<PAGE>
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 QUARTER ENDED JULY 1, 1995
OR
Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 1-3258
LUKENS INC.
50 South First Avenue
Coatesville, PA 19320-0911
(610) 383-2000
Incorporated in Delaware
I.R.S. Employer Identification Number 23-2451900
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes /x/ No
SHARES OUTSTANDING AS OF JULY 28, 1995
Common Stock, $.01 Par Value, 14,695,862
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars & shares in thousands except per share amounts)
<TABLE>
<CAPTION>
SECOND QUARTER YEAR-TO-DATE
Thirteen Weeks Ended Twenty-six Weeks Ended
July June July June
1, 1995 25, 1994 1, 1995 25, 1994
------------ ----------- --------------- -------------
<S> <C> <C> <C> <C>
NET SALES $ 271,825 242,212 531,782 463,126
OPERATING COSTS AND EXPENSES
Cost of products sold 237,733 213,595 466,420 421,345
Selling and administrative expenses 14,918 13,893 29,205 27,072
------------ ----------- --------------- -------------
Total operating costs and expenses 252,651 227,488 495,625 448,417
OPERATING EARNINGS 19,174 14,724 36,157 14,709
Interest expense (3,824) (3,914) (6,184) (7,994)
------------ ----------- --------------- -------------
EARNINGS BEFORE INCOME TAXES 15,350 10,810 29,973 6,715
Income tax expense 5,803 4,216 11,330 2,619
------------ ----------- --------------- -------------
NET EARNINGS $ 9,547 6,594 18,643 4,096
============ =========== =============== =============
Dividend requirements for preferred stock (494) (503) (984) (1,005)
------------ ----------- --------------- -------------
NET EARNINGS APPLICABLE TO COMMON STOCK $ 9,053 6,091 17,659 3,091
============ =========== =============== =============
EARNINGS PER COMMON SHARE
Primary $ .61 .41 1.19 .21
Fully diluted $ .57 .39 1.12 .21
COMMON SHARES AND EQUIVALENTS OUTSTANDING
Primary 14,858 14,695 14,805 14,721
Fully diluted 16,380 16,301 16,352 16,334
CASH DIVIDENDS ON COMMON STOCK-PER SHARE $ .25 .25 .50 .50
</TABLE>
The accompanying notes are an integral part of these statements.
1
<PAGE>
Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
July December
1, 1995 31, 1994
------------- -------------
<S> <C> <C>
Assets
CURRENT ASSETS
Cash and cash equivalents $ 5,759 9,806
Receivables, less allowance of $7,790
in 1995 and $7,569 in 1994 133,279 120,592
Inventories
Products finished and in process 113,776 99,120
Raw materials 37,459 31,064
Supplies 4,504 4,744
------------- -------------
155,739 134,928
Deferred income taxes 13,192 13,695
Prepaid expenses and other 1,524 2,015
------------- -------------
Total current assets 309,493 281,036
PLANT AND EQUIPMENT 856,161 843,405
Less accumulated depreciation 361,892 365,276
------------- -------------
Net plant and equipment 494,269 478,129
INTANGIBLE ASSETS, net of accumulated amortization
of $6,057 in 1995 and $5,038 in 1994 44,152 45,522
DEFERRED INCOME TAXES 18,480 19,990
OTHER ASSETS 1,506 1,757
------------- -------------
TOTAL ASSETS $ 867,900 826,434
============= =============
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES
Accounts payable $ 90,104 87,463
Accrued employment costs 42,343 50,526
Other accrued expenses 26,475 29,433
Current maturities of long-term debt 9,393 7,134
------------- -------------
Total current liabilities 168,315 174,556
------------- -------------
LONG-TERM DEBT 229,028 201,351
Retirement Benefits
Pensions 27,690 23,336
Medical and life insurance 143,484 140,773
OTHER LIABILITIES 8,941 9,361
------------- -------------
Total liabilities 577,458 549,377
------------- -------------
COMMITMENTS AND CONTINGENCIES (NOTE 4)
STOCKHOLDERS' INVESTMENT
Series preferred stock, 1,000,000 shares authorized
Series B ESOP convertible preferred 30,378 30,635
(506,300 shares outstanding in 1995 and
510,592 in 1994)
Common stock, 40,000,000 shares authorized
and 15,813,259 issued 158 158
Capital in excess of par value 84,805 84,088
Earnings invested 209,914 199,586
Foreign currency translation adjustments (1,210) (1,303)
Deferred compensation - ESOP (20,425) (22,767)
Repurchased stock, at cost (1,118,111 shares
in 1995 and 1,161,460 in 1994) (13,178) (13,340)
------------- -------------
Total stockholders' investment 290,442 277,057
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $ 867,900 826,434
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
YEAR-TO-DATE
