<PAGE> 1
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended September 24,
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 November 3, 2000: 11,647,471.
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<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
-------------------------- -------------------------
September 24, September 26, September 24, September 26,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $ 116,831 $ 118,362 $ 373,423 $ 346,651
COSTS AND EXPENSES:
Cost of products sold ............................... 101,287 113,473 314,222 317,223
Depreciation expense ................................ 9,274 9,746 28,143 28,957
----------- ----------- ----------- -----------
Gross margin ............................................ 6,270 (4,857) 31,058 471
Selling and administrative expense .................. 7,794 8,670 26,303 28,174
----------- ----------- ----------- -----------
Operating income (loss)................................... (1,524) (13,527) 4,755 (27,703)
NON-OPERATING INCOME (EXPENSE):
Interest expense .................................... (4,152) (5,725) (16,073) (17,642)
Interest expense - income tax........................ (10,000) (10,000)
Interest income...................................... 41 98 101 273
Reorganization charges under
Chapter 11 Bankruptcy.............................. (1,700) (1,582) (5,104) (5,910)
Other - net ......................................... 1,241
----------- ----------- ------------ -----------
Loss before income taxes ................................. (7,335) (30,736) (16,321) (59,741)
Income tax provision...................................... 58 78 174 216
----------- ----------- ----------- -----------
Net loss ............................................ $ (7,393) $ (30,814) $ (16,495) $ (59,957)
=========== =========== =========== ===========
LOSS PER SHARE:
BASIC:
Net loss ........................................ $ (0.63) $ (2.64) (1.42) $ (5.14)
============ ============ ============ ===========
Weighted average outstanding shares.............. 11,647,471 11,653,668 11,647,471 11,662,110
============ ============ ============ ===========
DILUTED:
Net loss ........................................ $ (0.63) $ (2.64) $ (1.42) $ (5.14)
============ ============ ============ ===========
Weighted average outstanding shares.............. 11,647,471 11,653,668 11,647,471 11,662,110
============ ============ ============ ===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
2
<PAGE> 3
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
(Unaudited)
September 24, December 26,
2000 1999
------------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................ $ 3,145 $
Accounts receivable trade, less allowances of $1,375
and $1,178, respectively.......................................... 64,954 67,715
Inventories.......................................................... 80,529 82,280
Other current assets................................................. 6,559 5,896
-------- ---------
Total current assets.............................................. 155,187 155,891
-------- ---------
INVESTMENTS AND OTHER ASSETS:
Investments in associated companies.................................. 10,496 20,937
Other assets......................................................... 13,729 14,861
-------- ---------
Total investments and other assets................................ 24,225 35,798
-------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment........................................ 899,615 888,596
Accumulated depreciation............................................. (401,618) (372,297)
--------- ---------
Total property, plant and equipment............................... 497,997 516,299
--------- ---------
$ 677,409 $ 707,988
========= =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable.................................................... $ 22,678 $ 32,808
Accrued expenses.................................................... 37,751 46,345
DIP Financing Agreement............................................. 6,000 2,050
Current Portion of Long-term Debt................................... 2,945
--------- ---------
Total current liabilities........................................ 69,374 81,203
--------- ---------
LONG-TERM LIABILITIES:
Long-term debt...................................................... 227,595 233,370
Postretirement benefits other than pensions......................... 104,144 101,017
Retirement benefit plans............................................ 5,090 7,131
--------- ---------
Total long-term liabilities..................................... 336,829 341,518
--------- ---------
LIABILITIES SUBJECT TO COMPROMISE...................................... 302,506 300,072
--------- ---------
Commitments and contingencies (Note)
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 11,647,471
shares issued and outstanding, respectively....................... 11,647 11,647
Additional paid-in capital.......................................... 165,285 165,285
Accumulated deficit................................................. (185,922) (169,427)
Accumulated other comprehensive loss................................ (22,310) (22,310)
--------- ---------
Total shareholders' deficit...................................... (31,300) (14,805)
--------- ---------
$ 677,409 $ 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 Nine Months Ended
------------------------------
September 24, September 26,
2000 1999
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss..................................................... $ (16,495) $ (59,957)
ADJUSTMENTS TO RECONCILE NET LOSS TO
NET CASH FROM OPERATING ACTIVITIES:
Net loss on impairment of assets...................... 6,078
Depreciation.......................................... 29,045 30,363
Interest expense - income taxes....................... 10,000
CHANGE IN OPERATING ASSETS AND LIABILITIES:
Accounts receivable............................ 2,761 (8,667)
Income tax receivable.......................... 66
Inventories.................................... 1,751 (1,048)
Accounts payable .............................. (1,798) 6,062
Other current accounts......................... (9,678) 3,802
Liabilities subject to compromise.............. (486) (4,151)
Other, net............................................ 5,047 2,202
----------- ----------
Net cash provided by (used for) operating activities........ 10,147 (15,250)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of assets............................. 1,928
Capital expenditures......................................... (10,752) (7,190)
----------- ----------
Net cash used for investing activities....................... (10,752) (5,262)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under DIP Financing Agreement..................... 48,440
Repayment of DIP Financing Agreement......................... (44,490)
Payment of Environmental Revenue Bonds....................... (200)
Draw from letter of credit................................... 8,993
----------- ----------
Net cash provided by financing activities.................... 3,750 8,993
----------- ----------
Net increase (decrease) in cash and cash equivalents......... 3,145 (11,519)
Cash and cash equivalents at beginning of period............. 18,869
----------- ----------
Cash and cash equivalents at end of period................... $ 3,145 $ 7,350
=========== ==========
</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, including 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 I under the heading "Chapter 11 Bankruptcy Filings" on page 3 of the
Company's Annual Report on Form 10-K for the year ended December 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, all of the Company's obligations were
stayed. Without Bankruptcy Court approval, Acme Metals and its subsidiary
companies 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 Bank of America ("DIP Financing Agreement") entered into
on December 18, 1998. Since the filing of the 1999 Form 10-K, the Company and
Bank of America, with Bankruptcy Court approval on September 22, 2000, extended
the DIP Financing Agreement to December 29, 2000. At September 24, 2000, $6
million of the DIP Financing Agreement was outstanding with an additional $56
million available.
