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 MARCH 29, 1997
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 MAY 2, 1997
Common Stock, $.01 Par Value, 14,940,329
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Statements of Earnings
(Dollars and shares in thousands except per share amounts)
FIRST QUARTER
Thirteen Weeks Ended
March 29, March 30,
1997 1996
Net Sales $ 248,118 264,172
Operating Costs and Expenses
Cost of products sold 233,837 252,464
Selling and administrative expenses 12,386 14,824
--------- ---------
Total operating costs and expenses 246,223 267,288
Operating Earnings (Loss) 1,895 (3,116)
Interest expense 4,729 3,850
--------- ---------
Earnings (Loss) Before Income Taxes (2,834) (6,966)
Income tax expense (benefit) (856) (2,591)
--------- ---------
Net Earnings (Loss) $ (1,978) (4,375)
--------- ---------
Dividend requirements for preferred stock (499) (496)
Net Earnings (Loss) Applicable to Common Stock $ (2,477) (4,871)
--------- ---------
Earnings (Loss) Per Common Share
Primary $ (.17) (.33)
Fully diluted $ (.17) (.33)
Common Shares and Equivalents Outstanding
Primary 14,805 14,757
Fully diluted 16,251 16,300
Cash Dividends on Common Stock - Per Share $ .25 .25
--------- ---------
The accompanying notes are an integral part of these statements.
1
<PAGE>
Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
March 29, December 28,
1997 1996
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 9,080 10,282
Receivables, less allowance of $7,681 in 1997 and $7,750 in 1996 116,594 92,356
Inventories
Products finished and in process 123,976 116,477
Raw materials 30,373 27,762
Supplies 4,401 4,686
--------- -------
158,750 148,925
Deferred income taxes 12,431 13,129
Prepaid expenses and other 1,289 1,964
--------- -------
Total current assets 298,144 266,656
Plant and Equipment 956,316 953,753
Less accumulated depreciation 431,024 420,427
--------- -------
Net plant and equipment 525,292 533,326
Intangible Assets net of accumulated amortization of $9,624 in 1997
and $9,114 in 1996 57,825 57,158
Deferred Income Taxes 32,203 29,937
Other Assets 1,689 1,674
--------- -------
Total Assets $ 915,153 888,751
--------- -------
Liabilities and Stockholders' Investment
Current Liabilities
Accounts payable $ 117,840 92,252
Accrued employment costs 41,229 46,603
Other accrued expenses 23,901 23,765
Current maturities of long-term debt 5,507 4,878
--------- -------
Total current liabilities 188,477 167,498
Long-Term Debt (Note 5) 257,184 248,695
Retirement Benefits
Pensions 44,483 43,995
Medical and life insurance 150,372 148,479
Other Liabilities 21,914 22,015
--------- -------
Total liabilities 662,430 630,682
Commitments and Contingencies (Note 4)
Redeemable Stock
Series preferred stock, 1,000,000 shares authorized
Series B ESOP convertible preferred
(475,057 shares outstanding in 1997 and 480,018 in 1996) 28,503 28,801
Deferred compensation - ESOP (14,312) (15,374)
--------- -------
Total redeemable stock 14,191 13,427
Stockholders' Investment
Common stock, 40,000,000 shares authorized and 15,813,259 issued 158 158
Capital in excess of par value (Note 3) 86,812 86,002
Earnings invested 165,515 171,730
Foreign currency translation adjustments (1,336) (1,332)
Deferred compensation - restricted stock (Note 3) (2,328) --
Repurchased stock, at cost (872,930 shares in 1997 and 1,010,988 in 1996)
(Note 3) (10,289) (11,916)
--------- -------
Total stockholders' investment 238,532 244,642
--------- -------
Total Liabilities and Stockholders' Investment $ 915,153 888,751
--------- -------
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE>
Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
FIRST QUARTER
Thirteen Weeks Ended
March 29, March 30,
1997 1996
<S> <C> <C>
Operating Activity
Net earnings (loss) $ (1,978) (4,375)
Adjustments to Reconcile Net Earnings (Loss) to
Cash Flow Used for Operating Activity
Depreciation and amortization 12,481 11,910
Income taxes deferred (1,568) (2,223)
Provision for uncollectible accounts 1,637 1,666
Retirement benefit funding less than expense 820 3,665
Changes in working capital affecting operations
Accounts receivable (25,875) 544
Inventories (9,825) (17,790)
Prepaid expenses and other 675 507
Accounts payable 25,594 (3,486)
Accrued expenses (5,238) (19,804)
Other, net (223) 727
------ ------
Cash flow used for operating activity (3,500) (28,659)
Financing Activity
Long-term debt
Proceeds from issuance of notes -- 74,538
Other borrowed 10,200 --
Other repaid (48) (22,783)
Dividends paid (4,277) (4,279)
