<PAGE> 1
===============================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended June 25, 2000 or
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
---------------------------
Commission file number 1-14378
ACME METALS INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 36-3802419
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13500 South Perry Avenue, Riverdale, Illinois 60827-1182
(Address of principal executive offices) (Zip Code)
(708) 849-2500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes |X| No ____
Number of shares of Common Stock outstanding as of August 1, 2000: 11,647,471.
===============================================================================
1
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
-------------------------- -----------------------------
June 25, June 27, June 25, June 27,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES ............................................. $ 130,229 $ 125,251 $ 256,592 $ 228,289
COSTS AND EXPENSES:
Cost of products sold ............................ 107,990 109,362 212,935 203,750
Depreciation expense ............................. 9,420 9,609 18,869 19,211
------------ ------------ ------------ ------------
Gross margin .......................................... 12,819 6,280 24,788 5,328
Selling and administrative expense ............... 9,310 9,868 18,509 19,504
------------ ------------ ------------ ------------
Operating income (loss) ............................... 3,509 (3,588) 6,279 (14,176)
NON-OPERATING INCOME (EXPENSE):
Interest expense ................................. (5,944) (5,611) (11,921) (11,917)
Interest income .................................. 40 79 60 175
Reorganization charges under Chapter 11 Bankruptcy (1,836) (2,097) (3,404) (4,328)
Other net ........................................ 1,241
------------ ------------ ------------ ------------
Loss before income taxes .............................. (4,231) (11,217) (8,986) (29,005)
Income tax provision .................................. 58 117 116 138
------------ ------------ ------------ ------------
Net loss ......................................... $ (4,289) $ (11,334) $ (9,102) $ (29,143)
============ ============ ============ ============
LOSS PER SHARE:
BASIC:
Net loss ..................................... $ (0.37) $ (0.97) $ (0.78) $ (2.50)
============ ============ ============ ============
Weighted average outstanding shares .......... 11,647,471 11,664,549 11,647,471 11,666,364
============ ============ ============ ============
DILUTED:
Net loss ..................................... $ (0.37) $ (0.97) $ (0.78) $ (2.50)
============ ============ ============ ============
Weighted average outstanding shares .......... 11,647,471 11,664,549 11,647,471 11,666,364
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of this financial statement.
2
<PAGE> 3
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
UNAUDITED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
(Unaudited)
June 25, December 26,
2000 1999
---- ----
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ..................................................................... $ 19 $
Accounts receivable trade, less allowances of $1,255, and $1,178, respectively ................ 69,767 67,715
Inventories ................................................................................... 80,636 82,280
Other current assets .......................................................................... 7,106 5,896
--------- ---------
Total current assets ....................................................................... 157,528 155,891
--------- ---------
INVESTMENTS AND OTHER ASSETS:
Investments in associated companies ........................................................... 18,627 20,937
Other assets .................................................................................. 14,199 14,861
--------- ---------
Total investments and other assets ......................................................... 32,826 35,798
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment ................................................................. 894,234 888,596
Accumulated depreciation ...................................................................... (392,033) (372,297)
--------- ---------
Total property, plant and equipment ........................................................ 502,201 516,299
--------- ---------
$ 692,555 $ 707,988
========= =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable .............................................................................. $ 18,797 $ 32,808
Accrued expenses .............................................................................. 43,542 46,345
DIP Financing Agreement ....................................................................... 4,000 2,050
--------- ---------
Total current liabilities .................................................................. 66,339 81,203
--------- ---------
LONG-TERM LIABILITIES:
Long-term debt ................................................................................ 233,370 233,370
Postretirement benefits other than pensions ................................................... 102,615 101,017
Retirement benefit plans ...................................................................... 5,518 7,131
--------- ---------
Total long-term liabilities ................................................................ 341,503 341,518
--------- ---------
LIABILITIES SUBJECT TO COMPROMISE ................................................................ 308,620 300,072
--------- ---------
Commitments and contingencies
SHAREHOLDERS' 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
11,664,371 shares issued and outstanding, respectively ...................................... 11,647 11,647
Additional paid-in capital .................................................................... 165,285 165,285
Retained deficit .............................................................................. (178,529) (169,427)
Accumulated other comprehensive loss .......................................................... (22,310) (22,310)
--------- ---------
Total shareholders' deficit ................................................................ (23,907) (14,805)
--------- ---------
$ 692,555 $ 707,988
========= =========
</TABLE>
The accompanying notes are an integral part of this financial statement.