The Company currently intends to present a plan to the Bankruptcy Court. That
plan could include several alternatives, including reorganization of the
Company's existing businesses or the sale of some or all of the Company's
assets. The Bankruptcy Court has granted the Company's request to extend its
exclusive right to file a plan of reorganization through January 2, 2001. 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 to be terminated, other
interested parties, such as creditors of the Company, would have the right to
propose alternative plans of reorganization.
On September 7, 2000 the Company and Acme Steel entered into a non-binding
letter of understanding ("Letter") with WCI Steel, Inc. ("WCI") regarding a
proposed sale by Acme Steel of substantially all of the assets of its integrated
coke, iron, and steel production assets to WCI for cash, the assumption of
certain liabilities, and various other consideration. Pursuant to the terms of
this Letter, the Company submitted a Motion seeking approval of, and on
September 28, 2000 the Bankruptcy Court entered an order approving, certain
bidding procedures, including expense reimbursement for WCI, over bidding
procedures and breakup fees for WCI in the event a qualified competing bid for
these assets is accepted by Acme Steel. In addition to the Letter, the Company
has entered into confidential agreements with other potentially interested
parties for conducting due diligence in connection with the purchase of the Acme
Steel assets. An auction
5
<PAGE> 6
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
is currently scheduled for November 20, 2000 (but subject to adjournment) if one
or more qualified competing bids are submitted for the Acme Steel assets.
In addition, as part of the Company's efforts to develop its plan of
reorganization, the Company is initiating steps to establish a market value for
its Fabricating Segment businesses. The Company is in the process of soliciting
expressions of interest from a number of parties which the Company believes
could have an interest in these businesses and preparing Confidential Offering
Memoranda for distribution to parties which express such an interest.
As discussed on page 58 of the Company's 1999 Form 10-K, the Company had
received a valuation estimate indicating that the collateral securing the
Environmental Improvement Bonds (the "EIB Bonds") may be insufficient. On
September 22, 2000, the Bankruptcy Court approved an Adequate Protection Payment
Stipulation related to the EIB Bonds, which established that the EIB Bonds were
under secured at the date of bankruptcy. As a result of the Stipulation, the
Company applied $1.4 million in adequate protection payments made by the Company
as of the Stipulation date against the principal of the EIB Bonds. Additionally,
the Company reclassified the unsecured portion of the EIB Bonds, $1.4 million,
from Long-term Debt to Liabilities Subject to Compromise. Additionally, the
Company reclassified the EIB Bonds' pre-petition interest of $0.8 million from
Accrued Liabilities to Liabilities Subject to Compromise.
Although the Chapter 11 Bankruptcy raises substantial doubt about the Company's
ability to continue as a going-concern, the accompanying consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles applicable to a company on a going-concern basis which contemplates
the continuity of operations, realization of assets and the liquidation of
liabilities in the ordinary course of business. As a result of the Chapter 11
Bankruptcy, realization of assets and liquidation of liabilities are subject to
significant uncertainties. Specifically, the financial statements do not present
the amount which will be paid to settle liabilities and contingencies which may
be allowed in Chapter 11 Bankruptcy reorganization cases. Also the consolidated
financial statements do not reflect (a) adjustments to assets and liabilities
which may occur in accordance with generally accepted accounting principles
Statement of Position 90-7 Financial Reporting by Entities in Reorganization
under the Bankruptcy Code (SOP 90-7) following the confirmation of a plan of
reorganization or (b) the realizable value of assets which would be required to
be recorded if the Company presents a plan which contemplates the disposal of
all or portions of its assets and operations. The filing of a plan 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.
6
<PAGE> 7
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements for Acme Metals
include its wholly owned operating subsidiaries, Acme Steel, Acme Packaging, and
Alpha Tube, hereinafter collectively referred to as "the Company," for the
periods ended September 24, 2000 and September 26, 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 22 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.