Proceeds from stock options exercised -- 802
Other, net -- (501)
------ ------
Net from financing activity 5,875 47,777
Investing Activity
Capital expenditures (4,402) (19,648)
Proceeds from sale of assets/subsidiaries 371 363
Other, net 454 (465)
------ ------
Net for investing activity (3,577) (19,750)
Cash and Cash Equivalents
Increase (decrease) (1,202) (632)
Start of period 10,282 11,056
------ ------
End of period $ 9,080 10,424
------ ------
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
<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. The preparation of our financial statements
in conformity with generally accepted accounting principles requires
estimates and assumptions that affect the reported amounts and
contingency disclosures. These financial statements should be read in
conjunction with the financial statements and related notes in the 1996
Annual Report to Stockholders. Results from any interim period are not
necessarily indicative of the results for a full year.
2. Future Accounting Changes
In February 1997, Statement of Financial Accounting Standards (SFAS)
No. 128, "Earnings per Share," was issued. This statement specified the
computation, presentation and disclosure requirements for earnings per
share (EPS). The main objectives of the statement were to simplify the
EPS calculation and to make EPS comparable on an international basis.
Effective in the 1997 Annual Report, primary and fully diluted EPS will
be replaced by basic and diluted EPS. Prior period results will be
restated. A significant difference is that basic EPS no longer assumes
potentially dilutive securities in the computation. Calculating EPS
under the new method had no impact on 1996 or first quarter 1997 EPS
figures. Since we were in a net loss position, no adjustments were made
that would be antidilutive or reduce the loss per share under either
method.
In 1997, Lukens will also adopt SFAS No. 129, "Disclosure of
Information about Capital Structure." This statement was issued in
conjunction with the earnings per share statement discussed above and
is intended to centralize capital structure disclosure requirements and
to expand the number of companies subject to the requirements. Since we
were in compliance with the existing capital structure disclosure
requirements, we do not expect to materially change our disclosures
under the new standard.
3. Compensation Plans - Restricted Stock
The Board of Directors approved the issuance of performance vested
restricted stock to officers and other executives as part of an
incentive compensation program. During the first quarter of 1997,
134,000 restricted shares were awarded. The shares carry voting and
dividend rights and were recorded at fair market value on the grant
date. A corresponding charge to deferred compensation was recorded in
the stockholders' investment section of the Consolidated Balance Sheets
and was adjusted for the change in the quarter-end market price of
Lukens common stock. The awards vest at the end of three years,
contingent on continued employment and the achievement of performance
goals that are tied to Lukens' total shareholder return relative to
other steel companies. No compensation expense was recognized for these
awards in the 1997 first quarter.
4
<PAGE>
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.
5. Subsequent Events
On May 6, 1997, Standard & Poor's lowered their rating from BBB+ to BBB
on $150,000 of Lukens notes due in 2004 and on $75,000 of Medium-Term
Notes, Series A, due in 2006. The Standard & Poor's outlook is
characterized as stable.
5
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
(Dollars in thousands)
Changes in Financial Condition during
the Thirteen Weeks Ended March 29, 1997
Capital Structure
Cash and cash equivalents totaled $9,080 at the end of the first quarter, a
decrease of $1,202 from the end of 1996. Working capital of $109,667 was up
$10,509 from the balance at the end of 1996. Higher accounts receivable and
inventories were partially offset by a build in accounts payable. The current
ratio was 1.6 at the end of the quarter and at year-end 1996.
Debt at the end of the first quarter was $262,691, an increase of $9,118 from
the beginning of the year. The increase reflected borrowings under our revolving
credit agreement. Based on conditions at the end of the quarter, additional
borrowings were limited to approximately $50,500 under the committed line of
credit covenant. The ratio of long-term debt to capital was 53.2 percent, which
compared to 51.7 percent at year-end 1996.