3
<PAGE> 4
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
For the Six Months Ended
------------------------
June 25, June 27,
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ..................................................................... $ (9,102) $(29,143)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH FROM OPERATING ACTIVITIES:
Gain on sale of properties ................................................ (1,241)
Depreciation .............................................................. 19,460 20,233
CHANGE IN OPERATING ASSETS AND LIABILITIES:
Accounts receivable ..................................................... (2,052) (10,541)
Income tax receivable ................................................... 40
Inventories ............................................................. 1,644 (4,451)
Accounts payable ........................................................ (14,011) 2,377
Other current accounts .................................................. (4,013) 2,524
Liabilities subject to compromise ....................................... 8,548 178
Other, net ................................................................ 2,966 1,558
-------- --------
Net cash provided by (used for) operating activities ......................... 3,440 (18,466)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of assets ............................................. 1,928
Capital expenditures ......................................................... (5,371) (4,014)
-------- --------
Net cash (used for) investing activities ..................................... (5,371) (2,086)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment DIP Financing Agreement .............................................. (29,590)
Borrowings under DIP Financing Agreement ..................................... 31,540
Draw from Letter of Credit ................................................... 8,991
-------- --------
Net cash provided by financing activities .................................... 1,950 8,991
-------- --------
Net (decrease) increase in cash and cash equivalents ......................... 19 (11,561)
Cash and cash equivalents at beginning of period ............................. 18,869
-------- --------
Cash and cash equivalents at end of period ................................... $ 19 $ 7,308
======== ========
</TABLE>
The accompanying notes are an integral part of this financial statement.
4
<PAGE> 5
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
BANKRUPTCY PROCEEDINGS:
On September 28, 1998, Acme Metals Incorporated ("Acme Metals" or "the Company")
and its principal direct and indirect subsidiary companies, which include Acme
Steel Company ("Acme Steel"), Acme Packaging Corporation ("Acme Packaging"),
Alpha Tube Corporation ("Alpha Tube"), Alabama Metallurgical Corporation, and
Acme Steel Company International, Inc., filed separate voluntary petitions for
protection and reorganization under Chapter 11 of Title 11 ("Chapter 11") of the
United States Code (the "Bankruptcy Code") in the United States Bankruptcy Court
for the District of Delaware ("Bankruptcy Court") as previously described in
Item 1. under the heading "Chapter 11 Bankruptcy Filings" on page 3 of the
Company's Annual Report on Form 10-K for the year ended December 26, 1999 ("1999
Form 10-K"). These bankruptcy proceedings are collectively referred to as the
"Chapter 11 Bankruptcy" herein.
As a result of the Chapter 11 Bankruptcy proceedings, all of the Company's
obligations were stayed. Without Bankruptcy Court approval, the Company cannot
pay pre-petition obligations. Reference is made to "DIP Financing" on page 49 of
the 1999 Form 10-K for a description of the Loan and Security Agreement with
BankAmerica Business Credit, Inc. ("DIP Financing Agreement") entered into on
December 18, 1998. At June 25, 2000, $4 million of the DIP Financing Agreement
was outstanding with an additional $57.7 million available.
In the first quarter of 2000, Citibank, N. A. filed an application for a $100
million loan guarantee with the Emergency Steel Guarantee Loan Program on behalf
of the Company. In June, the Company was informed that action on its loan
application was delayed subject to further discussions with the Executive
Director of the Emergency Steel Guarantee Loan Board.
The Company, in seeking to maximize value for the estates under the Chapter 11
Bankruptcy process, initiated a formal process of soliciting third-party
indications of interest in a possible sale or investment transaction involving
certain of their operating assets. As a result of these efforts, the Company
received a preliminary proposal from a third party to acquire the steelmaking
operations. Although the Company cannot publicly identify the third party at
this time, the Company and key creditor constituencies (both secured and
unsecured) agree the proposal should be pursued and developed. While no
assurances can be provided that a transaction will be completed, due diligence
continues with significant issues to be resolved before a transaction can be
presented to the Bankruptcy Court for approval.
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
5
<PAGE> 6
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.
BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements for Acme Metals
include its wholly owned operating subsidiaries, Acme Steel, Acme Packaging, and
Alpha Tube, hereinafter collectively referred to as "the Company," for the
periods ended June 25, 2000 and June 27, 1999. The statements should be read in
conjunction with the audited financial statements included in the Company's 1999
Form 10-K. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary for a fair statement of such financial
statements have been included. The financial statements have been subjected to a
limited review by PricewaterhouseCoopers LLP, the Company's independent
accountants, whose report appears on page 20 of this filing. Such report is not
a "report" or "part of the Registration Statement" within the meaning of
Sections 7 and 11 of the Securities Act of 1933 and the liability provisions of
Section 11 of such Act do not apply.
Certain prior year amounts have been reclassified to conform to the current
year's presentation.
The Company's fiscal year ends on December 31, 2000 and will contain 53 weeks.
Second quarter results for 2000 and 1999 each cover 13-week periods.
INVENTORIES:
Inventories as calculated on the last-in, first-out method:
<TABLE>
<CAPTION>
June 25, December 26,
2000 1999
------------- --------------
(unaudited)
(in thousands)
<S> <C> <C>
Raw materials $ 18,458 $ 23,887
Semi-finished and finished products 54,623 51,967
Supplies 7,555 6,426
------------- --------------
$ 80,636 $ 82,280
============= ==============
</TABLE>
6
<PAGE> 7
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INCOME TAXES:
As discussed on page 56 of the Company's 1999 Form 10-K, the Company has net
operating losses expiring in 2012 to 2019 and has recorded a valuation allowance
against its entire net deferred tax asset. The Company continued to fully
reserve any net deferred tax assets generated in the second quarter of 2000.