Third quarter results for 2000 and 1999 each cover 13-week periods.
INVENTORIES:
Inventories, as determined on the last-in, first-out method:
September 24, December 26,
2000 1999
------------ ------------
(unaudited)
(in thousands)
Raw materials.............................. $ 18,604 $ 23,887
Semi-finished and finished products........ 54,024 51,967
Supplies................................... 7,901 6,426
-------- --------
$ 80,529 $ 82,280
======== ========
INCOME TAXES:
As discussed on page 56 of the 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 through the third quarter of 2000.
7
<PAGE> 8
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
LONG-TERM DEBT:
The Company's Long-term Debt not classified in "Liabilities Subject to
Compromise:"
September 24, December 26,
2000 1999
------------ ------------
(unaudited)
(in thousands)
Senior Secured Credit Agreement................. $174,250 $174,250
12.5 percent Senior Secured Notes............... 17,623 17,623
13.5 percent Senior Secured Discount Notes...... 669 669
Environmental Improvement Bonds 7.95 percent.... 8,070 11,345
Environmental Improvement Bonds 7.90 percent.... 6,085 8,585
Walbridge Facility.............................. 14,700 14,700
Other long-term debt............................ 6,198 6,198
-------- --------
$227,595 $233,370
======== ========
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 $206 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 $4 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 of reorganization allowing for such payments. The
Company has obtained Bankruptcy Court orders allowing adequate protection
payments on secured debt. During the three quarters of 2000, the Company paid
$19 million in adequate protection payments as ordered by the Bankruptcy Court.
As discussed on page 58 of the 1999 Form 10-K, 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 the Chapter 11 Bankruptcy. The Company also discussed its
receipt of a valuation estimate that indicated the collateral securing the EIB
Bonds might be insufficient. On September 22, 2000, the Bankruptcy Court
approved an Adequate Protection Payment Stipulation related to the EIB Bonds
which established the amount by which the EIB Bonds were unsecured at the date
of bankruptcy. As a result of the Stipulation the Company applied the $1.4
million in adequate protection payments made by the Company as of September 22,
2000 against the principal of the EIB Bonds. Such payments were previously
8
<PAGE> 9
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
recorded as interest expense. Additionally, the Company reclassified the $1.4
million unsecured of September 22, 2000 against the principal of the EIB Bonds.
Such payments were previously recorded as interest expense. Additionally, the
Company reclassified the $1.4 million unsecured portion of the EIB Bonds from
Long-term Debt to Liabilities Subject to Compromise because the EIB Bonds were
settled at less than face value. The Company ceased accruing interest on the EIB
Bonds as of December 26, 1999 and reversed all unpaid post-petition accrued
interest of $0.6 million and reclassified $0.8 million of pre-petition accrued
interest related to the EIB Bonds to Liabilities Subject to Compromise.
The Current Portion of the EIB Bonds, $2.9 million, is reported in the Balance
Sheet as the current portion of Long-term Debt at September 24, 2000.
LIABILITIES SUBJECT TO COMPROMISE:
Items classified as Liabilities Subject to Compromise:
<TABLE>
<CAPTION>
September 24, December 26,
2000 1999
---- ----
(unaudited)
(in thousands)
<S> <C> <C>
Accounts payable.............................................. $ 64,816 $ 60,525
Accrued interest.............................................. 6,873 6,094
Bond payable and other related liability...................... 2,567 2,567
Other accrued liabilities..................................... 518 492
Note payable.................................................. 5,500 5,500
Environmental Improvement Bonds 7.95 percent.................. 801
Environmental Improvement Bonds 7.90 percent.................. 629
10.875 percent Senior Unsecured Notes, net of discount........ 198,682 198,682
Other long-term liabilities................................... 22,120 26,212
----------- ----------
$ 302,506 $ 300,072
=========== ==========
</TABLE>
As disclosed in the Commitments and Contingencies section of this Report on Form
10-Q, the Bankruptcy Court held that any draws against Raytheon Engineers &
Constructors, Inc.'s ("Raytheon") letter of credit are considered pre-petition.
Based on that holding, during the second quarter of 2000, the Company
reclassified its $9 million draw on the letter of credit from Accounts Payable
to Liabilities Subject to Compromise.
During the third quarter of 2000, the Company reclassified the
under-collateralized portion of the EIB Bonds from Long-term Debt to Liabilities
Subject to Compromise. In addition to the principal portion of the EIB Bonds,
the Company reclassified the accrued pre-petition interest
9
<PAGE> 10
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
related to the EIB Bonds from Accrued expenses to Liabilities Subject to
Compromise. Together, these reclassifications increased Liabilities Subject to
Compromise by $2.2 million, with $1.4 million related to the principal and $0.8
million related to the interest.
CASH FLOWS:
Cash payments for Bankruptcy Court approved adequate protection payments on
secured debt were $19 and $16 million during the first nine months of 2000 and
1999, respectively.
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 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. 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. Subsequent to the April 11, 2000 ruling, the Company reclassified
the Raytheon liability of $9 million from Accounts Payable to Liabilities
Subject to Compromise. The Bankruptcy Court's decision did not address whether
the claim is secured or unsecured.
