Annual Compensation in 1997
includes $11,268 for relocation expenses and $4,863 for automobile expenses,
each of which is in excess of 25 percent of the total perquisites and other
personal benefits reported for Mr. Howell in 1997; the amount in 1998
includes $41,055 for relocation expenses and $17,151 for automobile
expenses, each of which is in excess of 25 percent of the total perquisites
and other personal benefits reported for Mr. Howell in 1998; the amount in
1999 includes $41,055 for relocation expenses and $19,312 for automobile
expenses, each of which is in excess of 25 percent of the total perquisites
and other personal benefits reported for Mr. Howell in 1999.
(5) The amount reported for Mr. Weber consists of $14,964 for automobile
expenses which is in excess of 25 percent of the total perquisites and other
personal benefits reported for Mr. Weber in 1997.
(6) This amount represents the dollar value of stock awards granted to this
executive on January 28. 1998 at $9.5625, the average of the high and low
prices of the Company's Common Stock on the New York Stock Exchange on that
date, as reported in The Wall Street Journal, in lieu of a cash bonus for
1997. The vesting schedule was 50 percent of the shares granted on the date
of grant and 50 percent of the shares on January 28, 1999.
STOCK OPTION GRANTS IN 1999
No stock options were granted during fiscal 1999.
AGGREGATED OPTION EXERCISES IN 1999 AND FISCAL YEAR END OPTION VALUES
The following table sets forth certain information concerning the exercise
of options in 1999 to purchase Common Stock by the five individuals named in the
Summary Compensation Table and the unexercised options to purchase Common Stock
held by such individuals at December 26, 1999.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
FISCAL YEAR END OPTION VALUE(1)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT 12/26/99 AT 12/26/99(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (#) ($) (#) (#) ($) ($)
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stephen D. Bennett........ 0 N/A 90,400 21,000 0 0
Robert W. Dyke............ 0 N/A 30,450 9,500 0 0
James N. Howell........... 0 N/A 5,750 17,250 0 0
Edward P. Weber, Jr....... 0 N/A 37,350 7,250 0 0
Jerry F. Williams......... 0 N/A 42,600 7,250 0 0
</TABLE>
- ---------------
(1) No Stock Appreciation Rights have been granted by the Company.
(2) Calculated on the basis of the fair market value of the underlying
securities at fiscal year end, $0.25, minus the exercise price. No options
were in-the-money at fiscal year end.
26
<PAGE> 27
DEFINED BENEFIT PLAN
<TABLE>
<CAPTION>
AVERAGE ANNUAL EARNINGS ESTIMATED ANNUAL PENSION PAYABLE
FOR THE 5 HIGHEST ($)
12-MONTH PERIODS DURING BASED ON YEARS OF SERVICE INDICATED
THE LAST 10 CONSECUTIVE ------------------------------------------
12-MONTH PERIODS 15 YEARS 20 YEARS 25 YEARS
----------------------- -------- -------- --------
<S> <C> <C> <C> <C>
$100,000............... 12,380 20,255 28,130 ....
$150,000............... 24,193 36,005 47,818 ....
$200,000............... 36,005 51,755 67,505 ....
$250,000............... 47,818 67,505 87,193 ....
$300,000............... 59,630 83,255 106,880 ....
$400,000............... 83,255 114,755 146,255 ....
$500,000............... 106,880 146,255 185,630 ....
</TABLE>
Since May 29, 1986 Acme Steel has maintained the "Consolidated Pension Plan
for Acme Steel Company Salaried Employees and Riverdale and Chicago Plant Hourly
Employees" (the "Consolidated Plan"). Effective July 31, 1994, the Acme Metals
Incorporated Salaried Employees' Past Service Pension Plan, the plan which
provided benefits to certain employees of the Company, including certain
executive officers, was merged into the Consolidated Plan, which became the
"Consolidated Pension Plan for Acme Salaried and Hourly Employees." Effective
January 1, 1994, the Company adopted the Acme Metals Incorporated Supplemental
Benefits Plan (the "Supplemental Benefits Plan") to pay benefits to employees of
the Company, which would be payable under the Consolidated Plan, except for the
limits imposed under the Internal Revenue Code of 1986 (the "Code"). The
Supplemental Benefits Plan is a non-qualified plan for purposes of ERISA and is
unfunded. Payments under the Supplemental Benefits Plan have been suspended
since September 28, 1998, the date on which the Company filed for Chapter 11
Bankruptcy protection.
The Consolidated Plan provides benefits based on years of credited service
with the Company (including prior service with Acme Steel) through December 31,
1981 and average annual earnings for the five highest twelve-month periods
during the ten consecutive twelve-month periods preceding retirement. The
Company and Mr. Marsden are parties to a deferred compensation agreement which
entitled Mr. Marsden to a supplemental pension benefit equivalent to ten years
of additional credited service under the Consolidated Plan. Corporate funds,
rather than pension trust assets, have been used for payment of these
supplemental benefits to Mr. Marsden and any pension benefits payable in excess
of the maximum amount permitted under the Code. Mr. Marsden was deemed to have
approximately 15 years of credited service at his retirement as an employee of
the Company on March 1, 1997. Pension benefits payable to Mr. Marsden in excess
of the maximum amounts permitted under the Code were provided under the
Supplemental Benefits Plan until the date of the Chapter 11 Bankruptcy. Mr.
Williams has approximately 19 years of credited service. Any pension benefits to
Mr. Williams in excess of the maximum amounts permitted under the Code would be
provided under the Supplemental Benefits Plan unless he experiences a "Discharge
for Cause" (as defined in the Supplemental Benefits Plan). Messrs. Bennett,
Dyke, Howell and Weber joined the Company after December 31, 1981 and therefore
do not participate in the Consolidated Plan. The status of the Supplemental
Benefits Plan and future payments from it are uncertain as a result of the
Chapter 11 Bankruptcy.
The preceding table is based upon retirement at age 65, a pension payable
for the life of the retiree only, and a social security offset of $10,709.00 per
year. Different benefits under the Consolidated Plan may be payable for persons
whose employment terminates prior to age 65. For purposes of the table, average
annual earnings include salaries and bonuses paid or deferred during the
twelve-month period.
The Consolidated Plan provides a transition pension for salaried employees,
including certain executive officers, who were employed on December 31, 1981, if
the benefit attributable to certain contributions by the Company after December
31, 1981 under the Company's Salaried Employees' Retirement Savings Plan (the
"SERSP") is less than the benefit under the Consolidated Plan, which would be
attributable to continuous service between January 1, 1982 and the earlier of
December 31, 1991 or termination of employment. The amount attributable to such
Company contributions from 1982 through 1988 is all Company contributions in
excess of six and one-half percent of the participant's earnings and from 1989
through 1991 is all Company
27
<PAGE> 28
contributions, for each calendar quarter of continuous service, together with
amounts which would have been earned had such contributions been invested and
reinvested in the SERSP in the (i) Diversified Investment Fund from January 1,
1982 through August 31, 1995, and (ii) Vanguard Asset Allocation Fund commencing
September 1, 1995. In the case of executive officers, earnings are the same for
purposes of the SERSP as for purposes of the Consolidated Plan. Future
performance of the Vanguard Asset Allocation Fund, annuity interest rates, and
the earnings of participants during the ten years preceding retirement will
determine whether or not any transition pension will be payable. Unless a
participant becomes entitled to a transition pension, years of credited service
after December 31, 1981 will have no effect on any estimated annual pension
payable pursuant to the Consolidated Plan.
CHANGE IN CONTROL ARRANGEMENTS
The Company had a Key Executive Severance Pay Plan (the "Original Severance
Plan") in place from January 22, 1987 until February 23, 1999. The Original
Severance Plan covered designated executive officers of the Company and its
subsidiaries and provided certain benefits if a designated officer's employment
with the Company was terminated within three years after a "Change in Control"
of the Company (as defined in the Original Severance Plan). The Original
Severance Plan was terminated by order of the Bankruptcy Court on February 23,
1999 and replaced in its entirety by a section of the severance component of the
Company's Key Employee Retention Plan, which was approved by the Bankruptcy
Court on February 23, 1999 (the "New Plan").
The Change in Control section of the severance component of the New Plan
(the "Change in Control Plan") will provide lump sum severance payments to
designated participants whose employment with the Company is terminated
involuntarily and without "Cause" (as defined in the New Plan) as a consequence
of the Chapter 11 Bankruptcy process or as a result of a Change in Control (as
defined in the New Plan). In addition, following a Change in Control a
designated participant may elect to terminate his or her employment without loss
of severance benefits in certain specified contingencies, including termination
of the participant's position as an officer or director; a significant adverse
change in the participant's position, duties or compensation; a good faith
determination by the participant that as a result of the Change in Control he or
she is unable to carry out the authorities, powers, functions or duties attached
to his or her position; or excessive travel requirements or the substantial
relocation of the participant's place of work (such events being deemed to be
"Constructive Termination"). Any amounts paid to participants pursuant to the
retention payment component of the New Plan will be deducted from the amounts
payable pursuant to the Change in Control Plan.
Under the New Plan, a Change in Control is deemed to have occurred if at
any time from February 23, 1999 until one year following the date upon which the
Bankruptcy Court approves an order confirming a Plan of Reorganization (as
defined in the New Plan), (i) there occurs a consolidation, dissolution,
liquidation, merger, sale, lease, exchange or other transfer of all or a
significant portion of the Company's business and/or assets, or there occurs a
Reorganization of the Company in which the Company is not the surviving entity
or pursuant to which debt is exchanged for voting securities of the Company
resulting in the holders of the Company's voting securities immediately prior to
the Reorganization holding less than 75 percent of the outstanding voting
securities of the surviving or acquiring entity; (ii) the Company sells, leases,
exchanges or transfers all or substantially all of its business and/or assets to
another entity less than 75 percent of whose outstanding voting securities are
owned by the holders of the Company's voting securities immediately prior to
such transfer; (iii) the Company's shareholders approve a plan for the
liquidation or dissolution of the Company; (iv) a filing is made with the SEC
disclosing the beneficial ownership by any person or group of 51 percent or more
of the voting power of the Company; (v) during any period of two consecutive
years, individuals who were directors at the beginning of such period cease to
constitute a majority of the Board of Directors of the Company without the
approval of two-thirds of the remaining members of the Board of Directors; (vi)
prior to a confirmation of a Plan of Reorganization, an event or events occur
which the Board of Directors, with the consent of the Official Committee of
Unsecured Creditors of the Company or the approval of the Bankruptcy Court,
determines to be a Change in Control; (vii) after the confirmation of a Plan
28
<PAGE> 29
of Reorganization, an event or events occur which the Board of Directors
determines to be a Change in Control.
Participants covered by the New Plan are divided into three groups. All of
the individuals named in the Summary Compensation Table are in Group I. In the
event of the involuntary termination or Constructive Termination of their
employment pursuant to the terms of a Change in Control, they will be entitled
to receive a sum equal to one and one-half times the sum of (i) their base
salary as of the date of their termination, plus (ii) an amount equal to the
average of the compensation paid to them pursuant to the Company's Executive
Incentive Compensation Plan or the New Plan, whichever is applicable, for the
two years prior to termination. In addition, such individuals will be paid an
amount to cover premiums for hospitalization, medical and accident insurance
premiums for a period of eighteen months. For a period of eighteen months
following termination, such individuals will be entitled to receive all benefits
to which they are presently entitled as participants under the Company's
Salaried Employees' Retirement Savings Plan, the Consolidated Plan or other
severance compensation, deferred compensation, disability and/or retirement
plans.
The net amount payable to any participant under the Change in Control Plan,
taking into account payments under Other Plans, (as defined in the New Plan) as
appropriate, may not exceed 2.99 times the participant's "base amount" (as
defined in Section 280G of the Code, which generally, is the average of the
participant's taxable annual income received from the Company during the
five-year period preceding the Change in Control, to avoid the special tax rules
applicable to "excess parachute payments" under federal income tax legislation
enacted in 1984.
To protect both the Company and any participant if the severance
compensation under the Change in Control Plan, either alone or together with
other payments to a participant, would constitute "excess parachute payments,"
as defined in Section 280G of the Code, such severance compensation payment
would be reduced to the largest amount as would result in no portion of such
payments being disallowed as deductions to the Company under Section 280G of the
Code and no portion of such payments subjecting a participant to the excise tax
imposed by Section 4999 of the Code. The determination of such reductions will
be made, in good faith, by the Company's independent accountants and will be
conclusively binding upon the Company and such participant.
29
<PAGE> 30
PERFORMANCE GRAPH
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, that might incorporate future filings,
including this Report on Form 10-K, in whole or in part, the following
Performance Graph and the Report of the Compensation Committee of the Board of
Directors of Acme Metals Incorporated on Executive Compensation shall not be
incorporated by reference into any such filings.
The performance graph below provides an indicator of the cumulative total
shareholder return for the Company for a five-year period as compared with the
cumulative total return of the Russell 2000 Index of companies and a group of
peer companies.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
ACME METALS INCORPORATED, RUSSELL 2000** AND
VALUE LINE PEER GROUP***
[PERFORMANCE GRAPH]<QC>
<TABLE>
<CAPTION>
DATE ACME METALS RUSSELL 2000 PEER GROUP
- ---- ----------- ------------ ----------
<S> <C> <C> <C>
December 1994......................................... $100.00 $100.00 $100.00
December 1995......................................... $ 78.89 $126.21 $ 88.47
December 1996......................................... $107.27 $144.84 $ 90.14
December 1997......................................... $ 54.67 $174.56 $ 85.18
December 1998......................................... $ 1.66 $168.54 $ 73.47
December 1999......................................... $ 1.44 $201.61 $ 81.65
</TABLE>
- ---------------
* Assumes $100 invested on December 31, 1994 in Common Stock, the Russell 2000
Index, and the Value Line Peer Group of companies, and assumes the
reinvestment of dividends on a quarterly basis.
** The Russell 2000 Index consists of 2,000 companies with a range of
capitalization comparable to the Company.