LONG-TERM DEBT:
The Company's long-term debt, including current maturities, not recorded as
"Liabilities Subject to Compromise" is comprised of:
<TABLE>
<CAPTION>
June 25, December 26,
2000 1999
----------- --------
(unaudited)
(in thousands)
<S> <C> <C>
Senior Secured Credit Agreement $174,250 $174,250
12.5 percent Senior Secured Notes 17,623 17,623
13.5 percent Senior Secured Discount Notes 669 669
DIP Financing Agreement 4,000 2,050
Environmental Improvement Bonds 7.95 percent 11,345 11,345
Environmental Improvement Bonds 7.90 percent 8,585 8,585
Walbridge Facility 14,700 14,700
Other long-term debt 6,198 6,198
-------- --------
$237,370 $235,420
======== ========
</TABLE>
On September 28, 1998, all of the long-term debt became in default due to the
Chapter 11 Bankruptcy. 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 $204 million after the petition date, as it is unlikely such
interest would be paid in the plan of reorganization. Additionally, scheduled
principal payments on secured debt which have not been made for the
post-petition period, totaled $3.8 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 the first half of 2000, the Company paid $11
million in adequate protection payments as ordered by the Bankruptcy Court.
7
<PAGE> 8
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 an appraisal of the assets securing (the
"collateral") the Environmental Improvement Bonds which indicates the value of
this collateral is not sufficient to fully secure these bonds. Discussions have
been initiated with the agent representing the holders of these bonds, however,
no agreement has been reached regarding the value of this collateral. Because
the collateral may not be adequate to fully secure these Environmental
Improvement Bonds, the Company ceased accruing interest as of December 26, 1999.
Interest, had it been accrued, would have equaled $0.8 million in the first half
of 2000.
LIABILITIES SUBJECT TO COMPROMISE:
Items classified as "Liabilities Subject to Compromise:"
<TABLE>
<CAPTION>
June 25, December 26,
2000 1999
---- ----
(unaudited)
(in thousands)
<S> <C> <C>
Accounts payable.............................................. $ 71,198 $ 60,525
Accrued interest.............................................. 6,094 6,094
Bond payable and other related liability...................... 2,567 2,567
Other accrued liabilities..................................... 492 492
Note payable.................................................. 5,500 5,500
10.875 percent Senior Unsecured Notes, net
of discount................................................. 198,682 198,682
Other long-term liabilities................................... 24,087 26,212
------------- -------------
Total......................................................... $ 308,620 $ 300,072
============= =============
</TABLE>
CASH FLOWS:
Cash payments for adequate protection payments were $11.0 million during the
first half of 2000 compared to $8.7 million in the first half of 1999.
8
<PAGE> 9
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
COMMITMENTS AND CONTINGENCIES:
The Company is subject to various commitments and contingencies as previously
described in the Company's 1999 Form 10-K. On February 16, 2000, the Company
assumed a material executory contract with NACME Steel Processing LLC ("NACME").
Acme Steel has a 40 percent equity interest in NACME. The contract requires Acme
Steel to provide NACME with certain minimum flat-rolled steel tonnages, which
NACME is required to process. The processing operations performed by NACME
include pickling, slitting, and packaging.
As reported in the 1999 Form 10-K on page 62, Raytheon Engineers & Constructors,
Inc. ("Raytheon") filed various legal actions in the Bankruptcy Court seeking to
prevent Acme Steel from drawing on an irrevocable letter of credit. On April 11,
2000, the Bankruptcy Court held that any claims Raytheon may have against Acme
Steel for draws against the letter of credit are considered pre-petition and
Raytheon cannot enjoin Acme Steel from future draws on the letter of credit
without alleging and proving fraud, which Raytheon failed to do. The Bankruptcy
Court's decision did not address whether the claim is secured or unsecured. The
Company has filed an Adversary Complaint challenging both Raytheon's assertion
of the claim having a secured status and the validity of Raytheon's underlying
mechanics lien. Subsequent to the April 11, 2000 ruling, the Company
reclassified the Raytheon liability of $8.5 million from Accounts Payable to
Liabilities Subject to Compromise.
On April 13, 2000, Raytheon filed a notice of appeal to the U.S. District Court
of Delaware appealing the April 11, 2000 Bankruptcy Court decision. Although the
Company plans to vigorously oppose Raytheon in this appeal process, there can be
no assurances that the Company will prevail.
9
<PAGE> 10
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(dollars in thousands)
Business Segments:
The Company presents its operations in two segments, Steel Making and Steel
Fabricating, as previously disclosed in the Company's Form 10-K.