Raytheon also filed a secured Proof of Claim against Acme Steel for amounts
alleged to be due pursuant to the 1994 contract for construction of the
Continuous Strip Production facility (the "CSP"). The secured status of
Raytheon's Proof of Claim was based upon certain Mechanic's Liens filed against
Acme Steel's real property. 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 Mechanic's Lien. Pursuant to its Adversary
Complaint the Company filed a Motion for Partial Summary Judgment regarding the
validity of Raytheon's Mechanic's Liens. On August 28, 2000, the Bankruptcy
Court issued its Opinion and Order granting the Company's Motion for Partial
Summary Judgment. On October 23, 2000 Raytheon filed its Notice of Appeal to the
U.S. District Court appealing the August 28, 2000 Bankruptcy Court Order
granting Partial Summary Judgment.
10
<PAGE> 11
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.
Unaudited operating segment information based on operating income:
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
---------------------------- -----------------------------
September 24, September 26, September 24, September 26,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
STEEL MAKING:
Sales to unaffiliated customers............. $ 63,250 $ 61,670 $ 203,266 $ 177,003
Intersegment sales.......................... 18,734 21,359 60,034 59,327
-------- --------- --------- ---------
Net sales............................... $ 81,984 $ 83,029 $ 263,300 $ 236,330
======== ========= ========= =========
Depreciation................................ $ 8,878 $ 8,564 $ 25,541 $ 25,696
Loss from operations........................ (4,407) (18,283) (5,203) (43,077)
Total assets................................ 515,019 545,377 522,640 545,377
Capital expenditures........................ 4,939 1,676 9,091 3,767
Operating data (in tons)
Steel production (hot band)............. 222,512 251,585 733,917 757,815
Steel shipments (flat rolled)........... 217,261 247,920 678,713 719,067
STEEL FABRICATING:
Sales to unaffiliated customers............. $ 53,581 $ 56,692 $ 170,157 $ 169,648
Intersegment sales.......................... 156 226 458 551
-------- --------- --------- ---------
Net sales............................... $ 53,737 $ 56,918 $ 170,615 $ 170,199
======== ========= ========= =========
Depreciation................................ $ 1,256 $ 1,497 $ 4,073 $ 4,076
Income from operations...................... 2,883 4,756 9,958 15,374
Total assets................................ 131,111 123,239 131,111 123,239
Capital expenditures........................ 439 1,500 1,658 3,887
</TABLE>
11
<PAGE> 12
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:
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
-------------------------- -------------------------
September 24, September 26, September 24, September 26,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales:
Steel Making.......................... $ 81,984 $ 83,029 $263,300 $236,330
Steel Fabricating..................... 53,737 56,918 170,615 170,199
Intersegment sales.................... (18,890) (21,585) (60,492) (59,878)
-------- -------- -------- --------
$116,831 $118,362 $373,423 $346,651
======== ======== ======== ========
Income (loss) before income taxes
and extraordinary loss:
Operating income (loss):
Steel Making...................... $ (4,407) $(18,283) $ (5,203) $(43,077)
Steel Fabricating................. 2,883 4,756 9,958 15,374
-------- -------- -------- --------
(1,524) (13,527) 4,755 (27,703)
Less:
Interest expense.................. (4,152) (5,725) (16,073) (32,678)
Interest expense-income taxes..... (10,000) (10,000)
Reorganization charges under
Chapter 11 Bankruptcy........... (1,700) (1,582) (5,104) (5,910)
Add:
Interest income................... 41 98 101 273
Gain from sale of assets.......... 1,241
-------- -------- -------- --------
Loss before income taxes..... $ (7,335) $(30,736) $(16,321) $(59,741)
======== ======== ======== ========
Total assets:
Steel Making.......................... $515,019 $545,377 $515,019 $545,377
Steel Fabricating..................... 131,111 123,239 131,111 123,239
Corporate............................. 31,279 37,010 31,279 37,010
--------- -------- -------- --------
$677,409 $705,626 $677,409 $705,626
======== ======== ======== ========
</TABLE>
12
<PAGE> 13
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SUBSEQUENT EVENTS:
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 Acme Steel. In October 2000, The Emergency Steel Guarantee Loan Board
announced it had approved Citibank's application to guarantee 85 percent of the
proposed $100 million loan to Acme Steel subject to certain conditions,
including execution of an acceptable guarantee. In addition the syndication on
the remaining non-guaranteed 15 percent portion has not been completed and there
are no assurances that it will be completed.