*** The Value Line Integrated Steel Peer Group for 1999 consists of the
companies in the Value Line Investment Survey -- Steel Group (integrated),
and includes: AK Steel Corporation, Bethlehem Steel Corp., Dofasco, Inc.,
LTV Steel Company, Inc., USX- U.S. Steel Group. These companies are engaged
in substantially the same industry and are subject to the same market
influences as the Company. From 1994 through 1998, Inland Steel Industries,
Inc. was included, 1996 through 1998 British Steel was included, Stelco
Industries Inc. was included in the Value Line Peer Group, and British Steel
was not so included; from 1992 through 1996 WHX Corp. (now known as Weirton
Steel) was included in the Value Line Peer Group and AK Steel Holdings was
not so included.
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<PAGE> 31
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
This report is submitted by the Compensation Committee of the Board of
Directors to provide the shareholders with an understanding of the Company's
executive compensation program.
THE COMMITTEE
The Committee is composed of six independent non-employee members of the
Board, each of whom meets the definition of "non-employee director" as set forth
in Rule 16b-3 of the Securities Exchange Act of 1934, as amended. It is the
Committee's responsibility to develop and review the total compensation paid to
all executive officers of the Company and its subsidiaries. Annually, it
receives recommendations from management and reviews those recommendations with
professional outside compensation consultants prior to recommending compensation
programs and levels to the full Board of Directors. The Committee held two
meetings during the fiscal year ended December 26, 1999. No Committee members
have interlocking relationships as defined by the SEC.
COMPENSATION POLICIES AND OBJECTIVES
The Company's overall compensation philosophy is to reward its key
executives in line with median levels for similar positions in comparable metals
or manufacturing industries, with individual base salaries reflecting their
scope of responsibilities, impact on Company performance, experience, and
proficiency in their position. As such, the Committee's principal objective in
developing compensation opportunities is to support this philosophy and the
Company's objective of increasing shareholder returns.
On September 28, 1998, the Company filed voluntary petitions for relief,
pursuant to Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. Pursuant
to the Bankruptcy Code, the Company continues to operate their respective
business as debtors-in-possession.
As a result of the Chapter 11 Bankruptcy, the Committee has recognized the
need to adopt, with Court approval, a Key Employee Retention Plan ("Retention
Plan"), which is designed to encourage key employees to remain with the Company
throughout this Chapter 11 Bankruptcy. The continued employment of these
individuals is critical to the Company's ability to successfully achieve the
reorganization of the Company.
To achieve these goals, the Committee has implemented the following
compensation program during the Reorganization period pursuant to the Retention
Plan.
COMPENSATION PROGRAM COMPONENTS
The particular elements of the compensation program for executive officers
are outlined below.
Base Salary -- Base salary opportunities are principally established at the
median level of salaries in a peer group of public corporations wherein the
Company competes for talent. Annual salary adjustments are recommended by the
Committee to the Board of Directors based on the individual's performance
against annual objectives, the individual's position within the assigned salary
range, the Company's financial results, and peer group increase projections.
Annual Incentive Compensation Component -- Within the first ninety days of
each year, the Committee adopts, subject to ratification by the Board of
Directors, the performance based executive incentive compensation component
("EIC") objectives for that year, designates the participants to one of six
groups having varying ranges of incentive compensation opportunities, and
determines how incentive payments will be calculated. The maximum incentive
compensation opportunity for any individual is seventy-five percent of his base
salary for the year in question. In 1999, the corporate performance criteria was
divided between achieving certain levels of earnings before interest, taxes,
depreciation and amortization ("EBITDA") and reduction of corporate expenses
criteria subject to achievement of a subsidiary's and/or the Company's 1999
Profit Plan objectives to earn the target EIC payment. Payments in future years
will be dependent upon the Company achieving, or exceeding, the performance
criteria established in those years. The Committee, subject to ratification by
the Board of Directors and Bankruptcy Court approval, reserves the right to
amend, suspend or
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<PAGE> 32
terminate, in whole or in part, any or all provisions of the Plan, provided the
same does not result in an increase in the awards made to the Chief Executive
Officer or certain other executive officers.
Retention Payment Component -- This part of the Retention Plan would
provide a lump sum payment, equal to a percentage of annual salary, to an
employee who remains with the Company throughout and beyond the Chapter 11
Bankruptcy. The retention payment component has four levels of participation
based upon an individual's responsibilities within the Company.
The applicable retention payment would accrue monthly during each year, or
partial year, until a reorganization plan is confirmed by the Bankruptcy Court.
At the time the reorganization plan is confirmed, one-half of the accrued
retention payment would be paid to each respective employee. The balance
(one-half) would be paid to such employee one year following the Bankruptcy
Court's confirmation of the reorganization plan.
The maximum retention payment opportunity for any individual is thirty
percent (30 percent) of his base salary of any year in question.
Severance Component -- In those circumstances which dictate certain
employees be terminated involuntarily as a consequence of the Chapter 11
Bankruptcy, these employees would receive a lump sum severance payment to
provide adequate financial security to the employees and their families while
they secure new employment. The severance component has four levels of payment
which are correlated with the amount of time it would reasonably take a
participant to locate new employment comparable to their prior position with the
Company.
The maximum payment authorized for any individual pursuant to the severance
component would be an amount equal to one and one-half years of the individual's
base salary plus target annual incentive compensation. Severance payments would
also include a separate amount to cover premiums for continuation of medical
insurance for a maximum of eighteen months or until the individual obtains such
insurance through a new employer. A participant who receives a severance payment
would not also be entitled to a retention payment under this retention plan.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
The Chief Executive Officer's compensation is also reviewed annually and is
compared to other chief executive officers of public corporations, similar in
size and character to the Company, by an independent, professional consulting
firm. In determining the Chief Executive Officer's salary in 1999, the Committee
took into account the Company's financial performance as compared to other
similarly situated companies and his individual contributions and
responsibilities. The Committee is also influenced by the Chief Executive
Officer's experience within the steel industry, his representation of the
Company within the industry, and his stature within industry organizations. The
Committee believes it is important to compensate the Chief Executive Officer at
an appropriate level within the salary range of his peers in similar businesses
of equivalent size and complexity. The Chief Executive's annual base salary was
$445,000 for fiscal 1999.
LIMITATIONS ON DEDUCTIBILITY OF EXECUTIVE COMPENSATION
In 1993 the Code was amended (I.R.C. sec.162(m)) to impose a new
limitation, beginning in 1994, on a corporation's ability to deduct compensation
in excess of $1,000,000 paid to the Chief Executive Officer and the four other
most highly compensated executive officers of the Company ("Covered
Executives"). Generally, amounts paid to Covered Executives in excess of the
$1,000,000 limitation are not deductible by the Company, unless such
compensation qualifies under I.R.C. sec.162(m) and the regulations proposed
thereunder, as performance-based compensation.
The Committee has amended the Company's executive compensation plans in a
manner which it believes will qualify certain components of its executive
compensation program (1994 Executive Incentive Compensation Plan and 1994 Stock
Incentive Program) as performance-based compensation.
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<PAGE> 33
The Company will continue to monitor the requirements of the Code and to
determine what actions should be taken by the Company in order to preserve the
tax deduction for executive compensation to the maximum extent, consistent with
the Company's continuing goals of providing the executives of the Company with
appropriate incentives and rewards for their performance.
SUMMARY
The Committee believes that the total executive compensation program of the
Company is competitive with compensation programs provided by other corporations
in similar circumstances and with which the Company competes. Further, the Key
Employee Retention Plan is directly linked to both the annual financial and
operational results of the Company, and the Company's ability to retain key
personnel throughout the Chapter 11 Bankruptcy in order to enable the Company to
complete the Chapter 11 Bankruptcy in the shortest feasible time.
Submitted by the Compensation Committee of the Board of Directors: Allan L.
Rayfield, Chairman; John T. Lane, Frank A. LePage, William P. Sovey, L.
Frederick Sutherland and William R. Wilson.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
OTHER PRINCIPAL HOLDER OF VOTING SECURITIES
On March 13, 2000, Vanguard Fiduciary Trust Company, Trustee for the
Company's Salaried Employees' Retirement Savings Plan and the Alpha Tube
Corporation Employees' 401(k) Retirement Plan, held 584,968 shares, or 5
percent, of the shares of Common Stock then outstanding, a portion of which are
included in the share ownership of executive officers in the table of officers'
and directors' beneficial ownership of securities below.
OFFICERS AND DIRECTORS
The following table sets forth as of March 13, 2000 information with
respect to beneficial ownership of the Company's Common Stock by all directors
and nominees, each of the executive officers named in "Executive Compensation"
below, and all directors and executive officers as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) OF CLASS(2)
------------------------ ----------------------- -----------
<S> <C> <C>
Stephen D. Bennett.......................................... 102,421(3) *
Buddy W. Davis.............................................. 700 *
Robert W. Dyke.............................................. 33,705(4) *
James N. Howell............................................. 6,148(5) *
Andrew R. Laidlaw........................................... 12,490 *
John T. Lane................................................ 1,000 *
Frank A. LePage............................................. 1,000 *
Reynold C. MacDonald........................................ 55,000 *
Brian W. H. Marsden......................................... 211,839(6) 1.8%
Allan L. Rayfield........................................... 2,000 *
William P. Sovey............................................ 1,490 *
L. Frederick Sutherland..................................... 2,000 *
Edward P. Weber, Jr......................................... 49,982(7) *
Jerry F. Williams........................................... 76,968(8) *
William R. Wilson........................................... 26,990 *
All directors and executive officers as a group, 19
persons................................................... 642,422(3)(4)(5)(6) 5.5%
(7)(8)(9)
</TABLE>
- ---------------
* Less than 1% of class
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<PAGE> 34
(1) As used in this section, the term beneficial ownership with respect to a
security is defined by Rule 13d-3 under the Securities Exchange Act of 1934
as consisting of sole or shared voting power (including the power to vote or
direct the vote) and/or sole or shared investment power (including the power
to dispose or direct the disposition) with respect to the security through
any contract, arrangement, understanding, relationship or otherwise. Unless
otherwise indicated, beneficial ownership consists of sole voting and
investment power.
(2) The shares owned by each person or entity, or by the group, and the shares
included in the total number of shares outstanding have been adjusted and
the percent owned has been computed in accordance with Rule 13d-3(d)(1)
under the Securities and Exchange Act of 1934.
(3) Includes 90,400 shares which are not now owned but could be acquired by
exercise of vested stock options, and 3,146 shares held by the trustee of
the Company's SERSP which are attributable to Mr. Bennett's account.
(4) Includes 30,450 shares which are not now owned but could be acquired by
exercise of vested stock options, and 5,436 shares held by the trustee of
the SERSP which are attributable to Mr. Dyke's account.
(5) Includes 5,750 shares which are not now owned but could be acquired by
exercise of vested stock options, and 248 shares held by the trustee of the
SERSP which are attributable to Mr. Howell's account.
(6) Includes 122,150 shares which are not now owned but could be acquired by
exercise of vested stock options and 2,500 shares owned by a family member
as to which shares Mr. Marsden disclaims beneficial ownership.
(7) Includes 37,350 shares which are not now owned but could be acquired by
exercise of vested stock options and 50 shares held by family members, which
are attributable to Mr. Weber's account.
(8) Includes 42,600 shares which are not now owned but could be acquired by
exercise of vested stock options, and 16,669 shares held by the trustee of
the SERSP which are attributable to Mr. Williams' account.
(9) Includes 29,825 shares which are not now owned but could be acquired by
exercise of vested stock options and a total of 5,632 shares held by the
trustee of the SERSP which are attributable to the accounts of four
executive officers who are not named in "Executive Compensation" below.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership on Forms 3, 4 and 5 with the SEC. Officers,
directors and greater than ten percent shareowners are required by SEC
regulations to furnish the Company with copies of all Forms 3, 4 and 5 filed.
Based solely on the Company's review of the copies of such forms it has
filed on behalf of officers or directors or received from them and written
representations from certain reporting persons that they were not required to
file Forms 4 or 5 for specified fiscal years, the Company believes that all its
officers, directors, and greater than ten percent beneficial owners complied
with all filing requirements applicable to them with respect to transactions
during fiscal 1999 with two exceptions. Messrs. MacDonald and Weber were one
month late filing forms reporting the disposition of shares of Company common
stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In fiscal year 1999, the Company made payments to ARAMARK Corporation
("ARAMARK") in the amount of $144,219 for food and uniform services; Mr.
Sutherland, is an executive of ARAMARK. The Company paid $33,520 for
professional services to Seyfarth, Shaw, Fairweather and Geraldson, a law firm
of which Mr. Laidlaw is a partner. These transactions were in the ordinary
course of business, at competitive prices and terms and at arm's length. In the
opinion of management, in no instance have the amounts involved been material in
relation to the business of the Company or, to the knowledge and belief of
management of the Company, to the business of the other organizations or to the
individuals concerned.
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<PAGE> 35
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements:
The response to this portion of Item 14 is submitted in a separate section
of this report. See the audited Consolidated Financial Statements and Financial
Statement Schedule of Acme Metals Incorporated attached hereto and listed on the
index.
(2) Financial Statement Schedule:
The response to this portion of Item 14 is submitted in a separate section
of this report. See the audited Consolidated Financial Statements and
Financial Statement Schedule of Acme Metals Incorporated attached hereto
and listed on the index.
(3) Exhibits
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<C> <S> <C>
3. Articles of Incorporation and By-Laws
3(i) Restated Certificate of Incorporation of the Registrant, as
amended by the Certificate of Designation of Junior
Participating Preferred Stock, Series A. Filed as Exhibit
3(i) to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995 (the "1995 10-K") and
incorporated by reference herein.
3(ii) Amended and Restated By-Laws of the Registrant as adopted
February 27, 1997. Filed as Exhibit 3(ii) to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 29, 1996 (the "1996 10-K") and incorporated
by reference herein.
4. Instruments Defining the Rights of Security Holders, Including
Indentures
4.1 Rights Agreement dated as of July 15, 1994 between the
Registrant and First Chicago Trust Company of New York,
Rights Agent. Filed as Exhibit 1 to the Form 8-A dated
August 8, 1994 and Form 8-A/A dated August 12, 1994 and
incorporated by reference herein.
4.2 Indenture dated as of August 11, 1994 among the Registrant
and Guarantors and Shawmut Bank Connecticut, National
Association as trustee, relating to the 12 1/2 percent
Senior Secured Notes due 2002. Filed as Exhibit 4.2 to
Amendment No. 2 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 25, 1994 (Amendment
No. 2 to the "1994 10-K") and incorporated by reference
herein.