Unaudited operating segment information based on operating income is as follows:
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
-------------------------- ------------------------
June 25, June 27, June 25, June 27,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
STEEL MAKING:
Sales to unaffiliated customers ... $ 70,464 $ 66,048 $ 140,016 $ 115,333
Intersegment sales ................ 19,413 18,657 41,299 37,968
--------- --------- --------- ---------
Net sales ..................... $ 89,877 $ 84,705 $ 181,315 $ 153,301
========= ========= ========= =========
Depreciation ...................... $ 8,355 $ 8,570 $ 16,663 $ 17,132
Loss from operations .............. (88) (9,066) (796) (24,794)
Total assets ...................... 530,435 564,748 530,435 564,748
Capital expenditures .............. 2,339 1,800 4,150 1,627
Operating data (in tons)
Steel production (hot band) ... 262,544 261,964 511,405 506,230
Steel shipments (flat-rolled) 228,754 249,892 317,441 471,147
STEEL FABRICATING:
Sales to unaffiliated customers ... $ 59,765 $ 59,203 $ 116,576 $ 112,956
Intersegment sales ................ 171 165 302 325
--------- --------- --------- ---------
Net sales ..................... $ 59,936 $ 59,368 $ 116,878 $ 113,281
========= ========= ========= =========
Depreciation ...................... $ 1,356 $ 1,357 $ 2,817 $ 2,579
Income from operations ............ 3,597 5,478 7,075 10,618
Total assets ...................... 128,670 118,296 128,670 118,296
Capital expenditures .............. 374 1,095 1,221 2,387
</TABLE>
10
<PAGE> 11
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(dollars in thousands)
Reconciliation of the unaudited segment information to the Company's unaudited
consolidated financial statements is as follows:
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
-------------------------- --------------------------
June 25, June 27, June 25, June 27,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales:
Steel Making .................... $ 89,877 $ 84,705 $ 181,315 $ 153,301
Steel Fabricating ............... 59,936 59,368 116,878 113,281
Intersegment sales .............. (19,584) (18,822) (41,601) (38,293)
--------- --------- --------- ---------
$ 130,229 $ 125,251 $ 256,592 $ 228,289
========= ========= ========= =========
Income (loss) before income taxes and
extraordinary loss:
Operating income (loss):
Steel Making ................ $ (88) $ (9,066) $ (796) $ (24,794)
Steel Fabricating ........... 3,597 5,478 7,075 10,618
--------- --------- --------- ---------
3,509 (3,588) 6,279 (14,176)
Less:
Interest expense ............ (5,944) (5,611) (11,921) (11,917)
Reorganization charges under
Chapter 11 Bankruptcy .... (1,836) (2,097) (3,404) (4,328)
Add:
Interest income ............. 40 79 60 175
Other, net .................. 1,241
--------- --------- --------- ---------
Loss before income taxes $ (4,231) $ (11,217) $ (8,986) $ (29,005)
========= ========= ========= =========
Total assets:
Steel Making .................... $ 530,435 $ 564,748 $ 530,435 $ 564,748
Steel Fabricating ............... 128,670 118,296 128,670 118,296
Corporate ....................... 33,450 43,465 33,450 43,465
--------- --------- --------- ---------
$ 692,555 $ 726,509 $ 692,555 $ 726,509
========= ========= ========= =========
</TABLE>
11
<PAGE> 12
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(dollars in thousands)
GUARANTOR'S FINANCIAL STATEMENTS
In December 1997, Acme Metals, 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 THREE MONTHS ENDED JUNE 25, 2000
--------------------------------------------------------------------------
SUBSIDIARY
SUBSIDIARY NON TOTAL
PARENT GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales ..................................... $ $ 89,877 $ 59,936 $ (19,584) $ 130,229
Costs and expenses ............................ 85,798 51,196 (19,584) 117,410
-------- --------- --------- --------- ---------
Gross margin .................................. 4,079 8,740 12,819
Selling and administrative expense ............ 4,167 5,143 9,310
-------- --------- --------- --------- ---------
Operating income (loss) ....................... (88) 3,597 3,509
Reorganization charges under
Chapter 11 Bankruptcy ....................... (503) (902) (431) (1,836)
Net interest income (expense) and other........ (5,245) (867) 208 (5,904)
-------- --------- --------- --------- ---------
Income (loss) before income taxes ............. (5,748) (1,857) 3,374 (4,231)
Income tax provision (benefit) ................ (1,192) 1,250 58
-------- --------- --------- --------- ---------
Net income (loss) before equity
adjustment .................................. (4,556) (1,857) 2,124 (4,289)
Equity income (loss) in subsidiaries .......... 267 (267)
-------- --------- --------- --------- ---------
Net income (loss) ............................. $ (4,289) $ (1,857) $ 2,124 $ (267) $ (4,289)
======== ========= ========= ========= =========
</TABLE>
12
<PAGE> 13
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(dollars in thousands)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 27, 1999
--------------------------------------------------------------------------
SUBSIDIARY
SUBSIDIARY NON TOTAL
PARENT GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales...................................... $ $ 84,705 $ 59,368 $ (18,822) $ 125,251
Costs and expenses............................. 89,005 48,788 (18,822) 118,971
--------- --------- -------- ---------- ----------
Gross margin................................... (4,300) 10,580 6,280
Selling and administrative expense............. 4,766 5,102 9,868
--------- --------- -------- ---------- ----------
Operating income (loss)........................ (9,066) 5,478 (3,588)
Reorganization charges under
Chapter 11 Bankruptcy........................ (317) (930) (850) (2,097)
Net interest income (expense) and other........ (4,830) (472) (230) (5,532)
--------- --------- -------- ---------- ----------
Income (loss) before income taxes.............. (5,147) (10,468) 4,398 (11,217)