13
<PAGE> 14
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 SEPTEMBER 24, 2000
------------------------------------------------------------------------------------
SUBSIDIARY
SUBSIDIARY NON TOTAL
PARENT GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales $ $81,984 $53,737 $(18,890) $116,831
Costs and expenses 83,169 46,282 (18,890) 110,561
-------- ------- ------- -------- --------
Gross margin (1,185) 7,455 6,270
Selling and administrative expense 3,222 4,572 7,794
-------- ------- ------- -------- --------
Operating income (loss) (4,407) 2,883 (1,524)
Reorganization charges under
Chapter 11 Bankruptcy (392) (931) (377) (1,700)
Net interest income (expense) and other (3,764) (535) 188 (4,111)
-------- ------- ------- -------- --------
Income (loss) before income taxes (4,156) (5,873) 2,694 (7,335)
Income tax provision (benefit) (925) 983 58
-------- ------- ------- -------- --------
Net income (loss) before equity
adjustment (3,231) (5,873) 1,711 (7,393)
Equity income (loss) in subsidiaries (4,162) 4,162
-------- ------- ------- -------- --------
Net income (loss) $ (7,393) $(5,873) $ 1,711 $ 4,162 $ (7,393)
========= ======= ======= ======== ========
</TABLE>
14
<PAGE> 15
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(dollars in thousands)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 26, 1999
-----------------------------------------------------------------------------
SUBSIDIARY
SUBSIDIARY NON TOTAL
PARENT GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
------------ ------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Net Sales $ $ 83,029 $ 56,918 $ (21,585) $ 118,362
Costs and expenses 97,337 47,467 (21,585) 123,219
----------- ------------ ------------- ------------- ---------------
Gross margin (14,308) 9,451 (4,857)
Selling and administrative expense 3,975 4,695 8,670
----------- ------------ ------------- ------------- ---------------
Operating income (loss) (18,283) 4,756 (13,527)
Reorganization charges under
Chapter 11 Bankruptcy (439) (814) (329) (1,582)
Net interest income (expense) and other (15,621) (510) 504 (15,627)
----------- ------------ ------------- ------------- ---------------
Income (loss) before income taxes (16,060) (19,607) 4,931 (30,736)
Income tax provision (benefit) (1,517) 1,595 78
----------- ------------ ------------- ------------- ---------------
Net income (loss) before equity
adjustment (14,543) (19,607) 3,336 (30,814)
Equity income (loss) in subsidiaries (16,271) 16,271
----------- ------------ ------------- ------------- ---------------
Net income (loss) $ (30,814) $ (19,607) $ 3,336 $ 16,271 $ (30,814)
=========== ============ ============= ============= ===============
</TABLE>
15
<PAGE> 16
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(dollars in thousands)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 24, 2000
--------------------------------------------------------------------------------
SUBSIDIARY
SUBSIDIARY NON TOTAL
PARENT GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
------------ --------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Net Sales $ $ 263,300 $ 170,615 $ (60,492) $ 373,423
Costs and expenses 256,864 145,993 (60,492) 342,365
----------- -------------- -------------- ------------- ---------------
Gross margin 6,436 24,622 31,058
Selling and administrative expense 11,639 14,664 26,303
----------- -------------- -------------- ------------- ---------------
Operating income (loss) (5,203) 9,958 4,755
Reorganization charges under
Chapter 11 Bankruptcy (1,460) (2,600) (1,044) (5,104)
Net interest income (expense) and other (14,355) (2,189) 572 (15,972)
----------- -------------- -------------- ------------- ---------------
Income (loss) before income taxes (15,815) (9,992) 9,486 (16,321)
Income tax provision (benefit) (3,316) 3,490 174
----------- -------------- -------------- ------------- ---------------
Net income (loss) before equity
adjustment (12,499) (9,992) 5,996 (16,495)
Equity income (loss) in subsidiaries (3,996) 3,996
----------- -------------- -------------- ------------- ---------------
Net income (loss) $ (16,495) $ (9,992) $ 5,996 $ 3,996 $ (16,495)
=========== ============== ============== ============= ===============
</TABLE>
16
<PAGE> 17
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(dollars in thousands)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 26, 1999
-----------------------------------------------------------------------------
SUBSIDIARY
SUBSIDIARY NON TOTAL
PARENT GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
------------ ------------ -------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Net Sales $ $ 236,330 $ 170,199 $ (59,878) $ 346,651
Costs and expenses 266,059 139,999 (59,878) 346,180
----------- ------------ ------------- ------------- ---------------
Gross margin (29,729) 30,200 471
Selling and administrative expense 13,348 14,826 28,174
----------- ------------ ------------- ------------- ---------------
Operating income (loss) (43,077) 15,374 (27,703)
Reorganization charges under
Chapter 11 Bankruptcy (1,354) (2,523) (2,033) (5,910)
Net interest income (expense) and other (26,427) (1,287) 1,586 (26,128)
----------- ------------ ------------- ------------- ---------------
Income (loss) before income taxes (27,781) (46,887) 14,927 (59,741)
Income tax provision (benefit) (4,988) 5,204 216
----------- ------------ ------------- ------------- ---------------
Net income (loss) before equity
adjustment (22,793) (46,887) 9,723 (59,957)
Equity income (loss) in subsidiaries (37,164) 37,164
----------- ------------ ------------- ------------- ---------------
Net income (loss) $ (59,957) $ (46,887) $ 9,723 $ 37,164 $ (59,957)
=========== ============ ============= ============= ===============
</TABLE>
17