4.3 Form of 12 1/2 percent Senior Secured Note due 2002
(included as Exhibit A to Exhibit 4.2). Filed as Exhibit 4.3
to Amendment No. 2 to the 1994 10-K and incorporated by
reference herein.
4.4 First Supplemental Indenture dated as of December 3, 1997
among the Registrant and Guarantors and State Street Bank
and Trust Company, as Trustee, relating to the 12 1/2
percent Senior Secured Notes due 2002. Filed as Exhibit 4.4
to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 28, 1997 (the "1997 10-K") and
incorporated by reference herein.
4.5 Indenture dated as of August 11, 1994 among the Registrant
and Guarantors and Shawmut Bank, Connecticut, National
Association as trustee, relating to the 13 1/2 percent
Senior Secured Discount Notes due 2004. Filed as Exhibit 4.4
to Amendment No. 2 to the 1994 10-K and incorporated by
reference herein.
4.6 Form of 13 1/2 percent Senior Secured Discount Note due 2004
(included as Exhibit A to Exhibit 4.4). Filed as Exhibit 4.5
to Amendment No. 2 to the 1994 10-K and incorporated by
reference herein.
</TABLE>
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<PAGE> 36
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<C> <S> <C>
4.7 First Supplemental Indenture dated as of December 3, 1997
among the Registrant and Guarantors and State Street Bank
and Trust Company, as Trustee, relating to the 13 1/2
percent Senior Secured Discount Notes due 2004. Filed as
Exhibit 4.7 to the 1997 10-K and incorporated by reference
herein.
4.8 Collateral Agency Agreement dated as of August 11, 1994
among the Registrant, Acme Steel Company ("Acme Steel"),
Acme Packaging Corporation ("Acme Packaging"), the Trustees,
the Term Loan Agent and the Collateral Agent. Filed as
Exhibit 4.6 to Amendment No. 2 to the 1994 10-K and
incorporated by reference herein.
4.9 Amended and Restated Collateral Agency Agreement dated as of
December 18, 1997 by and among the Registrant, Acme Steel,
Acme Packaging, Bankers Trust Company and State Street Bank
and Trust Company, as Collateral Agents. Filed as Exhibit
4.9 to the 1997 10-K and incorporated by reference herein.
4.10 Company Stock Pledge Agreement dated as of August 11, 1994
between the Registrant and the Collateral Agent. Filed as
Exhibit 4.7 to Amendment No. 2 to the 1994 10-K and
incorporated by reference herein.
4.11 Subsidiary Stock Pledge Agreement dated as of August 11,
1994 among Acme Steel, Acme Packaging and the Collateral
Agent. Filed as Exhibit 4.8 to Amendment No. 2 to the 1994
10-K and incorporated by reference herein.
4.12 Security Agreement dated as of August 11, 1994 between Acme
Steel and the Collateral Agent. Filed as Exhibit 4.9 to
Amendment No. 2 to the 1994 10-K and incorporated by
reference herein.
4.13 Mortgage dated as of August 11, 1994 from Acme Steel to the
Collateral Agent. Filed as Exhibit 4.10 to Amendment No. 2
to the 1994 10-K and incorporated by reference herein.
4.14 Intercreditor Agreement dated as of August 11, 1994 among
the Registrant, Acme Steel, Harris Trust and Savings Bank
and the Collateral Agent. Filed as Exhibit 4.11 to Amendment
No. 2 to the 1994 10-K and incorporated by reference herein.
4.15 Disbursement Agreement dated as of August 11, 1994 between
the Registrant and the Collateral Agent. Filed as Exhibit
4.12 to Amendment No. 2 to the 1994 10-K and incorporated by
reference herein.
4.16 Form of Registration Rights Agreement dated March 28, 1994
among the Registrant and The Substituted Purchasers. Filed
as Exhibit 4.13 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 25, 1994 (the "1994
10-K") and incorporated by reference herein.
4.17 Indenture dated as of December 18, 1997 between the
Registrant, as Issuer; Acme Steel, as Guarantor; and Harris
Trust and Savings Bank, as Trustee; relating to the 10 7/8
percent Senior Notes due 2007. Filed as Exhibit 4.17 to the
1997 10-K and incorporated by reference herein.
4.18 Registration Rights Agreement dated December 18, 1997
between the Registrant, Morgan Stanley & Co. Incorporated,
Salomon Brothers, Inc., First Chicago Capital Markets, Inc.,
and Nesbitt Burns Securities Inc., as placement agent. Filed
as Exhibit 4.18 to the 1997 10-K and incorporated by
reference herein.
4.19 Amended and Restated Intercreditor Agreement, dated as of
December 18, 1997 among the Registrant, Acme Steel, Harris
Trust and Savings Bank and State Street Bank and Trust
Company. Filed as Exhibit 4.19 to the Company's Registration
Statement on Form S-4, SEC file No. 33-52749, filed on May
15, 1998.
10. Material contracts
10.1 Tax Indemnification Agreement between Acme Steel and The
Interlake Corporation ("Interlake") dated May 30, 1986.
Filed as Exhibit 10.1 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 27, 1992, SEC
File No. 0-14727 (the "1992 Form 10-K") and incorporated by
reference herein.
</TABLE>
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<PAGE> 37
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<C> <S> <C>
10.2 Cross-Indemnification Agreement between Acme Steel and
Interlake dated May 29, 1986. Filed as Exhibit 10.2 to the
1992 Form 10-K and incorporated by reference herein.
10.3 Amended and Restated $80,000,000 Credit Agreement dated as
of December 18, 1997 by and among Acme Group and Harris
Trust and Savings Bank and The First National Bank of
Chicago, as Co-Agents (the "Working Capital Facility").
Filed as Exhibit 10.13 to the 1997 10-K and incorporated by
reference herein.
10.4 First Amendment to the Working Capital Facility effective as
of December 18, 1997. Filed as Exhibit 10.4 to the 1997 10-K
and incorporated by reference herein.
10.5 Second Amendment to the Working Capital Facility dated May
11, 1998. Filed as Exhibit 10.1 to the Form 10-Q filed on
May 13, 1998 (the "1998 First Quarter 10-Q") and
incorporated by reference herein.
10.6 $175,000,000 Credit Agreement dated as of December 18, 1997
(the "$175,000,000 Credit Agreement") among the Registrant,
Various Lenders, Bankers Trust Company, as Administrative
Agent; Morgan Stanley Senior Funding, Inc., as Syndication
Agent and Arranger; and ancillary documents. Filed as
Exhibit 10.17 to the 1997 10-K and incorporated by reference
herein.
10.7 First Amendment to $175,000,000 Credit Agreement dated May
12, 1998. Filed as Exhibit 10.2 to the 1998 First Quarter
10-Q and incorporated by reference herein
10.8 Loan and Security Agreement dated as of December 18, 1998
among BankAmerica Business Credit, Inc. and AM South Bank,
as lenders; BankAmerica Business Credit, Inc., as Agent; and
Acme Metals Incorporated, Acme Steel Company, Acme Packaging
Corporation, Alabama Metallurgical Corporation and Acme
Steel Company International, Inc., as Borrowers. Filed as
Exhibit 10.8 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 27, 1998 (the "1998
10-K") and incorporated by reference herein.
10.9 Guaranty dated as of December 18, 1998 by Alpha Tube
Corporation in favor of BankAmerica Business Credit, Inc.,
as Agent. Filed as Exhibit 10.9 to the 1998 10-K and
incorporated by reference herein.
10.10 Security Agreement dated as of December 18, 1998 between
Alpha Tube Corporation and BankAmerica Business Credit,
Inc., as Agent. Filed as Exhibit 10.10 to the 1998 10-K and
incorporated by reference herein.
10.11 Cash Flow Agreement dated as of December 18, 1998 between
Acme Metals Incorporated, Acme Steel Company, Acme Packaging
Corporation, Alabama Metallurgical Corporation, Acme Steel
Company International, Inc., as Borrowers; Alpha Tube
Corporation, and BankAmerica Business Credit, Inc., as
Agent. Filed as Exhibit 10.11 to the 1998 10-K and
incorporated by reference herein.
10.12 Form of Engineering, Procurement and Construction Contract
dated July 28, 1994 between Acme Steel and Raytheon
Engineers & Constructors, Inc. Filed as Exhibit 10.41 to
Amendment No. 3 to Form S-1 Registration Statement, SEC File
No. 33-54101, and incorporated by reference herein.
10.13 Amendment 1 to Engineering, Procurement and Construction
Contract between Acme Steel and Raytheon Engineers &
Constructors, Inc. dated as of July 28, 1994. Filed as
Exhibit 10.11 to the 1994 10-K and incorporated by reference
herein.
10.14 Amendment 2 to Engineering, Procurement and Construction
Contract between Acme Steel and Raytheon Engineers &
Constructors, Inc. dated as of March 21, 1995. Filed as
Exhibit 10.12 to the 1994 10-K and incorporated by reference
herein.
10.15 Joint Development Program Agreement dated July 28, 1994
between Acme Steel and SMS Schloemann-Siemag, AG. Filed as
Exhibit 10.13 to the 1994 10-K and incorporated by reference
herein.
</TABLE>
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<PAGE> 38
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<C> <S> <C>
10.16 Retainer Agreement between Registrant and Brian W. H.
Marsden dated March 1, 1997. Filed as Exhibit 10.19 to the
1996 10-K and incorporated by reference herein.
10.17 Non-Employee Directors Retirement Plan dated February 22,
1990 as adopted May 25, 1992.(1) Filed as Exhibit 10.4 to
the 1992 10-K and incorporated as reference herein.
10.18 Form of Indemnification Agreement for directors and certain
officers of the Registrant. Filed as Exhibit 10.20 to the
1995 10-K and incorporated as reference herein.
10.19 Amendment and Restatement of the 1994 Executive Incentive
Compensation Plan of Acme Metals Incorporated as adopted
April 24, 1997.(1) Filed as Appendix B to the Proxy
Statement for the Annual Meeting of Shareholders held on
April 24, 1997 (the "1997 Proxy Statement") and incorporated
by reference herein.
10.20 Deferred Compensation Agreement dated May 24, 1986 between
the Registrant and Brian W. H. Marsden as adopted May 25,
1992.(1) Filed as Exhibit 10.15 to the 1992 10-K and
incorporated by reference herein.
10.21 Acme Metals Incorporated Deferred Compensation Plan as
Amended and Restated effective January 1, 1994 and adopted
November 21, 1994.(1) Filed as Exhibit 10.23 to the 1994
10-K and incorporated by reference herein.
10.22 Key Executive Severance Pay Plan dated January 22, 1987, as
adopted May 25, 1992.(1) Filed as Exhibit 10.24 to the 1995
10-K and incorporated by reference herein. Exhibit 1 amended
through January 29, 1998.(1) Filed as Exhibit 10.30 to the
1997 10-K and incorporated by reference herein.
10.23 Acme Metals Incorporated 1994 Stock Incentive Program as
adopted April 28, 1994.(1) Filed as Exhibit 10.25 to the
1994 10-K and incorporated by reference herein.
10.24 Acme Metals Incorporated 1997 Non-Employee Directors' Stock
Option Plan.(1) Filed as Appendix A to the 1997 Proxy
Statement and incorporated by reference herein.
10.25 Acme Metals Incorporated Employee Stock Ownership Plan
Restated effective September 1, 1995. Filed as Exhibit 10.27
to the 1996 10-K and incorporated by reference herein.
10.26 Acme Metals Incorporated Salaried Employees' Retirement
Savings Plan Restated effective September 1, 1995. Filed as
Exhibit 10.28 to the 1996 10-K and incorporated by reference
herein.
10.27 Consolidated Pension Plan for Acme Salaried and Hourly
Employees as Amended and Restated effective November 1, 1994
("Consolidated Pension Plan") with Appendix A to the
Consolidated Pension Plan as Amended and Restated effective
July 31, 1994.(1) Filed as Exhibit 10.44 to the 1994 10-K
and incorporated by reference herein.
10.28 Appendix B to the Consolidated Pension Plan as Amended and
Restated effective September 1, 1993.(1) Filed as Exhibit
10.30 to the 1995 10-K and incorporated by reference herein.
10.29 Appendix C to the Consolidated Pension Plan effective
December 31, 1993.(1) Filed as Exhibit 10.31 to the 1995
10-K and incorporated by reference herein.
10.30 First Amendment to the Consolidated Pension Plan dated
September 19, 1995.(1) Filed as Exhibit 10.32 to the 1995
10-K and incorporated by reference herein.
10.31 Acme Metals Incorporated Supplemental Benefits Plan
effective January 1, 1994.(1) Filed as Exhibit 10.45 to the
1994 10-K and incorporated by reference herein.
10.32 Acme Metals Incorporated Salaried Employees Past Service
Pension Plan ("Past Service Pension Plan") dated June 1,
1992.(1) Filed as Exhibit 10.37 to the 1992 10-K and
incorporated by reference herein.
10.33 Amendment No. 1 to the Past Service Pension Plan.(1) Filed
as Exhibit 10.38 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 26, 1993, SEC File
No. 0-14727, and incorporated by reference herein.
</TABLE>
38
<PAGE> 39
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<C> <S> <C>
10.34 Amendment No. 2 to the Past Service Pension Plan.(1) Filed
as Exhibit 10.48 to the 1994 10-K and incorporated by
reference herein.
10.35 Key Employee Retention Plan.(1) Filed as Exhibit 10.35 to
the 1998 10-K and incorporated by reference herein.
21 Subsidiaries of the registrant. Filed as Exhibit 21 to the
1998 Form 10-K and incorporated by reference herein.
23 Consent of experts and counsel
*23.1 Consent of PricewaterhouseCoopers LLP
*27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
Form 8-K dated January 20, 2000 reported that the U.S. Bankruptcy Court of
Delaware denied a motion of certain equity holders of the Company to appoint an
equity committee to represent the interests of the Company's equity holders in
the pending bankruptcy proceedings.