The Board of Directors approved the issuance of performance vested restricted
stock to officers and other executives as part of an incentive compensation
program. During the first quarter of 1997, 134,000 restricted shares were
awarded. The shares carry voting and dividend rights and were recorded at fair
market value on the grant date. A corresponding charge to deferred compensation
was recorded in the stockholders' investment section of the Consolidated Balance
Sheets and was adjusted for the change in the quarter-end market price of Lukens
common stock. The awards vest at the end of three years, contingent on continued
employment and the achievement of performance goals that are tied to Lukens'
total shareholder return relative to other steel companies.
On May 6, 1997, Standard & Poor's lowered their rating from BBB+ to BBB on
$150,000 of Lukens notes due in 2004 and on $75,000 of Medium-Term Notes, Series
A, due in 2006. The Standard & Poor's outlook is characterized as stable.
Liquidity
Operating activity required cash of $3,500 compared to 1996 first quarter cash
required for operations of $28,659. Lower cash requirements in 1997 were due to
improved results and reduced working capital requirements. Incentive
compensation payments, related to prior-year results, have a negative impact on
first quarter cash flow from operations, although to a lesser extent in 1997.
Financing activity generated $5,875 with net borrowings of $10,152 partially
offset by dividend payments of $4,277. Investing activity required $3,577,
primarily for capital expenditures of $4,402.
6
<PAGE>
A return to profitability in 1997 is dependent on market conditions, especially
selling prices in the Stainless Group. Results should benefit from our continued
focus on cost reduction initiatives and increased utilization of key facilities
from the capital expenditure program.
Order backlog was $119,400 at the end of the first quarter, which was 6 percent
lower than year-end 1996 order backlog and 28 percent lower than at the same
time last year.
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. Primarily
because of our aggressive capital expenditure program, we continue to exceed our
target long-term debt-to-capital ratio.
Results of Operations for the Quarters Ended
March 29, 1997 and March 30, 1996
Operating Results
First quarter operating earnings of $1,895 compared to an operating loss of
$3,116 in the first quarter of 1996. Improved results in the Carbon & Alloy
Group were partially offset by an operating loss recorded by the Stainless
Group. Stainless Group results continued to be impacted by depressed selling
prices throughout the first quarter. In 1996, Carbon & Alloy Group results were
limited by a charge for labor contract signing bonuses and the impact of severe
winter weather. Selling and administrative expenses were lower for the quarter
primarily due to the 1996 work force reduction and lower incentive compensation
accruals.
Sales for the first quarter were $248,118, down 6 percent from 1996 sales of
$264,172. Most of the decrease in sales resulted from lower selling prices in
the Stainless Group, partially offset by higher shipments in the Carbon & Alloy
Group.
Interest Expense
Interest expense of $4,729 was up 23 percent compared to 1996 expense of $3,850.
The increase primarily related to higher amounts of capitalized interest
recorded in 1996.
Income Tax Expense (Benefit)
The effective tax rate was 30.2 percent in 1997 and 37.2 percent in 1996.
Year-to-date results were used to develop the 1997 effective tax rate.
Net Earnings (Loss)
A net loss of $1,978 was recorded through the first quarter of 1997 compared to
a net loss of $4,375 for the same period in 1996.
7
<PAGE>
Business Group Results
Operating
Net Sales Earnings (Loss)
1Q 1997 1Q 1996 1Q 1997 1Q 1996
Carbon & Alloy $123,010 121,427 7,896 (5,660)
Stainless 125,108 142,745 (3,066) 6,585
Corporate -- -- (2,935) (4,041)
-------- ------- ----- ------
$248,118 264,172 1,895 (3,116)
======== ======= ===== ======
Carbon & Alloy Group
Net sales increased slightly due to a 4 percent increase in shipments. Shipped
tons were 175,400 in 1997 compared to 168,900 tons in 1996. Despite the increase
in shipments, sales were unfavorably impacted by a lower-value shipment mix.
The group recorded operating earnings in 1997 compared to an operating loss in
the first quarter of 1996. Results in 1996 included a $3,756 charge for labor
agreement signing bonuses, the impact of severe winter weather and disruptions
from the commissioning of the Steckel Mill Advanced Rolling Technology system.