<PAGE> 18
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(dollars in thousands)
<TABLE>
<CAPTION>
AS OF SEPTEMBER 24, 2000
----------------------------------------------------------------------------
SUBSIDIARY
SUBSIDIARY NON TOTAL
ASSETS PARENT GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
------------ --------------- -------------- -------------- ----------------
CURRENT ASSETS:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 3,145 $ $ $ $ 3,145
Accounts receivable, net 385 38,161 26,408 64,954
Inventories 48,761 33,215 (1,447) 80,529
Other current assets 1,013 4,843 703 6,559
Due (to) from affiliates 481,658 (50,591) 40,461 (471,528)
----------- ----------- ------------ ------------- --------------
Total current assets 486,201 41,174 100,787 (472,975) 155,187
----------- ----------- ------------ ------------- --------------
INVESTMENTS AND OTHER ASSETS:
Investments in associated companies (50,795) 11,260 1,031 49,000 10,496
Other assets 10,307 3,031 391 13,729
----------- ----------- ------------ ------------- --------------
Total investments and other assets (40,488) 14,291 1,422 49,000 24,225
----------- ----------- ------------ ------------- --------------
PROPERTY, PLANT AND EQUIPMENT- Net: 13,874 450,584 33,539 497,997
----------- ----------- ------------ ------------- --------------
$ 459,587 $ 506,049 $ 135,748 $ (423,975) $ 677,409
=========== =========== ============ ============= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 18,723 $ 29,763 $ 11,943 $ $ 60,429
DIP Financing Agreement and Current portion
of Long-term Debt 8,945 8,945
----------- ----------- ------------ ------------- --------------
Total current liabilities 27,668 29,763 11,943 69,374
----------- ----------- ------------ ------------- --------------
LONG-TERM LIABILITIES:
Long-term debt 227,595 227,595
Post-retirement benefits other than pensions 1,193 87,627 15,324 104,144
Retirement benefit plans 1,925 6,200 (3,035) 5,090
----------- ----------- ------------ ------------- --------------
Total long-term liabilities 230,713 93,827 12,289 336,829
----------- ----------- ------------ ------------- --------------
LIABILITIES SUBJECT TO COMPROMISE 232,506 496,847 47,923 (474,770) 302,506
----------- ----------- ------------ ------------- --------------
SHAREHOLDERS' EQUITY (DEFICIT): (31,300) (114,388) 63,593 50,795 (31,300)
----------- ----------- ------------ ------------- --------------
$ 459,587 $ 506,049 $ 135,748 $ (423,975) $ 677,409
=========== =========== ============ ============= ==============
</TABLE>
18
<PAGE> 19
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
----------- ------------ ----------- ----------- ------------
CURRENT ASSETS:
<S> <C> <C> <C> <C> <C>
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>
19
<PAGE> 20
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(dollars in thousands)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 24, 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 $ (605) $ 9,092 $ 1,660 $ $ 10,147
-------- ------- ------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (9,092) (1,660) (10,752)
-------- ------- ------- -------- --------
Net cash used for investing activities (9,092) (1,660) (10,752)
-------- ------- ------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments DIP financing agreement (44,490) (44,490)
Borrowings under DIP financing agreement 48,440 48,440
Payments of Environmental Improvement Bonds (200) (200)
-------- ------- ------- -------- --------
Net cash provided by financing activities 3,750 3,750
-------- ------- ------- -------- --------
Net increase in cash and cash equivalents 3,145 3,145
Cash and cash equivalents at
beginning of period
-------- ------- ------- -------- --------
Cash and cash equivalents at
end of period $ 3,145 $ $ $ $ 3,145
======== ======= ======= ======== ========
</TABLE>
20
<PAGE> 21
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(dollars in thousands)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 26, 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 $(11,107) $(5,690) $ 1,547 $ $ (15,250)
-------- ------- -------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of assets 1,928 1,928
Capital expenditures (3,303) (3,887) (7,190)
-------- ------- -------- ----------- ---------
Net cash provided by (used for)
investing activities (3,303) (1,959) (5,262)
-------- ------- -------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Other 8,993 8,993
-------- ------- -------- ----------- ---------
Net cash (used for) provided by
financing activities 8,993 8,993
Net decrease in cash and cash equivalents (11,107) (412) (11,519)
Cash and cash equivalents at
beginning of period 18,457 412 18,869
-------- ------- -------- ----------- ---------
Cash and cash equivalents at
end of period $ 7,350 $ $ - $ $ 7,350
======== ======= ======== =========== =========
</TABLE>
21
<PAGE> 22
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 September 24, 2000, and
the related consolidated statements of operations for each of the three-month
and nine-month periods ended September 24, 2000 and September 26, 1999, and the
consolidated statements of cash flows for the nine-month periods ended September
24, 2000 and September 26, 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 of America, 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 of America.
We previously audited, in accordance with auditing standards generally accepted
in the United States of America, 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
November 3, 2000
22
<PAGE> 23
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
OVERVIEW
On September 28, 1998, the Company filed voluntary petitions for protection and
reorganization under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court.