Income tax provision (benefit)................. (2,935) 3,052 117
--------- --------- -------- ---------- ----------
Net income (loss) before equity
adjustment................................... (2,212) (10,468) 1,346 (11,334)
Equity income (loss) in subsidiaries........... (9,122) 9,122
--------- --------- -------- ---------- ----------
Net income (loss).............................. $ (11,334) $ (10,468) $ 1,346 $ 9,122 $ (11,334)
========= ========= ======== ========== ==========
</TABLE>
13
<PAGE> 14
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(dollars in thousands)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 25, 2000
--------------------------------------------------------------------------------
SUBSIDIARY
SUBSIDIARY NON TOTAL
PARENT GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
------------ --------------- --------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Net Sales.............................. $ $ 181,315 $ 116,878 $ (41,601) $ 256,592
Costs and expenses..................... 173,693 99,712 (41,601) 231,804
------------ --------------- --------------- -------------- ----------------
Gross margin........................... 7,622 17,166 24,788
Selling and administrative expense..... 8,418 10,091 18,509
------------ --------------- --------------- -------------- ----------------
Operating income (loss)................ (796) 7,075 6,279
Reorganization charges under
Chapter 11 Bankruptcy................ (1,068) (1,669) (667) (3,404)
Net interest income (expense)
and other ........................... (10,591) (1,654) 384 (11,861)
------------ --------------- --------------- -------------- ----------------
Income (loss) before income taxes...... (11,659) (4,119) 6,792 (8,986)
Income tax provision (benefit)......... (2,391) 2,507 116
------------ --------------- --------------- -------------- ----------------
Net income (loss) before equity
adjustment........................... (9,268) (4,119) 4,285 (9,102)
Equity income (loss) in subsidiaries... 166 (166)
------------ --------------- --------------- -------------- ----------------
Net income (loss)...................... $ (9,102) $ (4,119) $ 4,285 $ (166) $ (9,102)
============ =============== =============== ============== ================
</TABLE>
14
<PAGE> 15
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(dollars in thousands)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 27, 1999
-----------------------------------------------------------------------------
SUBSIDIARY
SUBSIDIARY NON TOTAL
PARENT GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
------------ ------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Net Sales ................................ $ $ 153,301 $ 113,281 $ (38,293) $ 228,289
Costs and expenses ....................... 168,722 92,532 (38,293) 222,961
------------ ------------- -------------- -------------- ----------------
Gross margin ............................. (15,421) 20,749 5,328
Selling and administrative expense ....... 9,373 10,131 19,504
------------ ------------- -------------- -------------- ----------------
Operating income (loss) .................. (24,794) 10,618 (14,176)
Reorganization charges under
Chapter 11 Bankruptcy .................. (915) (1,709) (1,704) (4,328)
Net interest income (expense) and other .. (10,806) (777) 1,082 (10,501)
------------ ------------- -------------- -------------- ----------------
Income (loss) before income taxes ........ (11,721) (27,280) 9,996 (29,005)
Income tax provision (benefit) ........... (3,471) 3,609 138
------------ ------------- -------------- -------------- ----------------
Net income (loss) before equity
adjustment ............................. (8,250) (27,280) 6,387 (29,143)
Equity income (loss) in subsidiaries ..... (20,893) 20,893
------------ ------------- -------------- -------------- ----------------
Net income (loss) ........................ $ (29,143) $ (27,280) $ 6,387 $ 20,893 $ (29,143)
============ ============= ============== ============== ================
</TABLE>
15
<PAGE> 16
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(dollars in thousands)
<TABLE>
<CAPTION>
AS OF JUNE 25, 2000
---------------------------------------------------------------------------
SUBSIDIARY
SUBSIDIARY NON TOTAL
ASSETS PARENT GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ------------ ------------ -------------- ---------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ................... $ 19 $ $ $ $ 19
Accounts receivable, net .................... 380 40,528 28,859 69,767
Inventories ................................. 45,464 36,619 (1,447) 80,636
Other current assets ........................ 1,193 4,825 1,088 7,106
Due (to) from affiliates .................... 486,600 (45,984) 30,912 (471,528)
----------- ------------ ------------ -------------- ---------------
Total current assets ...................... 488,192 44,833 97,478 (472,975) 157,528
----------- ------------ ------------ -------------- ---------------
INVESTMENTS AND OTHER ASSETS:
Investments in associated companies ......... (46,633) 19,391 1,031 44,838 18,627
Other assets ................................ 10,777 3,031 391 14,199
----------- ------------ ------------ -------------- ---------------
Total investments and other assets ........ (35,856) 22,422 1,422 44,838 32,826
----------- ------------ ------------ -------------- ---------------
PROPERTY, PLANT AND EQUIPMENT- Net: ........... 14,042 453,936 34,223 502,201
----------- ------------ ------------ -------------- ---------------
$ 466,378 $ 521,191 $ 133,123 $ (428,137) $ 692,555
=========== ============ ============ ============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses ....... $ 19,480 $ 31,875 $ 10,984 $ $ 62,339
DIP Financing Agreement ..................... 4,000 4,000
----------- ------------ ------------ -------------- ---------------
Total current liabilities ................. 23,480 31,875 10,984 66,339
----------- ------------ ------------ -------------- ---------------
LONG-TERM LIABILITIES:
Long-term debt .............................. 233,370 233,370
Post-retirement benefits other
than pensions ............................. 1,168 86,315 15,132 102,615
Retirement benefit plans .................... 1,987 6,402 (2,871) 5,518
----------- ------------ ------------ -------------- ---------------
Total long-term liabilities ............... 236,525 92,717 12,261 341,503
----------- ------------ ------------ -------------- ---------------
LIABILITIES SUBJECT TO COMPROMISE ............. 230,280 505,109 48,001 (474,770) 308,620
----------- ------------ ------------ -------------- ---------------
SHAREHOLDERS' EQUITY (DEFICIT): ............... (23,907) (108,510) 61,877 46,633 (23,907)
----------- ------------ ------------ -------------- ---------------
$ 466,378 $ 521,191 $ 133,123 $ (428,137) $ 692,555
=========== ============ ============ ============== ===============
</TABLE>
16
<PAGE> 17
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(dollars in thousands)
<TABLE>
<CAPTION>
AS OF DECEMBER 26, 1999
----------------------------------------------------------------------
SUBSIDIARY
SUBSIDIARY NON TOTAL
ASSETS PARENT GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ------------ ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C>
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>
17
<PAGE> 18
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(dollars in thousands)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 25, 2000
-----------------------------------------------------------------------
SUBSIDIARY
SUBSIDIARY NON TOTAL
PARENT GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
-------- --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
NET CASH FLOWS (USED FOR) PROVIDED BY
OPERATING ACTIVITIES ....................... $ (1,931) $ 4,150 $ 1,221 $ $ 3,440
-------- --------- ---------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ....................... (4,150) (1,221) (5,371)
-------- --------- ---------- ------------ ------------
Net cash used for investing activities ..... (4,150) (1,221) (5,371)
-------- --------- ---------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments DIP financing agreement ........... (29,590) (29,590)
Borrowings under DIP financing agreement.... 31,540 31,540
-------- --------- ---------- ------------ ------------
Net cash provided by financing activities... 1,950 1,950
-------- --------- ---------- ------------ ------------
Net increase in cash and cash equivalents... 19 19
Cash and cash equivalents at
beginning of period.......................
-------- --------- ---------- ------------ ------------
Cash and cash equivalents at
end of period ............................ $ 19 $ $ $ $ 19
======== ========= ========== ============ ============
</TABLE>
18
<PAGE> 19
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(dollars in thousands)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 27, 1999
-------------------------------------------------------------------
SUBSIDIARY
SUBSIDIARY NON TOTAL
PARENT GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
NET CASH FLOWS (USED FOR) PROVIDED BY
OPERATING ACTIVITIES .................................... $(11,245) $ (7,366) $ 145 $ $(18,466)
--------- ---------- ---------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of assets ...................... 1,928 1,928
Capital expenditures .................................. (1,627) (2,387) (4,014)
--------- ---------- ---------- ------------ ------------
Net cash provided by (used for) investing activities... (1,627) (459) (2,086)
--------- ---------- ---------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Other ................................................. (2) 8,993 8,991
--------- ---------- ---------- ------------ ------------
Net cash (used for) provided by financing activities .. (2) 8,993 8,991
Net decrease in cash and cash equivalents ............. (11,247) (314) (11,561)
Cash and cash equivalents at
beginning of period ................................. 18,457 412 18,869
--------- ---------- ---------- ------------ ------------
Cash and cash equivalents at
end of period ....................................... $ 7,210 $ $ 98 $ $ 7,308
========= ========== ========== ============ ============
</TABLE>
19
<PAGE> 20
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of
Acme Metals Incorporated
We have reviewed the accompanying consolidated balance sheet of Acme Metals
Incorporated and its subsidiaries (the "Company") as of June 25, 2000, and the
related consolidated statements of operations for each of the three-month and
six-month periods ended June 25, 2000 and June 27, 1999 and the consolidated
statements of cash flows for the six-month periods ended June 25, 2000 and June
27, 1999. These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States, the objective
of which is the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated interim financial statements for them
to be in conformity with accounting principles generally accepted in the United
States.
We previously audited, in accordance with auditing standards generally accepted
in the United States, the consolidated balance sheet as of December 26, 1999,
and the related consolidated statements of operations, of shareholders' equity,
and of cash flows for the year then ended (not presented herein), and in our
report dated February 23, 2000, we expressed an unqualified opinion on those
consolidated financial statements. Our report included an explanatory paragraph
with respect to the Company's ability to continue as a going-concern. In our
opinion, the information set forth in the accompanying consolidated balance
sheet as of December 26, 1999, is fairly stated in all material respects in
relation to the consolidated balance sheet from which it has been derived.
On September 28, 1998, the Company filed voluntary petitions for protection and
reorganization under Chapter 11 of the Bankruptcy Code. The accompanying
consolidated financial statements have been prepared on the basis that the
Company will continue as a going-concern.