Twenty-six Weeks Ended
July June
1, 1995 25, 1994
----------- ----------
<S> <C> <C>
OPERATING ACTIVITY
Net earnings $ 18,643 4,096
Adjustments to Reconcile Net Earnings to
Cash Flow from Operating Activity
Depreciation and amortization 20,879 22,747
Income taxes deferred 2,341 (309)
Provision for uncollectible accounts 4,793 5,084
Retirement benefit funding less than expense 6,924 7,254
Changes in working capital affecting operations
Accounts receivable (22,529) (26,288)
Inventories (22,360) 13,251
Prepaid expenses and other 287 2,921
Accounts payable 5,359 12,648
Accrued expenses (6,135) (14,303)
Other, net 431 (64)
----------- ----------
Cash flow from operating activity 8,633 27,037
FINANCING ACTIVITY
Long-term debt
Borrowed 47,550 -
Repaid (15,304) (22,029)
Dividends paid (9,162) (8,568)
Proceeds from stock options exercised 183 478
Other, net (9) -
----------- ----------
Net from (for) financing activity 23,258 (30,119)
INVESTING ACTIVITY
Capital expenditures (48,883) (50,569)
Proceeds from sale of assets/subsidiaries 17,007 46,967
Other, net (4,062) 412
----------- ----------
Net for investing activity (35,938) (3,190)
CASH AND CASH EQUIVALENTS
Increase (decrease) (4,047) (6,272)
Start of period 9,806 11,483
----------- ----------
End of period $ 5,759 5,211
=========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share amounts)
1. BASIS OF PRESENTATION
The financial statements are unaudited but reflect all adjustments
(consisting of normal recurring accruals) which are, in the opinion of
management, necessary to a fair statement of the results for the interim
periods presented. These financial statements should be read in
conjunction with the financial statements and related notes in the 1994
Annual Report to Stockholders. Results from any interim period are not
necessarily indicative of the results for a full year.
2. DISCONTINUED OPERATIONS
During the second quarter of 1995, our pipe-coating subsidiary was sold for
approximately $10,000. With this divestiture, all subsidiaries that were
classified as discontinued operations in 1993 have been sold.
3. FUTURE ACCOUNTING CHANGES
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of" was issued in March 1995. This statement requires review and
measurement methods to calculate impairment of long-lived assets, including
certain identifiable intangibles and goodwill, whenever events or
circumstances indicate that the carrying amount of an asset may not be
recoverable. The statement also requires that long-lived assets to be
disposed of be reported at the lower of the carrying amount, or fair value,
less costs to sell. We do not expect any significant write-downs of assets
upon adopting this statement in 1996.
4. COMMITMENTS AND CONTINGENCIES
The company is party to various claims, disputes, legal actions and other
proceedings involving product liability, contracts, equal employment
opportunity, occupational safety, environmental issues and various other
matters. In the opinion of management, the outcome of these matters should
not have a material adverse effect on the consolidated financial condition
or results of operations of the company.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
(Dollars in thousands)
CHANGES IN FINANCIAL CONDITION DURING
THE TWENTY-SIX WEEKS ENDED JULY 1, 1995
CAPITAL STRUCTURE
Cash and cash equivalents totaled $5,759 at the end of the second quarter, a
decrease of $4,047 from the end of 1994. Working capital of $141,178 was up
$34,698 from year-end 1994, with higher receivable and inventory balances
contributing to the increase. The current ratio was 1.8 compared to 1.6 at
year-end 1994.
Debt at the end of the first half totaled $238,421, an increase of $29,936 from
the beginning of the year. The increase reflected borrowings under our
revolving credit agreements, primarily for capital expenditures and working
capital requirements. The ratio of long-term debt to capital (long-term debt
plus stockholders' investment) was 44.1 percent compared to 42.1 percent at
year-end 1994.
LIQUIDITY
Cash flow from operating activity totaled $8,633 for the first half compared to
$27,037 in the 1994 first half. The decrease from 1994 primarily reflected
higher inventory requirements; largely the result of a build in stainless slabs
in anticipation of a 16-day August outage at our stainless facility in Houston,
Pennsylvania.