- -------------------------
* Filed herewith
(1) Filed pursuant to Item 14 of Form 10-K
39
<PAGE> 40
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
<TABLE>
<S> <C> <C>
/s/ STEPHEN D. BENNETT Chairman, President, and Chief March 24, 2000
--------------------------------------------- Executive Officer
Stephen D. Bennett
/s/ JERRY F. WILLIAMS Vice President-Finance and March 24, 2000
--------------------------------------------- Administration and Chief
Jerry F. Williams Financial Officer (Principal
Financial Officer)
/s/ DERRICK T. BAY Controller and Chief Accounting March 24, 2000
--------------------------------------------- Officer (Principal Accounting
Derrick T. Bay Officer)
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ BUDDY W. DAVIS Director March 24, 2000
---------------------------------------------
Buddy W. Davis
/s/ ANDREW R. LAIDLAW Director March 24, 2000
---------------------------------------------
Andrew R. Laidlaw
/s/ JOHN T. LANE Director March 24, 2000
---------------------------------------------
John T. Lane
/s/ FRANK A. LEPAGE Director March 24, 2000
---------------------------------------------
Frank A. LePage
/s/ REYNOLD C. MACDONALD Director March 24, 2000
---------------------------------------------
Reynold C. MacDonald
/s/ BRIAN W. H. MARSDEN Director March 24, 2000
---------------------------------------------
Brian W. H. Marsden
/s/ ALLAN L. RAYFIELD Director March 24, 2000
---------------------------------------------
Allan L. Rayfield
/s/ WILLIAM P. SOVEY Director March 24, 2000
---------------------------------------------
William P. Sovey
/s/ L. FREDERICK SUTHERLAND Director March 24, 2000
---------------------------------------------
L. Frederick Sutherland
/s/ WILLIAM R. WILSON Director March 24, 2000
---------------------------------------------
William R. Wilson
</TABLE>
40
<PAGE> 41
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
FORM 10-K -- ITEM 8 AND ITEMS 14(A)(1) AND 14(A)(2)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
The following Consolidated Financial Statements of Acme Metals Incorporated
and the related Report of Independent Accountants are included in Item 8 and
Item 14(a)(1):
<TABLE>
<CAPTION>
PAGE IN THIS
FORM 10-K
------------
<S> <C>
Report of Independent Accountants........................... 42
Report of Management........................................ 43
Consolidated Statements of Operations for the fiscal years
ended December 26, 1999, December 27, 1998 and December
28, 1997.................................................. 44
Consolidated Balance Sheets at December 26, 1999 and
December 27, 1998......................................... 45
Consolidated Statements of Cash Flows for the fiscal years
ended December 26, 1999, December 27, 1998 and December
28, 1997.................................................. 46
Consolidated Statements of Changes in Shareholders' Equity
for the fiscal years ended December 26, 1999, December 27,
1998, December 28, 1997................................... 47
Notes to Consolidated Financial Statements.................. 48-72
The following Consolidated Financial Statement Schedule of Acme
Metals Incorporated is included in Item 14(a)(2):
Schedule II -- Valuation and Qualifying Accounts............ 75
</TABLE>
All other schedules have been omitted because they are not applicable, or
not required, or because the required information is shown in the Consolidated
Financial Statements or notes thereto.
41
<PAGE> 42
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Acme Metals Incorporated
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Acme Metals Incorporated and its subsidiaries at December 26, 1999
and December 27, 1998 and the results of their operations and their cash flows
for each of the three years in the period ended December 26, 1999, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going-concern. As discussed in the
Note entitled "Bankruptcy Proceedings" to the consolidated financial statements,
the Company has incurred substantial losses from operations and experienced
related liquidity issues resulting in the filing for Chapter 11 Bankruptcy
protection on September 28, 1998 which raises substantial doubt about its
ability to continue as a going-concern. Management's plans in regard to these
matters are also described in the Note entitled "Bankruptcy Proceedings". The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
As discussed in the Note entitled "Cumulative Effect of a Change in
Accounting Principle" to the consolidated financial statements, the Company
changed its method of accounting for expenditures associated with the upgrade of
its management information systems.
/S/ PRICEWATERHOUSECOOPERS LLP
- ------------------------------------------------------------
PricewaterhouseCoopers LLP
February 23, 2000
42
<PAGE> 43
REPORT OF MANAGEMENT
The management of Acme Metals Incorporated has prepared and is responsible
for the consolidated financial statements and other financial information
included in this Form 10-K Annual Report. The consolidated financial statements
have been prepared in conformity with generally accepted accounting principles
and include amounts that are based upon informed judgments and estimates by
management. The other financial information in this annual report is consistent
with the consolidated financial statements.
The Company maintains a system of internal accounting controls. Management
believes the internal accounting controls provide reasonable assurance that
transactions are executed and recorded in accordance with Company policy and
procedures and that the accounting records may be relied on as a basis for
preparation of the consolidated financial statements and other financial
information.
The financial statements have been audited by PricewaterhouseCoopers LLP,
the Company's independent accountants, whose report is included herein. In
addition, the Company has a professional staff of internal auditors who
coordinate their financial audits with the procedures performed by the
independent accountants and conduct operational and special audits.
The Audit Review Committee of the Board of Directors, composed of directors
who are not employees of the Company, meets periodically with management, the
internal auditors and the independent accountants to discuss the adequacy of
internal accounting controls and the quality of financial reporting. Both the
independent accountants and internal auditors have full and free access to the
Audit Review Committee.
<TABLE>
<S> <C>
/s/ STEPHEN D. BENNETT /s/ JERRY F. WILLIAMS
- --------------------------------------------------- ---------------------------------------------------
Stephen D. Bennett Jerry F. Williams
Chairman, President and Chief Executive Officer Vice President -- Finance and Administration and
Chief Financial Officer
</TABLE>
43
<PAGE> 44
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
------------------------------------------
DECEMBER 26, DECEMBER 27, DECEMBER 28,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES............................................ $ 468,385 $ 459,920 $ 488,030
COSTS AND EXPENSES:
Cost of products sold.............................. 417,948 425,339 445,256
Depreciation....................................... 37,751 36,514 38,623
----------- ----------- -----------
Gross profit (loss).................................. 12,686 (1,933) 4,151
Selling and administrative......................... 36,407 37,549 39,208
----------- ----------- -----------
Operating loss....................................... (23,721) (39,482) (35,057)
NON-OPERATING INCOME (EXPENSE):
Interest expense, excluding contractual interest of
21,611 in 1999 and 5,400 in 1998................ (23,333) (39,161) (41,632)
Interest expense -- taxes.......................... (10,000)
Interest income.................................... 357 1,179 508
Reorganization charges under Chapter 11
Bankruptcy...................................... (7,424) (6,747)
Other.............................................. 1,241 12,257 (461)
----------- ----------- -----------
Loss before income taxes, extraordinary loss and
cumulative effect of a change in accounting
principle.......................................... (62,880) (71,954) (76,642)
Income tax provision (benefit)....................... 284 55,736 (29,124)
----------- ----------- -----------
Loss before extraordinary loss and cumulative
effect of a change in accounting principle...... (63,164) (127,690) (47,518)
Extraordinary loss, net of tax....................... (23,411)
Cumulative effect of a change in accounting
principle, net of tax.............................. (6,276)
----------- ----------- -----------
Net loss............................................. $ (63,164) $ (127,690) $ (77,205)
=========== =========== ===========
LOSS PER SHARE:
BASIC:
Loss before extraordinary loss and cumulative
effect of a change in accounting principle...... $ (5.42) $ (10.94) $ (4.09)
Extraordinary loss, net of tax..................... (2.01)
Cumulative effect of a change in accounting
principle, net of tax........................... (0.54)
----------- ----------- -----------
Net loss........................................... $ (5.42) $ (10.94) (6.64)
----------- ----------- -----------
Weighted average shares outstanding.................. 11,658,481 11,673,443 11,628,497
=========== =========== ===========
DILUTED:
Loss before extraordinary loss and cumulative
effect of a change in accounting principle...... $ (5.42) $ (10.94) $ (4.09)
Extraordinary loss, net of tax..................... (2.01)
Cumulative effect of a change in accounting
principle, net of tax........................... (0.54)
----------- ----------- -----------
Net loss............................................. $ (5.42) $ (10.94) $ (6.64)
----------- ----------- -----------
Weighted average shares outstanding.................. 11,658,481 11,673,443 11,628,497
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
44
<PAGE> 45
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 26, DECEMBER 27,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ $ 18,869
Accounts receivable trade, less allowances of $1,178 and
$1,278, respectively................................... 67,715 48,597
Inventories............................................... 82,280 75,664
Other current assets...................................... 5,896 4,733
--------- ---------
Total current assets................................... 155,891 147,863
--------- ---------
INVESTMENTS AND OTHER ASSETS:
Investments in associated companies....................... 20,937 19,157
Other assets.............................................. 14,861 19,640
--------- ---------
Total investments and other assets..................... 35,798 38,797
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment............................. 888,596 902,000
Accumulated depreciation.................................. (372,297) (351,572)
--------- ---------
Total property, plant and equipment.................... 516,299 550,428
--------- ---------
707,988 $ 737,088
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable.......................................... $ 32,808 $ 14,690
Accrued expenses.......................................... 46,345 37,886
DIP Financing Agreement................................... 2,050
--------- ---------
Total current liabilities.............................. 81,203 52,576
--------- ---------
LONG-TERM LIABILITIES:
Long-term debt............................................ 233,370 233,463
Post-retirement benefits other than pensions.............. 101,017 97,974
Retirement benefit plans.................................. 7,131 19,363
--------- ---------
Total long-term liabilities............................ 341,518 350,800
--------- ---------
LIABILITIES SUBJECT TO COMPROMISE:.......................... 300,072 296,074
--------- ---------
Commitments and contingencies (Note)
SHAREHOLDERS' EQUITY (DEFICIT):
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
Retained deficit.......................................... (169,427) (106,263)
Accumulated other comprehensive loss...................... (22,310) (33,725)
--------- ---------
Total shareholders' equity (deficit)................... (14,805) 37,638
--------- ---------
$ 707,988 $ 737,088
========= =========
</TABLE>
The accompanying notes are an integral part of this statement.
45
<PAGE> 46
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
------------------------------------------
DECEMBER 26, DECEMBER 27, DECEMBER 28,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(63,164) $(127,690) $ (77,205)
ADJUSTMENTS TO RECONCILE NET LOSS TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Gain on sale of assets.................................. (1,241) (12,257)
Loss on abandonment of assets........................... 7,730
Depreciation............................................ 39,321 37,920 39,410
Accretion of senior discount notes...................... 150 8,803
Loss on early extinguishment of debt.................... 37,759
Cumulative effect of a change in accounting principle,
net of tax............................................ 6,276
Deferred income taxes................................... 55,126 (19,506)
Pension contribution.................................... (3,691)
CHANGE IN OPERATING ASSETS AND LIABILITIES:
Accounts receivable..................................... (20,201) 14,785 (10,880)
Income tax receivable................................... 25,246 (24,936)
Inventories............................................. (7,027) 7,270 (14,050)
Accounts payable........................................ 9,127 (47,744) (8,478)
Other current accounts.................................. 7,606 (797) (7,051)
Liabilities subject to compromise....................... 5,081 91,918
Other, net.............................................. 3,212 (31,840) 13,119
-------- --------- ---------
Net cash (used for) provided by operating activities.... (19,556) 12,087 (60,430)
-------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments.................................. (331)
Sales and/or maturities of investments.................... 12,148
Proceeds from the sale of assets.......................... 1,928
Capital expenditures...................................... (12,284) (11,291) (40,416)
-------- --------- ---------
Net cash used for investing activities.................... (10,356) (11,291) (28,599)
-------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of assets.............................. 18,000
Proceeds from 10.875 percent Unsecured Senior Notes, net
of discount............................................. 198,502
Proceeds from Senior Secured Credit Agreement............. 175,000
Redemption of 13.5 percent Senior Secured Discount
Notes................................................... (117,289)
Redemption of 12.5 percent Senior Secured Notes........... (107,377)
Debt redemption costs..................................... (29,947)
Payment of Term Loan...................................... (50,000)
Borrowings under Working Capital Facility................. 2,050 129,750 269,000
Repayments of Working Capital Facility.................... (134,750) (264,000)
Payment of Senior Secured Credit Agreement................ (750)
Payment of Note Payable................................... (500)
Debt issuance costs and fees.............................. (11,630)
Payment of capital lease obligations...................... (131)
Draw from letter of credit................................ 8,993
-------- --------- ---------
Net cash provided by financing activities................. 11,043 11,619 62,259
-------- --------- ---------
Net increase (decrease) in cash and cash equivalents...... (18,869) 12,415 (26,770)
Cash and cash equivalents at beginning of period.......... 18,869 6,454 33,224
-------- --------- ---------
Cash and cash equivalents at end of period................ $ $ 18,869 $ 6,454
======== ========= =========
</TABLE>
The accompanying notes are an integral part of this statement.
46
<PAGE> 47
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMMON ADDITIONAL RETAINED COMPREHENSIVE TOTAL COMPREHENSIVE
STOCK, PAID-IN EARNINGS INCOME SHAREHOLDERS' INCOME
$1 PAR VALUE CAPITAL (DEFICIT) (LOSS) EQUITY (LOSS)
------------ ---------- --------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE -- DECEMBER 29,
1996.................... $11,611 $165,342 $ 98,632 $(14,884) $ 260,701 $ 12,204
------- -------- --------- -------- ------------- =============
Net loss................ (77,205) (77,205) (77,205)
Stock plans -- issuance
of shares............ 16 266 282
Minimum pension
liability............ 2,565 2,565 2,565
------- -------- --------- -------- ------------- -------------
BALANCE -- DECEMBER 28,
1997.................... 11,627 165,608 21,427 (12,319) 186,343 $ (74,640)
------- -------- --------- -------- ------------- =============
Net loss................ (127,690) (127,690) $ (127,690)
Stock plans -- issuance
of shares............ 48 343 391
Minimum pension
liability............ (21,406) (21,406) (21,406)
------- -------- --------- -------- ------------- -------------
BALANCE -- DECEMBER 27,
1998.................... $11,675 $165,951 $(106,263) $(33,725) $ 37,638 $ (148,959)
------- -------- --------- -------- ------------- =============
Net loss................ (63,164) (63,164) (63,164)
Stock plans --
cancellation of
shares............... (28) (666) (694)
Minimum pension
liability............ 11,415 11,415 11,415
------- -------- --------- -------- ------------- -------------
BALANCE -- DECEMBER 26,
1999.................... $11,647 $165,285 $(169,427) $(22,310) $ (14,805) $ (51,749)
======= ======== ========= ======== ============= =============
</TABLE>
The accompanying notes are an integral part of this statement.