The Company's operations are divided into two segments, Steel Making Segment and
Steel Fabricating Segment. The Steel Making Segment consists of Acme Steel and
includes all of the facilities used in the manufacturing of and finishing of
sheet and strip steel. The Steel Fabricating Segment includes the operations of
Alpha Tube and Acme Packaging. Alpha Tube uses flat-rolled steel, while Acme
Packaging uses both flat-rolled steel and plastic, in their respective
fabricating process. The Fabricating Segment purchases flat-rolled steel from
the Steel Making Segment pursuant to a transfer price agreement determined
during the first quarter of each fiscal year. The transfer price is based on the
market price for the steel at the time of contract. Since the Company determined
the transfer price for fiscal 2000, the market price for steel has fallen. The
transfer price agreement will be adjusted in the first quarter of 2001.
This discussion and analysis of results of operations should be read in
conjunction with the unaudited consolidated financial statements and notes
thereto.
Third Quarter 2000 as compared to Third Quarter 1999
THE COMPANY. Overall, third Quarter 2000 operating results improved over the
third quarter 1999 results. Consolidated net sales of $117 million in the 2000
third quarter were $2 million lower than the same period in 1999. Decreased
volume shipped adversely affected sales by $12 million. However, increased
prices on the lower shipments offset the unfavorable volume effect by $10
million. Although demand decreased, total sales remained virtually unaffected.
Third quarter 2000 operating costs of $111 million were better than the $123
million in operating costs recorded in the third quarter of 1999 by $12 million.
On a per ton produced basis, operating costs increased over the third quarter of
1999, partially due to increased energy costs at the Steel Making Segment and
higher raw material costs at the Fabricating Segment. However, because both
segments produced less tons, total costs of products sold improved over 1999.
The current period's costs also improved because it did not include a third
quarter of 1999 $8 million loss on the impairment of assets.
Third quarter 2000 selling and administrative expenses dropped 10 percent from
the third quarter 1999 level, from $9 million to $8 million.
The Company's operating loss for the third quarter of 2000 equaled $2 million,
while the 1999 third quarter loss was $14 million. The improvement in operating
income was due to the decreased operating and administrative costs, the absence
of the 1999 $8 million asset impairment charge, and improved margins due to
higher prices, partially offset by lower sales volume.
23
<PAGE> 24
Interest expense of $4 million for the third quarter of 2000 improved over the
third quarter of 1999 interest expense of $16 million by $12 million. This
improvement primarily relates to the absence of a $10 million interest charge
recorded in the third quarter of 1999. The 1999 charge reflected the increased
interest expense from the U.S. Tax Court's decision in The Interlake Corporation
v. Commissioner of Internal Revenue discussed on page 8 of the 1999 Form 10-K.
The remaining improvement is due to the reversal of the post-petition interest
expense accrued on the EIB Bonds. Pursuant to a Bankruptcy Court Stipulation,
the Company reversed all post-petition interest expense related to the EIB Bonds
because the assets underlying the EIB Bonds did not fully collateralize the EIB
Bonds. See the Long-term Debt on page 8 of this Report on Form 10-Q for more
information. Due to the Stipulation, during the third quarter of 2000, the
Company reversed the $2 million in post-petition interest previously paid or
accrued for the EIB Bonds.
During the third quarter of 2000, the Company incurred $2 million in
reorganization charges, essentially flat with the same period in 1999.
Reorganization charges primarily consist of administrative, professional, and
legal fees associated with the Chapter 11 Bankruptcy.
Net loss for the third quarter of 2000 improved $24 million, or 76 percent, over
1999. The components discussed above resulted in a consolidated net loss of $7
million, or $0.63 per share. The same period in 1999 generated a $31 million
loss, or $2.64 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.
THE STEEL MAKING SEGMENT. Net sales in the current period were $82 million,
essentially flat with the third quarter of 1999. Price improvements over the
third quarter of 1999 were offset by decreased volume. Commercial sales
increased by $2 million, while sales to affiliates decreased $3 million. The CSP
operated at an average of 87 percent of capacity for the third quarter of 2000,
versus 99 percent in 1999. The quantity of foreign steel imports continued to
rise during the third quarter, which, combined with historically high levels of
steel market inventories, has created less demand for Acme Steel's product.
The third quarter 2000 operating loss of $4 million is a $14 million improvement
from the $18 million loss in the comparable period of 1999. In the third quarter
of 1999, the Segment incurred a $8 million loss from impairment of its finishing
facilities. The remaining improvement over 1999 is due to better cost control at
a lower level of production, stronger sales mix, and increased price, partially
offset by decreased volume. Increased uncontrollable costs, such as energy
prices, partially offset the Segment's cost improvements.
THE STEEL FABRICATING SEGMENT. In the third quarter of 2000, the Steel
Fabricating Segment experienced a decrease in volume from the comparable period
in 1999. The decline in volume was offset by improvements in price. Net sales
for the three-month period of 2000 were $54 million, essentially flat with the
third quarter of 1999.