Financing activity generated $23,258 with net borrowings of $32,246 partially
offset by dividend payments of $9,162. Investing activity required $35,938,
primarily for capital expenditures of $48,883. Proceeds from the sale of
subsidiaries and assets for the first half totaled $17,007.
During the second quarter, start-up problems were encountered at the Steckel
Mill Advanced Rolling Technology (SMART) system at Conshohocken, Pennsylvania,
that delayed the initiation of coiled steel production until the third quarter.
As a result, the peak start-up expenses will occur during the third quarter and
significant carbon steel production will be lost during the second half.
Stainless melting facilities in Coatesville, Pennsylvania, were completed in the
first quarter and by the end of the second quarter were ahead of our start-up
schedule.
Currently, there are indications that the domestic economy is slowing and it is
anticipated that a period of significant customer inventory correction will put
pressure on order rates and prices, particularly in cold-rolled stainless
product lines. Overall, we still anticipate an earnings improvement from 1994.
Order backlog was $195,000 at the end of the second quarter, up 16 percent from
year-end 1994 and slightly higher than at the same time last year. Cash flow
during the second half of 1995
<PAGE>
should benefit from a reduction in inventory. We expect that 1995 cash flow from
operating activity will be in the same range as in 1994. Our ability to
implement the start-up of significant capital projects as planned will continue
to be a significant factor to cash flow.
In the long term, Lukens relies on the ability to generate sufficient cash flows
from operating activity to fund investing and financing requirements and to
maintain a target long-term debt-to-capital ratio of 35 percent. Because of our
aggressive capital expenditure program, however, we anticipate exceeding our
target long-term debt-to-capital ratio until the projected benefits of the
program improve cash flow from operations and enable us to reach our target in
the long run.
RESULTS OF OPERATIONS FOR THE QUARTERS ENDED
JULY 1, 1995 AND JUNE 25, 1994
OPERATING RESULTS
Second quarter operating earnings of $19,174 were 30 percent ahead of 1994
second quarter earnings of $14,724. Sales for the quarter were $271,825, up 12
percent from 1994 sales of $242,212. Improved results reflected higher selling
prices and productivity gains in the Washington Stainless Group. The Lukens
Steel Group recorded lower results largely from expenses and production
disruptions associated with the start-up of capital projects. The increase in
1995 selling and administrative expenses included higher incentive compensation
accruals.
INTEREST EXPENSE
Interest expense of $3,824 was down 2 percent from the 1994 expense of $3,914.
The reduction reflected higher amounts of capitalized interest in 1995 that were
essentially offset by interest expense from higher debt levels and higher
interest rates in 1995.
INCOME TAXES
The effective tax rate was 37.8 percent in 1995 and 39.0 percent in 1994.
Included in the 1994 rate was the unfavorable impact from the revaluation of net
deferred tax assets following changes to Pennsylvania corporate tax rates and
net operating loss deduction rules.
NET EARNINGS
Net earnings of $9,547 in the 1995 second quarter were 45 percent higher than
1994 second quarter net earnings of $6,594.
<PAGE>
BUSINESS GROUP RESULTS
<TABLE>
<CAPTION>
OPERATING
NET SALES EARNINGS (LOSS)
2Q 1995 2Q 1994 2Q 1995 2Q 1994
<S> <C> <C> <C> <C>
Lukens Steel $147,469 122,391 7,398 9,352
Washington Stainless 155,979 123,203 18,682 9,737
Corporate - - (4,132) (4,025)
Inter-group eliminations(a) (31,623) (3,382) (2,774) ( 340)
--------- --------- -------- --------
$271,825 242,212 19,174 14,724
========= ========= ======== ========
</TABLE>
(a) Eliminations primarily reflected sales from the Lukens Steel Group to the
Washington Stainless Group and the related profit-in-inventory recognition. With
the completion of stainless melting facilities in Coatesville, Pennsylvania,
during the first quarter of 1995, stainless slabs were manufactured and sold to
the Washington Stainless Group.
LUKENS STEEL GROUP
Earnings for the second quarter were down 21 percent. The decline reflected
production disruptions and expenses associated with the start-up of capital
expenditure projects. Higher scrap costs also impacted results. Sales for the
quarter were 20 percent higher from the combination of higher selling prices and
from the inter-group sales of stainless slabs, referenced in the above chart.