47
<PAGE> 48
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BANKRUPTCY PROCEEDINGS:
On September 28, 1998, Acme Metals and its subsidiary companies (Acme
Steel, Acme Packaging, Alpha Tube, Alabama Metallurgical and Acme Steel
International) voluntarily filed separate petitions for protection under Chapter
11 of the Bankruptcy Code in the Bankruptcy Court. These bankruptcy proceedings
are collectively referred to as "Chapter 11 Bankruptcy" herein. The Chapter 11
Bankruptcy cases are being jointly administered by the Bankruptcy Court, with
the Company managing its business as debtors-in-possession subject to Bankruptcy
Court approval for certain of the actions that the Company takes. The Company's
financial difficulties and primary reasons for the Chapter 11 Bankruptcy filings
were a combination of a delay in achieving the full benefits of the Continuous
Steel Making Plant ("CSP") at Acme Steel and a dramatic market weakness causing
an adverse impact on operating and financial results, primarily at Acme Steel.
These factors had a material negative impact on the liquidity and cash flow of
the Company causing a breach of certain financial covenants in the Company's
loan agreements and a projected inability to service ongoing debt obligations.
The Company 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 at
the earliest practical date, 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 May 30, 2000 with the exception of Alpha Tube whose
extension is until April 30, 2000. The Company will request additional
extensions for exclusivity to file Alpha Tube's Plan.
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 a Chapter 11 Bankruptcy reorganization.
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 affect 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, and are included in the appropriate liability caption on the
balance sheet.
As disclosed in the Company's September 26, 1999 Report on Form 10-Q, its
Alpha Tube subsidiary (a component of the Fabricating Segment) 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;
however, the Bankruptcy Court did not approve this agreement.
48
<PAGE> 49
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
On January 20, 2000, the Bankruptcy Court denied a motion of certain equity
holders of the Company to appoint an equity committee to represent the interest
of the Company's equity security holders (the "Stockholders") in the Company's
pending bankruptcy proceedings. In the course of the Court's consideration of
this motion, the Company's financial advisor presented evidence indicating it
now appears likely, under current circumstances, that at the time the final plan
of reorganization is filed, there will not be sufficient reorganization value in
the bankruptcy proceedings to provide a distribution to Stockholders. In denying
the motion, the Court did not comment on the financial advisor's conclusion,
ruling instead that the Company and its advisors were fulfilling their fiduciary
duty in seeking to represent all interests and, therefore, no need for a
separate equity committee to represent the Stockholders exists.
DIP FINANCING:
On December 18, 1998, with approval of the Bankruptcy Court, Acme Metals,
Acme Steel, Acme Packaging, Alabama Metallurgical and Acme Steel International
entered into a Loan & Security Agreement ("DIP Financing Agreement") with Bank
of America (formerly BankAmerica Credit), which provides for a maximum of $100
million of borrowings subject to 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
subordinate to pre-petition trade obligations and Chapter 11 Bankruptcy
administrative expenses of Alpha Tube. At December 26, 1999, $2.1 million in
borrowings were outstanding with additional $62.4 million available based on
borrowing base limitations. The DIP Financing Agreement is intended to support
the Company's operations during Chapter 11 Bankruptcy and will expire on the
earlier of September 29, 2000 or upon Bankruptcy Court approval of the Company's
plan of reorganization. In the event the Company's plan of reorganization is not
implemented prior to September 29, 2000, the Company plans to request an
extension of the current DIP Financing Agreement.
The DIP Financing Agreement is collateralized by substantially all of the
assets of the Company. Borrowings bear interest at either the prime rate or
LIBOR, plus, depending on the levels of borrowings, margins of 50 basis points
to 100 basis points over prime or 175 basis points to 300 basis points over
LIBOR, respectively.
Covenants of the DIP Financing Agreement generally restrict creating
additional liens on assets, creating any claims superior to those of the DIP
Financing Agreement, paying pre-petition obligations, merging or consolidating
with any person, selling assets, incurring new debt or paying certain
reclamation claims. The Company is required to maintain a financial covenant of
minimum operating cash flow, defined in the DIP Financing Agreement as EBITDA
less capital expenditures, reorganization costs, certain cash interest payments
(including adequate protection payments to secured lenders), and reclamation
claims. In addition, Alpha Tube must maintain a ratio of eligible inventory and
receivables as defined in the DIP Financing Agreement equal to 110 percent of
the sum of Alpha Tube's pre- and post-petition debt plus accrued and unpaid
Chapter 11 Bankruptcy administrative expenses.
49
<PAGE> 50
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Acme Metals
Incorporated and its wholly-owned subsidiaries (the "Company" or "Acme Metals").
Investments in associated companies are accounted for by the equity method. All
intercompany transactions have been eliminated.
The Company's fiscal year ends on the last Sunday in December. Fiscal years
1999, 1998 and 1997 each contained 52 weeks.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Accounts receivable from sales to customers are unsecured. The Company
recognizes revenue upon shipment of products.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash balances and highly liquid
investments with an original maturity of three months or less.
INVENTORIES
Inventories are stated at the lower of cost or market using the last-in,
first-out ("LIFO") method to determine inventory costs.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation of plant and
equipment is computed principally on a straight-line basis over the estimated
useful lives of the assets. Estimated useful lives of plant and equipment range
from 3 to 50 years with the majority of assets having 18-year lives.
Expenditures for maintenance, repairs and minor renewals and betterments are
charged to expense as incurred. Furnace relines and major renewals and
betterments are capitalized.
Upon disposition of property, plant and equipment, the cost and related
accumulated depreciation are removed from the accounts, and the resulting gain
or loss is recognized.
CONSTRUCTION IN PROGRESS
Construction in progress includes all costs related to capital projects
which were not completed at the end of the reporting period.
50
<PAGE> 51
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RETIREMENT BENEFIT PLANS
Pension costs include service cost, interest cost, return on plan assets
and amortization of unrecognized gains and losses. The Company's policy is to
fund not less than the minimum funding required under ERISA, if permitted under
Chapter 11 Bankruptcy.
The Company has unfunded post-retirement health care and life insurance
plans. Provisions for post-retirement costs are determined pursuant to the
provisions of Financial Accounting Standard ("FAS") No. 106, "Employers'
Accounting for Post-retirement Benefits Other Than Pensions."
INCOME TAXES
Income taxes are determined pursuant to the provisions of FAS No. 109,
"Accounting for Income Taxes." Under this standard, the benefit for deferred
income taxes represents the tax effect of temporary differences between the
financial reporting basis and the tax basis of the Company's assets and
liabilities. All net deferred taxes were fully reserved in 1999 and 1998.
OTHER COMPREHENSIVE INCOME
During 1998, the Company adopted FAS No. 130, "Reporting Comprehensive
Income," which requires the Company to disclose, in financial statement format,
all non-owner changes in equity. As of December 26, 1999, all such changes in
equity resulted from changes in the minimum pension liability.
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
The Company's operations are divided into two segments, the Steel Making
Segment and the Steel Fabricating Segment based on management decisions as to
resource allocation. The Steel Making Segment includes all of the facilities
used in the manufacturing of flat-rolled steel. The Steel Fabricating Segment
includes the conversion and fabrication of the flat-rolled steel and plastic.
REORGANIZATION CHARGES UNDER CHAPTER 11 BANKRUPTCY
During 1999 and 1998, the Company recorded $7.4 million and $6.7 million,
respectively, of reorganization charges resulting from its Chapter 11
Bankruptcy. The charges primarily represent professional fees related to the
reorganization. The 1998 amount includes $2.9 million in one-time charges for
the unwinding of an interest rate swap and a Canadian Dollar hedge. Actual cash
payments for expenses related to the Chapter 11 Bankruptcy amounted to $6.1
million and $3.5 million for 1999 and 1998, respectively.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current
year's presentation.
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE:
On November 20, 1997 the Emerging Issues Task Force ("EITF") of the
Financial Accounting Standards Board issued EITF No. 97-13 "Accounting for Costs
Incurred in Connection with a Consulting Contract for an Internal Project that
Combines Business Process Reengineering and Information Technology
Transformation." EITF No. 97-13 requires that certain costs related to
reengineering, as defined, be expensed as incurred. Under the Company's previous
accounting policy, a portion of such costs related to ongoing expenditures to
upgrade the Company's management information systems were capitalized during
1996 and 1995 and amortized over the estimated life of the systems. In
accordance with EITF No. 97-13, the Company
51
<PAGE> 52
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
changed its policy on October 1, 1997 and recorded a cumulative effect
adjustment in 1997 of $10.1 million, $6.2 million after tax.
LOSS PER SHARE:
Basic loss per share excludes the dilutive effect of stock options and is
computed by dividing the loss by the weighted average number of common shares
outstanding during each period. As a result of net losses incurred, the effect
of stock options is not included in the diluted loss per share calculation as
they are antidilutive (i.e., to include them would reduce the net loss per
share).
INVENTORIES:
Inventories as calculated on the LIFO method:
<TABLE>
<CAPTION>
1999 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Raw materials............................................... $23,887 $18,343
Semi-finished and finished products......................... 51,967 50,607
Supplies.................................................... 6,426 6,714
------- -------
$82,280 $75,664
======= =======
</TABLE>
On December 26, 1999 and December 27, 1998, inventories valued on the LIFO
method were less than the current costs of such inventories by $54.8 million and
$54.9 million, respectively.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Land....................................................... $ 4,015 $ 4,140
Buildings.................................................. 111,480 121,506
Equipment.................................................. 772,116 770,455
Construction in progress................................... 985 5,899
--------- ---------
888,596 902,000
Less accumulated depreciation.............................. (372,297) (351,572)
--------- ---------
$ 516,299 $ 550,428
========= =========
</TABLE>
The difference between depreciation expense presented in the Consolidated
Statements of Cash Flows and the Consolidated Statements of Operations
represents the portion of depreciation expense classified in selling and
administrative expense on the Consolidated Statements of Operations.
In accordance with FAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," the Company
reviews the carrying value of long-lived assets for impairment whenever events
and circumstances indicate that the carrying value of an asset may not be
recoverable from the estimated future net cash flows expected to result from its
use and eventual disposition. In cases where undiscounted expected future net
cash flows are less then the carrying value, an impairment loss is recognized
equal to an amount by which the carrying value exceeds the fair value of the
assets.
52
<PAGE> 53
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In July 1999, Acme Steel reached an agreement with its labor unions to
close down substantially all of its finishing operations in Riverdale. During
the third quarter of 1999, management approved and committed to a plan for the
abandonment of the related assets. This decision was made to take advantage of
more efficient operations available on an outsourced basis, including NACME.
Substantially all finishing operations ceased at Acme Steel during the third
quarter of 1999, with only minor run-out operations occurring until complete
shutdown. The equipment and buildings have been abandoned, there being no market
for the outdated equipment, and written down to net realizable value. This
decision resulted in a loss of $7.7 million included in cost of products sold.
Historical annual depreciation and amortization on the equipment, buildings and
assets abandoned aggregated approximately $0.9 million.
During the first quarter of 1999, Acme Packaging sold a building for $1.9
million, which resulted in a gain of $1.2 million.
In March 1998, the Company completed the sale of Universal Tool, through a
stock sale, generating proceeds to the Company of $18.0 million and a gain of
$12.0 million, ($7.2 million net of tax), which is included in Other Income on
the Statement of Operations.
INVESTMENTS IN ASSOCIATED COMPANIES:
The Company has an indirect 15.1 percent participation in an iron
ore-mining venture. The Company's carrying value of the venture is $14.3 million
at both December 26, 1999 and December 27, 1998. In 1999, 1998 and 1997, the
Company made iron ore purchases of $24.2 million, $28.2 million and $27.3
million, respectively, from the venture. At December 26, 1999, $4.1 million was
owed to the venture for iron ore purchases ($7.0 million at December 27, 1998).
The Company has invested $3.5 million, representing a 40 percent interest
in NACME which performs processing of certain of the Company's steel products.
The investment is accounted for by the equity method of accounting and has a
carrying value of $6.6 million at December 26, 1999 ($4.9 million at December
27, 1998). The Company's share of NACME's equity income was $1.8 million in each
of the 1999 and 1998 fiscal years.
RETIREMENT BENEFIT PLANS AND POST-RETIREMENT BENEFITS OTHER THAN PENSIONS:
The Company has various retirement benefit plans covering substantially all
salaried and hourly employees. Salaried employees who joined the Company prior
to December 31, 1981 and certain hourly employees participate in defined benefit
retirement plans which provide benefits based upon either years of service and
final average pay or fixed amounts for each year of service. All salaried
employees with one full calendar quarter of service are eligible to participate
in the Company's defined contribution plan ("SERSP"). In 1999, the Company
expensed $1.4 million under the SERSP plan, while the Company expensed $1.8
million and $2.5 million in 1998 and 1997, respectively under both the SERSP and
ESOP plans. The Company permanently discontinued the ESOP contributions as of
June 1, 1998 and merged the ESOP into the SERSP on March 1, 1999. During 1999,
the Company contributed 5.5 percent of eligible compensation into the SERSP.