/s/ PricewaterhouseCoopers LLP
-------------------------------------------
PricewaterhouseCoopers LLP
Chicago, Illinois
August 3, 2000
20
<PAGE> 21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
On September 28, 1998, the Company filed voluntary petitions for protection and
reorganization under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court.
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 the facilities used to manufacture hot-rolled sheet and
strip steel. The Steel Fabricating Segment includes Acme Packaging and Alpha
Tube. Each Fabricating Segment company uses flat-rolled steel in its respective
operations; and, Acme Packaging uses plastic in addition to steel in the
manufacturing of strapping products.
This discussion and analysis of results of operations should be read in
conjunction with the unaudited consolidated financial statements and
accompanying notes to the financial statements.
Second Quarter 2000 as compared to Second Quarter 1999
THE COMPANY. Second quarter 2000 operating results for the Company improved
substantially over the second quarter 1999, due to both increased sales and
lower operating costs. Consolidated net sales of $130 million for the second
quarter of 2000 were $5 million higher than the same period in the prior year.
Higher selling prices and improved mix in the steel segment resulted in the
sales increase.
The sales increase led to greater income from operations over the second quarter
1999. The Company's operating income of $3.5 million for the second quarter of
2000 represents a $7.1 million improvement over the $3.6 million loss recorded
for the same period in 1999. This substantial improvement relates to the
increased sales and cost improvements at the Steel Making Segment.
Selling and administrative expense for the current period declined $0.5 million
compared to the previous year due to staff reductions in 1999. Interest expense
for the Company during the second quarter of 2000 remained consistent with the
same period a year ago at $6 million.
During the second quarter of 2000, the Company incurred reorganization charges
of $1.8 million, versus $2.0 million in the same period in 1999. Reorganization
charges primarily consist of administrative, professional, and legal fees
associated with the Chapter 11 Bankruptcy.
Net income for 2000 improved over 1999 by $7 million, or 62 percent. The
components discussed above resulted in a net loss for the Company of $4 million,
or $0.37 per share, for the second quarter of 2000. The same period in 1999
generated an $11 million loss, or $0.97 per share. Per share amounts are based
on weighted average number of common shares calculated on both the basic and
fully diluted method, which are equivalent in amount.
21
<PAGE> 22
THE STEEL MAKING SEGMENT. Net sales in the current period were $90 million, a $5
million increase over the same period last year. This improvement consisted of a
$9 million increase due to higher prices and better mix, offset by a $4 million
decline due to decreased volume. Compared to a year ago, sales to unaffiliated
customers increased $4 million, or 7 percent, while sales to affiliates
increased $1 million, or 4 percent.
The current period operating loss of $0.1 million for the Steel Making Segment
improved by $9 million over the operating loss of $9 million for the second
quarter of 1999. The improvement primarily relates to increased sales and lower
operating costs. The Continuous Steel Making Plant (the "CSP") operated at an
average of 103 percent capacity for the second quarter of 2000 (98 percent in
the second quarter of 1999). By operating at full capacity and by experiencing
related improvement in material yield, the CSP continued to improve its cost
structure over 1999. Despite the increase in production and cost improvement,
the Steel Making Segment continued to incur losses in the second quarter of
2000. New entrants into the market now compete with the Segment's traditional
high margin products, which have driven overall prices down below those
previously realized by the Steel Segment.
THE STEEL FABRICATING SEGMENT. In the second quarter of 2000, the Steel
Fabricating Segment experienced improvement in price/mix offsetting a volume
decline over the same period in 1999. Net sales for the current period equaled
$60 million, a $0.6 million improvement over the second quarter of 1999.
In the second quarter of 2000, the Steel Fabricating Segment generated operating
income of $4 million compared to $5 million in the comparable period in 1999. An
average increase of $40 per ton in raw material costs accounts for the decrease
in income from operations.
22
<PAGE> 23
Six Months ended June 25, 2000 as compared to Six Months ended June 27, 1999
THE COMPANY. Consolidated net sales of $257 million for the first half of 2000
were $29 million higher than the same period in the prior year, reflecting
higher net sales in both the first and second quarters. Increased shipments,
higher prices and a higher margin sales mix contributed to the sales increase.
The increase in sales led to a $20 million increase (of which $13 million
occurred in the first quarter) in operating income for the Company in the first
half of 2000 compared to the same period in 1999.
Selling and administrative expense was $19 million in the first half of 2000, $1
million lower than the prior year. Interest expense of $12 million for the six
months ended June 25, 2000 was flat compared to the same period of the prior
year.
During the first six months of 2000, the Company incurred reorganization charges
of $3.4 million, $1 million lower than the prior year. These costs primarily
consist of administrative, professional, and legal fees associated with the
Chapter 11 Bankruptcy proceedings.
The Company recorded a loss of $9 million, or $0.78 per share in the first half
of 2000, versus a loss of $29 million, or $2.50 per share, recorded in the first
half of the prior year. Per share amounts for 2000 and 1999 are based on the
weighted average number of common shares calculated on both the basic and fully
diluted methods, which are equivalent in amount.