Production disruptions were evident in the 9 percent decline in shipments,
particularly in carbon and alloy product lines. Shipped tons in 1995 were
172,900 compared to 190,900 tons in 1994.
WASHINGTON STAINLESS GROUP
Strong market conditions continued during the second quarter and the group
recorded a 92 percent earnings improvement on a 27 percent sales increase.
Higher selling prices and production efficiencies, combined with improved
results from our service center operations, resulted in the improvements.
Shipments of 63,800 tons in 1995 were 4 percent below the 66,600 tons in 1994.
Higher raw material costs partially offset the earnings improvement.
<PAGE>
RESULTS OF OPERATIONS FOR THE TWENTY-SIX WEEKS ENDED
JULY 1, 1995 AND JUNE 25, 1994
OPERATING RESULTS
Operating earnings for the first half of $36,157 were substantially higher than
1994 earnings of $14,709. The increase primarily reflected the favorable impact
of higher selling prices and productivity gains in the Washington Stainless
Group. The Lukens Steel Group also reported higher results. Included in 1994
earnings was the impact of production disruptions and maintenance costs
associated with severe weather conditions during the first quarter. The increase
in 1995 selling and administrative expenses included higher incentive
compensation accruals.
Sales for the first half of $531,782 were 15 percent ahead of 1994 sales of
$463,126. Most of the increase resulted from the strong business conditions in
the Washington Stainless Group.
INTEREST EXPENSE
Interest expense of $6,184 was down 23 percent compared to the 1994 expense of
$7,994. 1995 expense included higher amounts of capitalized interest that were
partially offset by interest expense from higher debt levels and higher interest
rates.
INCOME TAXES
The effective tax rate was 37.8 percent in 1995 and 39.0 percent in 1994.
Included in the 1994 rate was the unfavorable impact from the revaluation of net
deferred tax assets following changes to Pennsylvania corporate tax rates and
net operating loss deduction rules.
NET EARNINGS
Net earnings of $18,643 in 1995 compared to net earnings of $4,096 in 1994.
<PAGE>
BUSINESS GROUP RESULTS
<TABLE>
<CAPTION>
OPERATING
NET SALES EARNINGS (LOSS)
YTD 1995 YTD 1994 YTD 1995 YTD 1994
<S> <C> <C> <C> <C>
Lukens Steel $267,027 232,552 11,476 8,143
Washington Stainless 309,768 236,620 36,602 15,027
Corporate - - (9,217) (7,991)
Inter-group eliminations(a) (45,013) (6,046) (2,704) ( 470)
--------- --------- --------- ---------
$531,782 463,126 36,157 14,709
========= ========= ========= =========
</TABLE>
(a) Eliminations primarily reflected sales from the Lukens Steel Group to the
Washington Stainless Group and the related profit-in-inventory recognition. With
the completion of stainless melting facilities in Coatesville, Pennsylvania,
during the first quarter of 1995, stainless slabs were manufactured and sold to
the Washington Stainless Group.
LUKENS STEEL GROUP
Sales for the first half were up 15 percent from the combination of higher
selling prices and the inter-group sales of stainless slabs, referenced in the
above chart. Shipments for the period were 327,500 tons, down 10 percent from
1994 first half shipments of 363,000 tons. The decline, particularly in carbon
and alloy product lines, reflected the impact of production disruptions from the
start-up of capital expenditure projects.
Earnings for the first half were up 41 percent. 1995 earnings were limited by
production disruptions and expenses associated with the start-up of capital
expenditure projects. Higher scrap costs also impacted results. Included in 1994
results was the impact of production disruptions and maintenance costs
associated with severe weather conditions that resulted in a loss for the first
quarter of 1994.
WASHINGTON STAINLESS GROUP
Strong market conditions, evidenced by higher selling prices and shipment
levels, led to a 31 percent increase in sales. Shipments for the first half were
133,300 tons, up 7 percent from 1994 shipments of 124,400. The sales
improvements coupled with productivity gains translated into a strong earnings
improvement from the first half of 1994. Higher raw material costs partially
offset the earnings improvement.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
As of the end of the 1995 second quarter, 111 active claims remain of the total
394 workers' compensation hearing loss claims alleged against Lukens Steel
Company, which have been previously reported.