53
<PAGE> 54
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CHANGE IN BENEFIT OBLIGATION
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Projected benefit obligation at beginning of
year............................................ $250,453 $222,373 $127,610 $116,394
Service cost...................................... 2,495 2,162 2,093 1,876
Interest cost..................................... 16,317 15,924 8,004 7,713
Participant contributions......................... 1,228 1,128
Actuarial loss (gain)............................. (17,085) 30,424 (7,373) 12,538
Benefits paid..................................... (21,530) (20,507) (7,966) (8,355)
Plan amendments................................... 77 (3,685)
Plan curtailments................................. (96) (101)
-------- -------- -------- --------
Projected benefit obligation at the end of year... $230,554 $250,453 $123,495 $127,609
======== ======== ======== ========
</TABLE>
CHANGE IN PLAN ASSETS
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Fair value of plan assets at beginning of year.... $230,359 $216,244 $ $
Actual return on plan assets...................... 14,933 34,620
Employer contributions............................ 3 6,738 7,226
Employee contributions............................ 1,228 1,128
Benefits paid..................................... (21,530) (20,507) (7,966) (8,354)
-------- -------- -------- --------
Fair value of plan assets at end of year.......... $223,762 $230,360 $ $
======== ======== ======== ========
</TABLE>
RECONCILIATION OF PREPAID (ACCRUED) BENEFIT COST
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
------------------ ---------------------
1999 1998 1999 1998
------- -------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Funded status.................................... $(6,793) $(20,094) $(123,495) $(127,609)
Unrecognized transition cost..................... (1,921) (3,849)
Unrecognized prior service cost.................. 2,841 3,301 (4,254) (5,105)
Unrecognized actuarial loss...................... 26,638 40,969 19,666 27,909
------- -------- --------- ---------
Prepaid (accrued) benefit cost................... $20,765 $ 20,327 $(108,083) $(104,805)
======= ======== ========= =========
</TABLE>
54
<PAGE> 55
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AMOUNTS RECOGNIZED IN THE CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
------------------ ---------------------
1999 1998 1999 1998
------- -------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Prepaid benefit cost............................. $ 3 $ $ $
Accrued cost..................................... (4,339) (16,706) (108,083) (104,805)
Intangible asset................................. 2,791 3,308
Minimum pension liability........................ 22,310 33,725
------- -------- --------- ---------
Net amount recognized............................ $20,765 $ 20,327 $(108,083) (104,805)
======= ======== ========= =========
</TABLE>
WEIGHTED-AVERAGE ASSUMPTIONS AT END OF YEAR
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
------------------ ---------------------
1999 1998 1999 1998
------- -------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Discount rate.................................... 7.75% 6.75% 7.75% 6.75%
Expected return on plan assets................... 10.00% 10.00%
Expected rate of compensation increase........... 5.00% 5.00%
</TABLE>
For measurement purposes, a 7 percent annual rate of increase in the per
capita cost of covered health care benefit was assumed for 2000. The rate was
assumed to decrease 0.5 percent each year until the rate reaches 5 percent in
2004. The rate was assumed to remain at 5 percent thereafter.
COMPONENTS OF NET PERIODIC BENEFIT COST (INCOME)
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
------------------ ---------------------
1999 1998 1999 1998
------- -------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Service cost..................................... $ 2,495 $ 2,162 $ 2,093 $ 1,875
Interest cost.................................... 16,317 15,924 8,004 7,713
Expected return on plan assets................... (20,261) (18,891)
Amortization of transition asset................. (1,927) (1,927)
Amortization of prior year service cost.......... 433 436 (577) (436)
Recognized curtailment gain...................... (25) (273)
Recognized net actuarial loss.................... 2,530 2,195 769
------- -------- --------- ---------
Net periodic pension (income) expense............ $ (438) $ (101) $ 10,016 $ 9,152
======= ======== ========= =========
</TABLE>
Pension plans with accumulated benefit obligations in excess of plan assets:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Projected obligation........................................ $229,678 $250,453
Accumulated benefit obligation.............................. 227,193 246,928
Fair value of plan assets................................... 222,853 230,359
</TABLE>
As a result of the Chapter 11 Bankruptcy filings, the Company cannot make
pension contributions relating to the pre-petition period without Bankruptcy
Court approval. Failure to make minimum funding contributions is a Reportable
Event under ERISA; additionally the PBGC may create a pre-petition lien in
55
<PAGE> 56
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
favor of the Plan against the Company, and the IRS may assess a pre-petition
excise tax equal to 10 percent of the accumulated fund deficiency. The Company
has no funding requirements in 2000.
The health care plan is contributory. The life insurance plan is
noncontributory. On September 1, 1998, the Company increased deductibles,
co-insurance, and participant contributions to its post-retirement health care
plan for salaried retirees. Assumed health care cost trend rates have a
significant effect on the amounts reported for the health care plan. A
one-percentage point change in assumed health care cost trend would have the
following effects:
<TABLE>
<CAPTION>
1-PERCENTAGE 1-PERCENTAGE
POINT INCREASE POINT DECREASE
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Increase (decrease) in total of 1999 service cost and
interest cost............................................. $ 1,583 $ (1,244)
Increase (decrease) in APBO as of December 26, 1999......... 14,728 (11,604)
</TABLE>
ACCRUED EXPENSES:
Accrued expenses (not included within "Liabilities Subject to Compromise")
at December 26, 1999 and December 27, 1998:
<TABLE>
<CAPTION>
1999 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accrued salaries and wages.................................. $10,063 $10,837
Accrued post-retirement benefits other than pensions........ 8,028 8,232
Accrued taxes other than income taxes....................... 5,264 1,924
Accrued interest............................................ 12,324 10,155
Accrued reorganization charges.............................. 3,287 3,177
Other current liabilities................................... 7,655 3,251
------- -------
$46,621 $37,576
======= =======
</TABLE>
INCOME TAXES:
Provision (benefit) for income taxes:
<TABLE>
<CAPTION>
1999 1998 1997
---- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Taxes on income:
Current provision (benefit):
Federal................................................... $ $ $ (9,215)
State..................................................... 284 610 (403)
---- ------- --------
284 610 (9,618)
Deferred (benefit) provision, net of valuation
allowance.............................................. 55,126 (19,506)
---- ------- --------
$284 $55,736 $(29,124)
==== ======= ========
</TABLE>
At December 31, 1999, the Company had net operating losses of $378 million
expiring in 2012 through 2019. The carryforwards will be available for the
reduction of future income tax liabilities of the Company and its subsidiaries.
A valuation allowance has been recorded against all of these carryforwards
because utilization is uncertain. If certain substantial changes in the
Company's ownership should occur, there could be an annual limitation on the
amount of the carryforwards otherwise available to the Company.
56
<PAGE> 57
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 against its
entire net deferred tax assets. The Company continued to fully reserve any net
deferred tax assets incurred in 1999. The difference between the federal
statutory tax rate of 34 percent and the effective tax rate recorded in the 1997
financial statements relates principally to state income taxes.
DEFERRED TAX LIABILITIES:
Significant components of the Company's deferred tax liabilities and assets
at December 26, 1999 and December 27, 1998:
<TABLE>
<CAPTION>
1999 1998
--------- --------
(IN THOUSANDS)
<S> <C> <C>
Property, plant and equipment............................... $ 93,497 $ 82,371
Deferred Tax Assets:
Post-retirement benefits other than pensions................ 41,489 40,789
Net operating loss carryforward............................. 157,582 112,460
Other....................................................... 20,212 18,048
--------- --------
Gross deferred tax assets................................. 219,283 171,297
--------- --------
Net deferred tax asset................................. 125,786 88,926
Valuation allowance.................................... (125,786) (88,926)
--------- --------
Net deferred tax asset................................. $ $
========= ========
</TABLE>
LONG-TERM DEBT:
The Company's long-term debt, including current maturities, not recorded as
"Liabilities Subject to Compromise" at December 26, 1999 and December 27, 1998:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Senior Secured Credit Agreement (A)......................... $174,250 $174,250
12.5 percent Senior Secured Notes (B)....................... 17,623 17,623
13.5 percent Senior Secured Discount Notes (C).............. 669 669
DIP Financing Agreement (D)................................. 2,050
Environmental Improvement Bonds 7.95 percent (E)............ 11,345 11,345
Environmental Improvement Bonds 7.90 percent (E)............ 8,585 8,585
Other long-term debt (F).................................... 6,198 6,291
Walbridge Facility (G)...................................... 14,700 14,700
-------- --------
$235,420 $233,463
======== ========
</TABLE>
As a result of the Chapter 11 Bankruptcy filings on September 28, 1998, all
of the long-term debt was in default as of the filing date. Without a Bankruptcy
Court order, the Company cannot pay or restructure pre-petition debt until the
conclusion of the Chapter 11 Bankruptcy.
In accordance with SOP 90-7, the Company has not accrued interest on its
unsecured debt of $198.7 million after the petition date, as it is unlikely such
interest would be paid in the plan of reorganization. The amount of such
unaccrued contractual interest at December 31, 1999 aggregated $27.0 million
($21.6 million and $5.4 million in 1999 and 1998, respectively.) Additionally,
scheduled principal payments
57
<PAGE> 58
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
on debt including capital lease obligations, which have not been made for the
post-petition period, totaled $2.5 million. The Company is prohibited from
making contractual payments on its outstanding long-term debt obligations absent
a Bankruptcy Court order or until the conclusion of Chapter 11 Bankruptcy and
implementation of a plan or reorganization allowing for such payments. The
Company has obtained Bankruptcy Court orders allowing adequate protection
payments on secured debt. During 1999, the Company paid $19.4 million in
adequate protection payments as ordered by the Bankruptcy Court.
Secured debt has not been classified as subject to compromise in the
consolidated balance sheet; however, in the event the collateral underlying the
secured debt is determined to be insufficient, secured debt could be settled at
less than its current carrying value and not be eligible for interest during
bankruptcy. The Company has obtained a valuation estimate, which indicates that
the collateral securing the IRB's may not be sufficient; however, no agreement
as to the value of the collateral has been reached.
A. Senior Secured Credit Agreement, due December 2005 -- In December 1997,
the Company entered into a $175 million Senior Secured Credit Agreement. At the
option of the Company, the Senior Secured Credit Agreement provides for interest
at prime plus a margin ranging from 1.25 percent to 2.25 percent, or LIBOR plus
a margin ranging from 2.25 percent to 3.25 percent determined by the leverage
ratio of debt to earnings before interest, taxes and depreciation. The Company
accrued interest under the Senior Secured Credit Agreement at a rate of 8.8
percent at December 26, 1999 and 8.5 percent at December 27, 1998. Each of the
Company's subsidiaries is a guarantor under the Senior Secured Credit Agreement.
The Company did not make principal payments of $1.3 million during the
post-petition period. The Senior Secured Credit Agreement ranks pari passu and
shares collateral with the 12.5 percent Senior Secured Notes and the 13.5
percent Senior Secured Discount Notes.
B. 12.5 percent Senior Secured Notes, due August 2002 -- The Company
issued $125 million of 12.5 percent Senior Secured Notes in 1994. Of that
original issue of Senior Secured Notes, 85.9 percent were retired in connection
with the refinancing in December 1997. The Senior Secured Notes rank pari passu
and share collateral and guarantees with the Senior Secured Credit Agreement and
the 13.5 percent Senior Secured Discount Notes.
C. 13.5 percent Senior Secured Discount Notes, due August 2004 -- The
Company issued $117.9 million of 13.5 percent Senior Secured Discount Notes in
1994. Of the Senior Secured Discount Notes issued in 1994, 99.4 percent were
retired in connection with the refinancing in December 1997. The Senior Secured
Discount Notes rank pari passu and share collateral and guarantees with the
Senior Secured Credit Agreement and the 12.5 percent Senior Secured Notes.
D. DIP Financing Agreement, expires in September 2000 -- The Company has
secured a DIP Financing Agreement with BankAmerica Credit allowing the Company
to meet its operating needs while in Chapter 11 Bankruptcy proceedings. For
further information, see footnote entitled "DIP Financing." At the end of 1999,
the effective interest rate equaled 9.0 percent, on outstanding prime
borrowings.
E. Environmental Improvement Bonds -- The Environmental Improvement Bonds
were issued in April and September of 1996, with the Company receiving gross
proceeds of $11.3 million and $8.6 million at interest rates of 7.95 percent and
7.90 percent, respectively. The April 1996 issue is due April 2025, while the
September 1996 issue is due April 2024. The gross proceeds of the Environmental
Improvement Bonds were reduced by debt issuance costs of $0.6 million which are
being amortized over the lives of the respective notes. The Environmental
Improvement Bonds are secured by a lien on certain personal property and
fixtures of Acme Steel.
F. Other Long-Term Debt -- The other long-term debt is primarily for Acme
Packaging's plastic strapping line lease and a computer related equipment lease.
The Company accrued interest for the plastic line lease and the computer related
equipment lease at an interest rate of 8.0 percent and 7.5 percent,
respectively.
58
<PAGE> 59
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At December 26, 1999, the Company was delinquent in its principal payments by
$0.6 million for each the plastic lease and computer related equipment lease.
These leases are collateralized by the assets attached to each lease.
G. Walbridge Facility, due October 2002 -- As a result of its Chapter 11
Bankruptcy filings on September 28, 1998, the Company recorded an obligation for
future payments under a financial agreement for property used by Alpha Tube. The
debt is collateralized by the related assets. The Company accrued interest at an
interest rate of LIBOR plus 2 percent (7.6 percent and 7.7 percent at December
26, 1999 and December 27, 1998, respectively).
The debt instruments contain certain restrictive covenants that limit the
Company's ability to incur additional indebtedness, lease property, create
liens, pay dividends, repurchase capital stock, engage in transactions with
affiliates, purchase or sell assets, make capital expenditures, engage in sale
or leaseback transactions and engage in mergers or consolidations. However, the
ability of the Company to engage in any such activities is subject to Bankruptcy
Court approval.
LIABILITIES SUBJECT TO COMPROMISE:
"Liabilities Subject to Compromise" as of December 26, 1999 and December
27, 1998:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Accounts payable............................................ $ 60,525 $ 64,512
Accrued interest............................................ 6,094 6,094
Bond payable and other related liability.................... 2,567 2,503
Other accrued liabilities................................... 492 2,340
Note payable (A)............................................ 5,500 5,500
10.875 percent Senior Unsecured Notes, net of discount
(B)....................................................... 198,682 198,656
Other long-term liabilities................................. 26,212 16,469
-------- --------
Total..................................................... $300,072 $296,074
======== ========
</TABLE>
A. Note Payable -- The Note Payable is an unsecured obligation assumed by
Acme Steel on May 29, 1986 as a result of the reorganization of Interlake. The
assumed debt was incurred in connection with the financing of certain
facilities, which were retained by the Company in the Spin-off of Acme Steel
from The Interlake. Due to the unsecured nature of this Note, the Note has been
classified as a "Liabilities Subject to Compromise."