24
<PAGE> 25
In the third quarter of 2000, the Steel Fabricating Segment generated operating
income of $3 million, a $2 million decrease from 1999. This decrease is because
of decreased sales volume and an increase in raw material costs--$26 per ton
over the same period of 1999.
Nine Months ended September 24, 2000 as compared to Nine Months ended September
26, 1999
THE COMPANY. Consolidated net sales of $373 million for the first nine months of
2000 were $26 million higher than the same period in the prior year, reflecting
increased sales in the first two quarters. Increased prices and a higher margin
sales mix contributed to the sales increase.
The increase in sales, together with lower operating costs, led to a $32 million
improvement over 1999 loss from operations. Year-to-date 2000 operating income
is $5 million, while the first three quarters of 1999 generated a $28 million
loss. Of the $32 million improvement, $20 million occurred in the first half of
the year.
Selling and administrative expense was $26 million in the first three quarters
of 2000, $2 million lower than the prior year.
Interest expense of $16 million in the nine months ended September 24, 2000 was
lower than the first nine months of 1999 by $12 million. This improvement
primarily relates to the third quarter adjustments discussed above.
During the first nine months of 2000, the Company incurred reorganization
charges of $5 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 net loss of $16 million, or $1.42 per share in the first
three quarters of 2000, versus a loss of $60 million, or $5.14 per share,
recorded in the first nine months 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 nine months of 2000, net sales for the Steel
Making Segment were $263 million, a $27 million or 11 percent increase from the
comparable period last year. Of the $27 million increase, $24 million and $3
million is attributable to higher prices/improved mix and increased volume,
respectively. Sales to unaffiliated customers increased 15 percent or $26
million, while intersegment sales of $60 million were flat with the first three
quarters of 1999.
The Steel Making Segment recorded a $5 million loss from operations in the first
three quarters of 2000, which was nearly $38 million better than the $43 million
loss recorded in the comparable period in 1999. The decreased loss in the first
nine months of 2000 was primarily due to increased sales, improved product mix,
improved costs, and the absence of an $8 million asset impairment charge in the
third quarter of 1999.
25
<PAGE> 26
STEEL FABRICATING SEGMENT. The Steel Fabricating Segment recorded net sales of
$171 million in 2000, essentially flat with the comparable period in the prior
year. Despite flat sales, the Segment's operating income of $10 million for the
first three quarters of 2000 was $5 million lower than in last year's comparable
period due primarily to increased raw material costs and lower sales volume.
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 $3
million in cash or cash equivalents at September 24, 2000 and no cash or cash
equivalents at 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 September 24, 2000,
$6 million of the DIP Financing Agreement was outstanding with an additional $56
million available based on borrowing base limitations. The DIP Financing
Agreement originally expired on September 27, 2000, however, the Bankruptcy
Court approved an extension until December 29, 2000.
Capital expenditures are expected to approximate $13 million during 2000. At
September 24, 2000, the Company has spent $10 million on capital projects.
During the first nine months of 2000, the Company made $19 million in Bankruptcy
Court approved adequate protection payments.
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, the
Company cannot assure that these or other possible resources will be adequate.
OUTLOOK
The Company currently intends to present a plan to the Bankruptcy Court to
reorganize the Company's businesses. That plan could include several
alternatives including, reorganization of the Company's existing businesses or
the sale of some or all of the Company's assets. Although management expects to
file a plan, there can be no assurance at this time that a plan will be proposed
by the Company, approved or confirmed by the Bankruptcy Court, or that such plan
will be consummated. The Company is currently drafting an Offering Memorandum on
the Fabricating businesses to be released in the near future. The Bankruptcy
Court has granted the
26
<PAGE> 27
Company's request to extend its exclusive right to file a plan of reorganization
through January 2, 2001. 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 to be terminated, other interested parties, such as creditors of the
Company, would have the right to propose alternative plans of reorganization. A
plan will most likely result in 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 is not expected
to achieve the sales, production, and cost 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. Steel imports continue to adversely affect price in addition to demand.
The Company continues to place maximum effort on improving the operating
performance of its facilities, reducing cash manufacturing costs, and optimizing
its mix of higher margin products 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 this second full year of operations. Alpha Tube
expects to generate somewhat lower earnings for the balance of 2000 due to
weakness in demand in the truck exhaust and service center markets.
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, active and retiree medical care, volume or units
of product sales, competitive developments in the marketplace by domestic and
foreign competitors, 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
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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.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS
(a) Exhibit 15 - Letter regarding unaudited interim financial information
Exhibit 27 - Financial data schedule
Exhibit 99 - Non-binding Letter of understanding and term sheet
between Acme Steel Company and WCI
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACME METALS INCORPORATED
Date: November 6, 1999 By: /s/ Jerry F. Williams
-------------------------------------
Jerry F. Williams
Vice President - Finance and
Administration and
Chief Financial Officer
(Principal Financial Officer)
By: /s/ Derrick T. Bay
-------------------------------------
Derrick T. Bay
Controller and Chief Accounting Officer
(Principal Accounting Officer)
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