In connection with the workers' compensation hearing loss claims alleged against
Washington Steel Corporation, which have been previously reported, 7 additional
claims were filed during the second quarter of 1995, bringing the total of such
claims to 29 as of the end of the second quarter.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
(11) Statement regarding computation of per share earnings
(27) Financial Data Schedule
(b) Reports on Form 8-K
No report on Form 8-K was filed during the quarter ended July 1, 1995.
<PAGE>
Exhibit 11
COMPUTATION OF EARNINGS PER COMMON SHARE
(Dollars and shares in thousands except per share amounts)
<TABLE>
<CAPTION>
SECOND QUARTER YEAR-TO-DATE
Thirteen Weeks Ended Twenty-six Weeks Ended
July June July June
1, 1995 25, 1994 1, 1995 25, 1994
---------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER COMMON SHARE
NET EARNINGS APPLICABLE TO COMMON STOCK
Net earnings $ 9,547 6,594 18,643 4,096
ESOP dividend requirements
Preferred stock dividends declared (608) (639) (1,218) (1,286)
Tax benefit on dividends-unallocated shares 114 136 234 281
---------- ----------- ------------ ------------
Net earnings applicable to common stock $ 9,053 6,091 17,659 3,091
---------- ----------- ------------ ------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND EQUIVALENTS OUTSTANDING
Weighted average number of common shares outstanding 14,677 14,560 14,666 14,548
Common stock equivalents:
Stock options, assuming exercised at average market price 181 135 139 173
---------- ----------- ------------ ------------
Weighted average number of common shares and equivalents
outstanding 14,858 14,695 14,805 14,721
---------- ----------- ------------ ------------
PRIMARY EARNINGS PER COMMON SHARE $ 0.61 0.41 1.19 0.21
========== =========== ============ ============
<CAPTION>
SECOND QUARTER YEAR-TO-DATE
Thirteen Weeks Ended Twenty-six Weeks Ended
July June July June
1, 1995 25, 1994 1, 1995 25, 1994
---------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
FULLY DILUTED EARNINGS PER COMMON SHARE
NET EARNINGS APPLICABLE TO COMMON STOCK
Net earnings $ 9,547 6,594 18,643 4,096
Incremental cash contribution to the ESOP assuming
conversion of preferred stock to common (228) (240) (457) (482)
Tax benefit on the incremental cash contribution 80 84 160 169
---------- ----------- ------------ ------------
Net earnings applicable to common stock $ 9,399 6,438 18,346 3,783
---------- ----------- ------------ ------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND EQUIVALENTS OUTSTANDING
Weighted average number of common shares outstanding 14,677 14,560 14,666 14,548
Common stock equivalents:
Stock options, assuming exercised at greater of ending or
average market price 181 135 161 173
Series B ESOP preferred stock 1,522 1,606 1,525 1,613
---------- ----------- ------------ ------------
Weighted average number of common shares and equivalents
outstanding 16,380 16,301 16,352 16,334
---------- ----------- ------------ ------------
FULLY DILUTED EARNINGS PER COMMON SHARE $ 0.57 0.39 1.12 0.21*
========== =========== ============ ============
</TABLE>
* Calculation results in an improvement over primary earnings per share. As a
result, fully diluted earnings per share equals primary earnings per share.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM LUKENS INC.
FINANCIAL STATEMENTS FOR THE TWENTY-SIX WEEKS ENDED JULY 1, 1995, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUL-01-1995
<CASH> 5,759
<SECURITIES> 0
<RECEIVABLES> 141,069
<ALLOWANCES> 7,790
<INVENTORY> 155,739
<CURRENT-ASSETS> 309,493
<PP&E> 856,161
<DEPRECIATION> 361,892
<TOTAL-ASSETS> 867,900
<CURRENT-LIABILITIES> 168,315
<BONDS> 229,028
<COMMON> 158
0
30,378
<OTHER-SE> 259,906
<TOTAL-LIABILITY-AND-EQUITY> 867,900
<SALES> 531,782
<TOTAL-REVENUES> 531,782
<CGS> 466,420
<TOTAL-COSTS> 466,420
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,793
<INTEREST-EXPENSE> 6,184
<INCOME-PRETAX> 29,973
<INCOME-TAX> 11,330
<INCOME-CONTINUING> 18,643
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,643
<EPS-PRIMARY> 1.19
<EPS-DILUTED> 1.12
</TABLE>