B. 10.875 percent Senior Unsecured Notes -- In December 1997, the Company
issued $200 million of 10.875 percent Senior Unsecured Notes at a discount
(0.749 percent) to yield 11 percent, due December 15, 2007. The Senior Unsecured
Notes are guaranteed on a senior, unsecured basis by the Company's subsidiary,
Acme Steel (see footnote entitled "Guarantor's Financial Statements"). Because
these notes are unsecured, they are no longer classified as a long-term debt as
of the Chapter 11 Bankruptcy filing date and are recorded as a "Liability
Subject to Compromise."
FAIR VALUE OF FINANCIAL INSTRUMENTS:
CASH AND CASH EQUIVALENTS
The carrying value of cash and cash equivalents approximates fair value.
59
<PAGE> 60
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
LONG-TERM DEBT
Because of the Chapter 11 Bankruptcy, the fair value of the long-term debt
cannot be determined.
STOCK COMPENSATION PLANS:
The Company has a 1986 and a 1994 Stock Incentive Program which have
reserved shares of common stock for issuance to officers and employees of the
Company and its subsidiaries. No stock options or stock awards have been granted
from the 1986 Program since April 1994. At December 26, 1999, all but 900 stock
options and stock awards have been canceled and returned to the 1994 Stock
Incentive Program. In addition, the Company has a Non-Employee Directors' Stock
Option Plan whereby each non-employee director is granted 2,000 options at the
Annual Meeting of the Board of Directors. Under this plan 150,000 shares were
reserved for issuance and through December 26, 1999, 62,000 stock options have
been granted.
The Company has adopted the disclosure-only provisions of FAS No. 123
"Accounting for Stock-Based Compensation." No compensation cost has been
recognized under the provisions of FAS No. 123 for the fixed stock options
granted under its Stock Incentive Program. Had compensation cost for options
granted under the program been determined based on the fair value at the grant
date for awards in 1999, 1998 and 1997 consistent with the provisions of FAS No.
123, the Company's net income (loss) and net income (loss) per share would not
have been materially affected.
SHAREHOLDER RIGHTS PLAN:
On July 15, 1994, the Company adopted a shareholders' rights plan.
Preferred Share Purchase Rights were issued to holders of record of the
Company's Common Stock on August 5, 1994, and will expire on August 5, 2004. The
Rights Agreement dated as of July 15, 1994 between the Company and First Chicago
Trust Company of New York was filed in its entirety as Exhibit 1 to the
Company's Form 8-A dated August 8, 1994, and to the Company's Form 8-A/A dated
August 12, 1994.
COMMITMENTS AND CONTINGENCIES:
OUTSIDE INVESTMENTS
The Company's indirect interest in an iron ore mining joint venture
requires payment of its proportionate share of all fixed operating costs,
regardless of the quantity of ore received, plus the variable operating costs of
minimum ore production for the Company's account. The Company reimburses the
joint venture for these costs through its purchase of ore. Pursuant to a steel
processing agreement between Acme Steel and NACME, Acme Steel has agreed to
certain tonnage provisions and a cost plus return guarantee.
INTERLAKE CORPORATION
In connection with the Company's Spin-Off from Interlake, the Company
entered into certain indemnification agreements with Interlake. Pursuant to the
terms of the indemnification agreements, Interlake undertook to defend,
indemnify and hold the Company harmless from any claims, as defined, relating to
the Company's operations or predecessor operations occurring before May 29,
1986, the Spin-Off. The indemnification agreements cover certain environmental
matters including certain litigation and Superfund Sites in Duluth, Minnesota,
and Gary, Indiana, for which either Interlake or the Company's predecessor
operations have been named as defendants or PRPs, as applicable. To date,
Interlake has met its obligations under the indemnification agreements and has
provided the defense and paid all costs related to these environmental matters.
The Company does not have sufficient information to determine the potential
liability, if any, for the matters covered by the indemnification agreements in
the event Interlake fails to meet its obligations thereunder in the future. In
the event that Interlake, for any reason, was unable to fulfill its obligations
under
60
<PAGE> 61
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the indemnification agreements, the Company could have increased future
obligations which could be significant.
On March 18, 1999, the U.S. Tax Court ("Tax Court") entered an opinion in
the case of The Interlake Corporation, et. al. v. Commissioner of Internal
Revenue. The 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 IRS cannot seek recovery from
Interlake of the refund issued to the Company. The statutory period for appeals
expired on September 30, 1999 and the IRS did not appeal this opinion.
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 of 1999 the Company recognized an income tax related interest charge of
$10 million to increase its total reserve in light of these recent events. Such
reserves are included as other long-term liabilities 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 pursue all remedies against third parties,
including Interlake pursuant to the 1986 TIA. In the first quarter of 2000 the
Company received an assessment of $3.5 million plus accrued interest for a
portion of the 1987 refund related to the 1985 tax year. The remaining $3.1
million of the refund relates to 1981 and 1984 both years which are before the
tax court and stayed by the Company's Chapter 11 Bankruptcy status.
Upon spin-off from Interlake in 1986, the Company entered into a TIA with
Interlake, which generally provides tax sharing arrangements related to pre
spin-off taxes. The Company currently believes amounts are owed by Interlake to
the Company pursuant to the TIA in relation to this case.
Merger of The Interlake Corporation and GKN North America Manufacturing
Inc. On December 5, 1998, GKN North America Manufacturing Inc. and Interlake
entered into an agreement and plan of merger. The Company believes the
acquisition of Interlake by GKN will not alter the obligations and rights of the
Company and Interlake as described herein.
ENVIRONMENTAL
The Company is subject to various federal, state and local environmental
statutes and regulations which provide a comprehensive program for controlling
the release of materials into the environment and require responsible parties to
remediate certain waste disposal sites. In addition, various health and safety
statutes and regulations apply to the workplace environment. Administrative,
civil and criminal penalties may be applicable for failure to comply with these
laws. These environmental laws and regulations are subject to periodic revision
and modification. The United States Environmental Protection Agency, for
example, is currently evaluating changes to the National Air Quality Standards
for particulate matter and ozone.
From time to time, the Company is also involved in administrative
proceedings involving the issuance, or renewal, of environmental permits
relating to the conduct of its business. The final issuance of these permits has
been resolved on terms satisfactory to the Company; and, in the future, the
Company expects such permits will similarly be resolved on satisfactory terms.
In August 1999, Region V of the 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 final outcome of the negotiations
but expects the fine to be eliminated or substantially reduced.
Although management believes it will be required to make further
expenditures for pollution abatement facilities in future years, because of the
continuous revision of these regulatory and statutory requirements, the
61
<PAGE> 62
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Company is not able to reasonably estimate the specific pollution abatement
requirements, or the amount or timing of such expenditures to maintain
compliance with these environmental laws. While such expenditures in future
years may be substantial, management does not presently expect they will have a
material adverse effect on the Company's future ability to compete within its
markets.
In those cases where the Company has been identified as a PRP or is
otherwise made aware of a possible exposure to incur costs associated with an
environmental matter, management determines (i) whether, in fact, the Company
has been properly named or is otherwise obligated, (ii) the extent to which the
Company may be responsible for costs associated with the site in question, (iii)
an assessment as to whether another party may be responsible under various
indemnification agreements or insurance policies the Company is a party to, and
(iv) an estimate, if one can be made, of the costs associated with the clean-up
efforts or settlement costs. It is the Company's policy to make provisions for
environmental clean-up costs at the time that a reasonable estimate can be made.
While it is not possible to predict the ultimate costs of resolving
environmental related issues facing the Company, based upon information
currently available, they are not expected to have a material effect on the
consolidated financial condition or results of operations of the Company.
RAYTHEON ENGINEERS & CONTRACTORS, INC.
During the second quarter of 1999, Acme Steel made an initial draw of $9
million under an irrevocable letter of credit in the approximate amount of $32
million. The letter of credit secures performance by Raytheon Engineers &
Constructors, Inc. ("Raytheon") of its obligations in connection with the CSP
and other facilities at Acme Steel. 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. The Bankruptcy
Court denied Raytheon's request to enjoin Acme Steel from drawing under the
irrevocable letter of credit and to impose a constructive trust on the funds
drawn by Acme Steel. In May 1999, Acme Steel filed a Motion to Dismiss the
underlying Amended Adversary Complaint filed by Raytheon which is pending. In
February 2000, Acme Steel filed an Adversary Complaint against Raytheon to
contest a purported secured claim filed by Raytheon against Acme Steel in the
approximate amount of $9 million. Acme Steel intends to vigorously prosecute its
Complaint to contest the $9 million secured claim filed by Raytheon. Acme Steel
has vigorously contested and will continue to vigorously contest the Adversary
Complaint filed by Raytheon relating to the draw; however, there are no
assurances Acme Steel will continue to be successful in prosecuting its
Complaint or in opposing Raytheon's legal actions.
OTHER MATTERS
The Company also has various litigation matters pending which arose out of
the ordinary course of business. In the opinion of management, the ultimate
resolution of these matters will not have a material adverse effect on the
financial position of the Company.
BUSINESS SEGMENTS:
The Company presents its operations in two segments, Steel Making and Steel
Fabricating.
Steel Making operations include the manufacture of sheet, strip and
semifinished steel in low-, mid-, and high-carbon alloy, HSLA and specialty
grades. Principal markets include agricultural, automotive, industrial
equipment, industrial fasteners, welded steel tubing industries, and tool
manufacturing industries, processors and steel service centers.
62
<PAGE> 63
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Steel Fabricating segment processes and distributes steel strapping,
strapping tools and industrial packaging (Acme Packaging), and welded steel
tubing (Alpha Tube). The Steel Fabricating segment sells to a number of markets.
All sales between segments are recorded at annual contract price which
approximates current market price.
The products and services of the Steel Making and Steel Fabricating
Segments are distributed through their own respective sales organizations which
have sales offices at various locations in the United States. Export sales are
insignificant for the years presented.
The Company is divided into Steel Making and Steel Fabricating operating
segments based on the value-added production in making the product. Operating
segment information based on operating income:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
STEEL MAKING:
Sales to unaffiliated customers........................ $238,842 $220,801 $202,331
Intersegment sales..................................... 80,986 89,292 97,233
-------- -------- --------
Net Sales........................................... $319,828 $310,093 $299,564
======== ======== ========
Depreciation........................................... $ 30,885 $ 33,599 $ 35,511
Loss from operations................................... (45,562) (62,126) (61,897)
Total assets........................................... 541,760 577,016 710,395
Capital expenditures................................... 6,381 11,598 34,861
OPERATING DATA (in tons):
Steel production -- hot band........................... 989,148 779,791 951,025
Steel shipments -- flat-rolled......................... 945,597 775,958 455,725
STEEL FABRICATING:
Sales to unaffiliated customers........................ $229,543 $239,119 $285,699
Intersegment sales..................................... 734 716 984
-------- -------- --------
Net Sales........................................... $230,277 $239,835 $286,683
======== ======== ========
Depreciation........................................... $ 5,545 $ 4,321 $ 3,883
Income from operations................................. 21,841 22,644 26,840
Total assets........................................... 126,411 130,176 95,100
Capital expenditures................................... 6,537 25,132 11,053
</TABLE>
63
<PAGE> 64
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Reconciliation of the operating segment information to the Company's
consolidated financial statements:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net Sales:
Steel Making........................................... $319,828 $310,093 $299,564
Steel Fabricating...................................... 230,277 239,835 286,683
Intersegment sales..................................... (81,720) (90,008) (98,217)
-------- -------- --------
$468,385 $459,920 $488,030
======== ======== ========
Operating income (loss):
Steel Making........................................... $(45,562) $(62,126) $(61,897)
Steel Fabricating...................................... 21,841 22,644 26,840
-------- -------- --------
(23,721) (39,482) (35,057)
Less:
Interest expense.................................... (23,333) (39,161) (41,632)
Interest expense -- taxes........................... (10,000)
Reorganization charges under Chapter 11
Bankruptcy........................................ (7,424) (6,747)
Other............................................... (461)
Add:
Interest income..................................... 357 1,179 508
Gain from sale of assets............................ 1,241 12,257
-------- -------- --------
Loss before income extraordinary loss and cumulative
effect of a change in accounting principle........ $(62,880) $(71,954) $(76,642)
======== ======== ========
Total Assets:
Steel Making........................................... $541,760 $577,016 $710,395
Steel Fabricating...................................... 126,411 130,176 95,100
Corporate.............................................. 39,817 29,896 23,586
-------- -------- --------
$707,988 $737,088 $829,081
======== ======== ========
</TABLE>
64
<PAGE> 65
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO 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 consolidating condensed financial information pertaining to
the Company and its subsidiary guarantor and its subsidiary nonguarantors.