STEEL MAKING SEGMENT. In the first six months of 2000, net sales for the Steel
Making Segment were $181 million, a $28 million or 18 percent increase from the
comparable period last year. Of the $28 million increase, $19 million and $9
million is attributable to higher prices/improved mix and increased volume,
respectively. Sales to unaffiliated customers increased 21 percent or $25
million, while intersegment sales of $41 million were higher than the first half
of 1999 by $3 million, or 8 percent.
The Steel Making Segment recorded a $1 million loss from operations in the first
two quarters of 2000, which was nearly $24 million better than the $25 million
loss recorded in the comparable period in 1999. The decreased loss in the first
half of 2000 was primarily due to increased sales, improved sales mix and cost
improvements.
STEEL FABRICATING SEGMENT. The Steel Fabricating Segment net sales of $117
million in 2000 were $4 million, or 4 percent above the comparable period in the
prior year. An increase in sales for the fabricating businesses resulted from
both higher prices/improved mix and increased volume.
The Steel Fabricating Segment's operating income of $7 million for the first two
quarters of 2000 was $4 million lower than in last year's comparable period due
primarily to increased raw material costs.
23
<PAGE> 24
LIQUIDITY AND CAPITAL RESOURCES
The most significant factor affecting the Company's liquidity and capital
resources is operating under the protection of the Bankruptcy Code. Additional
information and discussions concerning the circumstances which led to the
Chapter 11 Bankruptcy are contained in Item 1. Business--Chapter 11 Bankruptcy
Filings on page 3 of the 1999 Form 10-K.
The Company's current liquidity requirements include working capital needs,
Chapter 11 Bankruptcy administrative expenses, payments to adequately protect
holders of certain secured claims, and capital investments. The Company held no
cash or cash equivalents at both June 25, 2000 and December 26, 1999. To fund
liquidity requirements, the Company entered into a DIP Financing Agreement with
Bank of America as discussed in Liquidity and Capital Resources on page 18 of
the Company's 1999 Form 10-K. The DIP Financing Agreement provides for a maximum
of $100 million of revolving credit borrowings subject to borrowing base
limitations. At June 25, 2000, $4 million of the DIP Financing Agreement was
outstanding with an additional $57 million available based on borrowing base
limitations. The DIP Financing Agreement expires September 27, 2000. The Company
is currently in discussion to extend the current facility.
Capital expenditures are expected to approximate $26 million during 2000. At
June 25, 2000, the Company has spent $5 million on capital projects. During the
first half of 2000, the Company made $11 million in Bankruptcy Court approved
adequate protection payments. The Company anticipates the Bankruptcy Court will
approve additional adequate protection payments for the second half of the year.
Although the Company believes the anticipated cash from future operations and
borrowings under the DIP Financing Agreement will provide sufficient liquidity
for the Company to fund on-going operations, to meet its adequate protection
payments, and to finance its Chapter 11 Bankruptcy administrative costs, there
can be no assurances these or other possible resources will be adequate or that
an extension of the DIP Financing Agreement would be obtained.
24
<PAGE> 25
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 practicable 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 September 30, 2000, however the court
has allowed the unsecured creditors the right to file an objection prior to
August 15, 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 the elimination of the equity of existing shareholders of
the Company as a result of the issuance of equity to creditors or new investors.
Steel Making Segment
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. 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. Additionally, the
Company believes a structural change in the market pricing of products has
occurred in recent years, compressing the premium received by Acme Steel for
traditionally high margin products. Also, steel imports continue to adversely
affect price. On the other hand, the cost position of Acme Steel has
substantially improved since the CSP 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 for the remainder of 2000 are expected to
remain relatively steady. Acme Packaging plans to increase the utilization of
the plastic strapping lines in the second full year of operations. Except for
third quarter seasonal softness in certain end-user markets, Alpha Tube expects
to continue generating earnings similar to the first half of 2000.
25
<PAGE> 26
FORWARD LOOKING STATEMENT
Actual events might materially differ from those projected in the above outlook
statements. If there are substantial unexpected production interruptions or
other operating difficulties, or if the CSP fails to maintain 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
that may affect the Company's businesses, results of operations and prospects.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Exchange. The Company has exposure from changes in foreign exchange
rates for the purchase of raw materials from its Wabush joint venture. A 10
percent unfavorable movement in the Canadian Dollar would affect raw material
costs by approximately $3 million on an annual basis.
Interest Rates. The Company's net interest rate risk exposure consists of
floating rate debt instruments linked to LIBOR. The Company, while under Chapter
11 Bankruptcy, is prohibited from making interest payments but with the approval
of the Bankruptcy Court, has or expects to enter into adequate protection
agreements with secured lenders.
26
<PAGE> 27
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 10-Q
Exhibit 15 - Report of PricewaterhouseCoopers LLP
Exhibit 27 - Financial data schedule
27
<PAGE> 28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACME METALS INCORPORATED
Date: August 4, 2000 By: /s/ Jerry F. Williams
---------------------------------------
Jerry F. Williams
Vice President - Finance and
Administration and Chief Financial
Officer (Principal Financial Officer)
By: /s/ Derrick T. Bay
---------------------------------------
Derrick T. Bay
Controller and Chief Accounting Officer
(Principal Accounting Officer)
28