<TABLE>
<CAPTION>
FOR THE TWELVE MONTHS ENDED DECEMBER 26, 1999
----------------------------------------------------------------
SUBSIDIARY
SUBSIDIARY NON TOTAL
PARENT GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales................................ $ $319,828 $230,277 $(81,720) $468,385
Costs and expenses....................... 348,528 188,891 (81,720) 455,699
-------- -------- -------- -------- --------
Gross margin............................. (28,700) 41,386 12,686
Selling and administrative expense....... 16,862 19,545 36,407
-------- -------- -------- -------- --------
Operating income (loss).................. (45,562) 21,841 (23,721)
Reorganization charges under Chapter 11
Bankruptcy............................. (1,618) (3,190) (2,616) (7,424)
Net interest income (expense) and
other.................................. (31,172) (1,856) 1,293 (31,735)
-------- -------- -------- -------- --------
Income (loss) before income taxes........ (32,790) (50,608) 20,518 (62,880)
Income tax provision (benefit)........... (7,346) 7,630 284
-------- -------- -------- -------- --------
Net income (loss) before equity
adjustment............................. (25,444) (50,608) 12,888 (63,164)
Equity income (loss) in subsidiaries..... (37,720) 37,720
-------- -------- -------- -------- --------
Net income (loss)........................ $(63,164) $(50,608) $ 12,888 $ 37,720 $(63,164)
======== ======== ======== ======== ========
</TABLE>
65
<PAGE> 66
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE TWELVE MONTHS ENDED DECEMBER 27, 1998
-----------------------------------------------------------------------------
SUBSIDIARY
SUBSIDIARY NON TOTAL
PARENT GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales........................ $ $ 310,093 $239,835 $(90,008) $ 459,920
Costs and expenses............... 353,247 198,614 (90,008) 461,853
--------- --------- -------- -------- ---------
Gross margin..................... (43,154) 41,221 (1,933)
Selling and administrative
expense........................ 18,972 18,577 37,549
--------- --------- -------- -------- ---------
Operating income (loss).......... (62,126) 22,644 (39,482)
Reorganization charges under
Chapter 11 Bankruptcy.......... (3,357) (2,384) (1,006) (6,747)
Net interest income (expense) and
other.......................... 6,393 (41,490) 9,372 (25,725)
--------- --------- -------- -------- ---------
Income (loss) before income
taxes.......................... 3,036 (106,000) 31,010 (71,954)
Income tax provision............. 4,930 32,664 18,142 55,736
--------- --------- -------- -------- ---------
Net income (loss) before equity
adjustment..................... (1,894) (138,664) 12,868 (127,690)
Equity income (loss) in
subsidiaries................... (125,796) 125,796
--------- --------- -------- -------- ---------
Net income (loss)................ $(127,690) $(138,664) $ 12,868 $125,796 $(127,690)
========= ========= ======== ======== =========
</TABLE>
66
<PAGE> 67
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE TWELVE MONTHS ENDED DECEMBER 28, 1997
----------------------------------------------------------------------------
SUBSIDIARY
SUBSIDIARY NON TOTAL
PARENT GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales......................... $ $ 299,564 $286,683 $(98,217) $488,030
Costs and expenses................ 342,684 239,412 (98,217) 483,879
-------- --------- -------- -------- --------
Gross margin...................... (43,120) 47,271 4,151
Selling and administrative
expense......................... 18,777 20,431 39,208
-------- --------- -------- -------- --------
Operating income (loss)........... (61,897) 26,840 (35,057)
Net interest income (expense) and
other........................... 16,860 (54,493) (3,952) (41,585)
-------- --------- -------- -------- --------
Income (loss) before income
taxes........................... 16,860 (116,390) 22,888 (76,642)
Income tax provision.............. 6,415 (44,235) 8,696 (29,124)
-------- --------- -------- -------- --------
10,445 (72,155) 14,192 (47,518)
Extraordinary loss, net of tax.... (23,411) (23,411)
Cumulative effect of a change in
accounting principle, net of
tax............................. (4,821) (1,455) (6,276)
-------- --------- -------- -------- --------
Net income (loss) before equity
adjustment...................... (12,966) (76,976) 12,737 (77,205)
Equity income (loss) in
subsidiaries.................... (64,239) 64,239
-------- --------- -------- -------- --------
Net income (loss)................. $(77,205) $ (76,976) $ 12,737 $ 64,239 $(77,205)
======== ========= ======== ======== ========
</TABLE>
67
<PAGE> 68
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF DECEMBER 26, 1999
----------------------------------------------------------------
SUBSIDIARY
SUBSIDIARY NON TOTAL
PARENT GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......... $ $ $ $ $
Accounts receivable, net.......... 1,689 36,868 30,241 (1,083) 67,715
Inventories....................... 53,033 30,694 (1,447) 82,280
Other current assets.............. 1,451 3,868 577 5,896
Due to (from) affiliates.......... 491,623 (52,758) 32,611 (471,476)
-------- -------- -------- --------- --------
Total current assets...... 494,763 41,011 94,123 (474,006) 155,891
-------- -------- -------- --------- --------
INVESTMENTS AND OTHER ASSETS:
Investments in associated
companies...................... (46,799) 21,701 46,035 20,937
Other assets...................... 11,544 2,928 389 14,861
-------- -------- -------- --------- --------
Total investments and
other assets............ (35,255) 24,629 389 46,035 35,798
-------- -------- -------- --------- --------
PROPERTY, PLANT AND
EQUIPMENT-Net:.................... 14,387 466,352 35,560 516,299
-------- -------- -------- --------- --------
$473,895 $531,992 $130,072 $(427,971) $707,988
======== ======== ======== ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses....................... $ 19,969 $ 47,116 $ 12,068 $ $ 79,153
Current maturities of long-term
debt........................... 2,050 2,050
-------- -------- -------- --------- --------
Total current liabilities........... 22,019 47,116 12,068 81,203
-------- -------- -------- --------- --------
LONG-TERM LIABILITIES:
Long-term debt.................... 233,370 233,370
Post-retirement benefits other
than pensions.................. 1,130 84,996 14,891 101,017
Retirement benefit plans.......... 2,122 7,490 (2,481) 7,131
-------- -------- -------- --------- --------
Total long-term liabilities......... 236,622 92,486 12,410 341,518
-------- -------- -------- --------- --------
LIABILITIES SUBJECT TO COMPROMISE... 230,059 496,782 48,001 (474,770) 300,072
-------- -------- -------- --------- --------
SHAREHOLDERS' EQUITY (DEFICIT):..... (14,805) (104,392) 57,593 46,799 (14,805)
-------- -------- -------- --------- --------
$473,895 $531,992 $130,072 $(427,971) $707,988
======== ======== ======== ========= ========
</TABLE>
68
<PAGE> 69
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
PARENT GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
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 $ $ 52,576
-------- --------- -------- --------- --------
Total current liabilities........ 14,238 30,274 8,064 52,576
-------- --------- -------- --------- --------
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>
69
<PAGE> 70
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE TWELVE MONTHS ENDED DECEMBER 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............... $ (20,091) $ (2,612) $ 3,147 $ $ (19,556)
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of
assets........................ 1,928 1,928
Capital expenditures............ (416) (6,381) (5,487) (12,284)
--------- --------- --------- --------- ---------
Net cash used for investing
activities.................... (416) (6,381) (3,559) (10,356)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolver
agreement..................... 2,050 2,050
Other........................... 8,993 8,993
--------- --------- --------- --------- ---------
Net cash provided by financing
activities.................... 2,050 8,993 11,043
--------- --------- --------- --------- ---------
Net decrease in cash and cash
equivalents................... (18,457) (412) (18,869)
Cash and cash equivalents at
beginning of period........... 18,457 412 18,869
--------- --------- --------- --------- ---------
Cash and cash equivalents at end
of period..................... $ $ $ $ $
========= ========= ========= ========= =========
</TABLE>
70
<PAGE> 71
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE TWELVE MONTHS ENDED DECEMBER 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................. $ (6,883) $ 23,419 $ (4,449) $ $ 12,087
-------- --------- -------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................. (142) (17,919) 6,770 (11,291)
-------- --------- -------- --------- ---------
Net cash used for investing
activities........................ (142) (17,919) 6,770 (11,291)
-------- --------- -------- --------- ---------
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
financing activities.............. 20,030 (5,500) (2,911) 11,619
-------- --------- -------- --------- ---------
Net increase (decrease) in cash and
cash equivalents.................. 13,005 (590) 12,415
Cash and cash equivalents at
beginning of period............... 5,452 1,002 6,454
-------- --------- -------- --------- ---------
Cash and cash equivalents at end of
period............................ $ 18,457 $ $ 412 $ $ 18,869
======== ========= ======== ========= =========
</TABLE>
71
<PAGE> 72
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE TWELVE MONTHS ENDED DECEMBER 28, 1997
---------------------------------------------------------------------
SUBSIDIARY
SUBSIDIARY NON TOTAL
PARENT GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
NET CASH FLOWS (USED FOR) PROVIDED BY
OPERATING ACTIVITIES............... $ (2,015) $ (76,469) $ 18,054 $ $ (60,430)
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales and/or maturities of
investments, net of purchases... 11,817 11,817
Capital expenditures............... (16) (31,362) (9,038) (40,416)
--------- --------- --------- --------- ---------
Net cash used for investing
activities...................... 11,801 (31,362) (9,038) (28,599)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from 10.875 percent Senior
Unsecured Notes, net of
discount........................ 198,502 198,502
Proceeds from Senior Secured Credit
Agreement....................... 175,000 175,000
Redemption of 13.5 percent Senior
Secured Discount Notes.......... (117,289) (117,289)
Redemption of 12.5 percent Senior
Secured Discount Notes.......... (107,377) (107,377)
Debt redemption costs.............. (29,947) (29,947)
Payment of Term Loan............... (50,000) (50,000)
Borrowings under revolving credit
agreement....................... 134,250 134,750 269,000
Repayments of revolving credit
agreement....................... (129,250) (134,750) (264,000)
Intercompany cash transactions..... (112,469) 102,831 9,638
Debt issue costs and fees.......... (11,630) (11,630)
Payment of intercompany dividend... 18,300 (18,300)
--------- --------- --------- --------- ---------
Net cash provided by financing
activities...................... (36,910) 107,831 (8,662) 62,259
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and
cash equivalents................ (27,124) 354 (26,770)
Cash and cash equivalents at
beginning of period............. 32,576 648 33,224
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of
period.......................... $ 5,452 $ $ 1,002 $ $ 6,454
========= ========= ========= ========= =========
</TABLE>
72
<PAGE> 73
QUARTERLY RESULTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER(3) QUARTER QUARTER(1)(4) QUARTER(2)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
Net Sales income................... $103,038 $125,251 $118,362 $121,734
Operating income (loss)............ (10,588) (3,588) (13,527) 3,982
Net loss........................... (17,809) (11,334) (30,814) (3,207)
Net loss per share................. $ (1.53) $ (0.97) $ (2.64) $ (0.28)
- ----------------------------------------------------------------------------------------------------
1998
Net Sales.......................... $144,996 $124,339 $103,460 $ 87,125
Operating loss..................... (4,034) (2,979) (13,819) (18,650)
Net loss........................... (1,675) (8,643) (92,656) (24,716)
Net loss per share................. $ (0.14) $ (0.74) $ (7.94) $ (2.12)
- ----------------------------------------------------------------------------------------------------
1997
Net Sales.......................... $125,331 $123,471 $115,250 $123,978
Operating loss..................... (14,509) (9,296) (9,147) (2,105)
Net loss........................... (15,867) (12,753) (10,540) (38,045)
Net loss per share................. (1.36) (1.10) (0.91) (3.27)
Net loss before extraordinary loss
and accounting change............ (15,867) (12,753) (10,540) (8,358)
Net loss per share before
extraordinary loss and accounting
change........................... $ (1.36) $ (1.10) $ (0.91) $ (0.72)
- ----------------------------------------------------------------------------------------------------
</TABLE>
(1) During the third quarter of 1999, the Company recorded a $7.7 million charge
to income from operations due to the abandonment of its finishing mill
facilities and a $10.0 million charge to interest expense relating to the
Tax Court decision relating to Interlake.
(2) In the fourth quarter of 1999 Acme Steel recorded $1.1 million income from
operations from reversal of certain NACME charges recorded previous periods.
(3) In March 1998, the Company completed the sale of Universal Tool, through a
stock sale, generating proceeds to the Company of approximately $18.0
million and a gain of approximately $12.0 million ($7.2 million net of tax).
(4) As a result of the losses incurred to date, and its Chapter 11 Bankruptcy
filings, the Company recorded a valuation allowance of $76.7 million against
its entire net deferred tax asset in the third quarter of fiscal 1998.
73
<PAGE> 74
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Shareholders
of Acme Metals Incorporated
Our audits of the consolidated financial statements referred to in our
report dated February 23, 2000 appearing in the Annual Report to Shareholders of
Acme Metals Incorporated (which report and consolidated financial statements are
incorporated by reference in this Annual Report on Form 10-K) also included an
audit of the financial statement schedule listed in Item 14(a)(2) of this Form
10-K. In our opinion, the financial statement schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
S/S PRICEWATERHOUSECOOPERS LLP
- ------------------------------------------------------------
PricewaterhouseCoopers LLP
February 23, 2000
74
<PAGE> 75
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
-----------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END
OF YEAR EXPENSES ACCOUNTS DEDUCTIONS OF YEAR
---------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C>
1999
Allowance for doubtful accounts
receivable....................... $ 1,278 $ 435 $ 114(a) $(649)(b) $ 1,178
FAS 109 valuation allowance......... $88,926 $36,860 $ $ $125,786
======= ======= ====== ===== =======
1998
Allowance for doubtful accounts
receivable....................... $ 1,296 $ 237 $ 31(a) $(286)(b) $ 1,278
FAS 109 valuation allowance......... $ $81,308 $7,618(c) $ $88,926
======= ======= ====== ===== =======
1997
Allowance for doubtful accounts
receivable....................... $ 1,320 $ 61 $ 100(a) $(185)(b) $ 1,296
======= ======= ====== ===== =======
</TABLE>
- -------------------------
(a) Consists principally of recoveries of accounts charged off in prior years.
(b) Uncollectable accounts charged off.
(c) Consists of charge to accumulated other comprehensive loss.
75
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statements on Form S-8 (Nos. 33-17235,
33-19437, and 33-30841) and in the Registration Statements on Form S-8 (Nos.
33-38747 and 33-59627) of Acme Metals Incorporated of our report dated February
23, 2000 relating to the financial statements, appearing on page 42 of this Form
10-K, and on our report dated February 23, 2000 relating to the financial
statement schedule appearing on page 74 of this Form 10-K.
/s/ PRICEWATERHOUSECOOPERS LLP
- ------------------------------------------------------------
PricewaterhouseCoopers LLP
Chicago, Illinois
March 24, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Consolidated Balance Sheets at December 26, 1999 and Consolidated
Statements of Operations for the Year Ended December 26, 1999 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-26-1999
<PERIOD-START> DEC-28-1998
<PERIOD-END> DEC-26-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 68,893
<ALLOWANCES> (1,178)
<INVENTORY> 82,280
<CURRENT-ASSETS> 155,891
<PP&E> 888,596
<DEPRECIATION> (372,297)
<TOTAL-ASSETS> 707,988
<CURRENT-LIABILITIES> 81,203
<BONDS> 233,370
0
0
<COMMON> 11,647
<OTHER-SE> (26,452)
<TOTAL-LIABILITY-AND-EQUITY> 707,988
<SALES> 468,385
<TOTAL-REVENUES> 468,385
<CGS> 455,699
<TOTAL-COSTS> 492,106
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,333
<INCOME-PRETAX> (62,880)
<INCOME-TAX> 284
<INCOME-CONTINUING> (63,164)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (63,164)
<EPS-BASIC> (5.42)
<EPS-DILUTED> (5.42)
</TABLE>