Earnings in 1997 benefited from a continued focus on cost reduction initiatives.
Stainless Group
The group recorded an operating loss in the first quarter of 1997. Depressed
selling prices across product lines continued to limit results. Despite a
significant increase in cold rolled stainless shipments, depressed selling
prices and lower service center sales led to a 12 percent sales decline. First
quarter 1996 sales were limited by inventory corrections by our customers that
reduced cold rolled stainless shipments. Shipments of 71,200 tons in 1997 were
up slightly compared to 71,000 tons in 1996.
8
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
In connection with the workers' compensation hearing loss claims alleged against
Lukens Steel Company, four additional claims were filed during the first quarter
of 1997. As of the end of the quarter, 52 active claims remain. Claims
previously reported for Washington Steel Corporation were included in the Lukens
Steel Company totals because the subsidiaries merged on December 29, 1996.
Item 2. Changes in Securities.
Disclosures concerning the issuance of 134,000 shares of performance vested
restricted stock are incorporated herein by reference from Part I, Item 2.
Item 4. Submission of Matters to a Vote of Security Holders.
The issues listed below were voted upon at the Annual Meeting of Stockholders on
April 30, 1997.
o The directors listed below were elected for a term of three years.
T. Kevin Dunnigan
Votes For: 12,408,187
Votes Withheld: 1,607,670
Ronald M. Gross
Votes For: 12,565,292
Votes Withheld: 1,631,349
W. Paul Tippett
Votes For: 12,567,752
Votes Withheld: 1,628,891
R. W. Van Sant
Votes For: 12,306,627
Votes Withheld: 1,723,856
9
<PAGE>
Three non-binding shareholder proposals were also considered at the meeting.
o Shareholders voted for a proposal to eliminate the provisions relating
to the division of the directors of the Company into three classes and
to fix the term of each of the directors to one year, setting the total
number of directors at 11.
Votes For: 6,333,093
Votes Against: 5,837,915
Abstained: 182,419
Broker Non-Votes: 1,575,739
o Shareholders voted against a proposal to set a target price equal to or
greater than the highest price reached in the past three years for
stock options granted to current directors, officers and other key
employees.
Votes For: 2,008,284
Votes Against: 10,138,595
Abstained: 206,818
Broker Non-Votes: 1,575,739
o Shareholders voted for a proposal to rescind and terminate the Renewed
Rights Agreement adopted by the Board of Directors on September 25,
1996, and to refrain from amending or extending the Rights Agreement
dated as of July 29, 1987, as amended as of July 25, 1990, or to adopt
any other Rights Agreement, including the Renewed Rights Agreement,
unless and until otherwise recommended by the holders of a majority of
the outstanding common stock of the company.
Votes For: 6,313,343
Votes Against: 5,849,053
Abstained: 191,302
Broker Non-Votes: 1,575,738
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 March 29,
1997.
10
<PAGE>
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.
LUKENS INC.
May 7, 1997 R. W. Van Sant
------------------
R. W. Van Sant
Chairman and Chief Executive Officer
May 7, 1997 P. Blaine Clemens
------------------
P. Blaine Clemens
Vice President and Controller
11
Exhibit 11
Computation of Earnings Per Common Share
(Dollars and shares in thousands except per share amounts)
<TABLE>
<CAPTION>
FIRST QUARTER
Thirteen Weeks Ended
March 29, March 30,
1997 1996
Primary Earnings (Loss) per Common Share
<S> <C> <C>
Net earnings (loss) applicable to common stock
Net earnings (loss) $ (1,978) (4,375)
ESOP dividend requirements
Preferred stock dividends declared (570) (592)
Tax benefit on dividends - unallocated shares 71 96
-------- --------
Net earnings (loss) applicable to common stock $ (2,477) (4,871)
-------- --------
Weighted average number of common shares and equivalents outstanding
Weighted average number of common shares outstanding 14,805 14,757
Common stock equivalents:
Stock options, assuming exercised at average market price --* --*
-------- --------
Weighted average number of common shares and equivalents outstanding 14,805 14,757
-------- --------
Primary Earnings (Loss) per Common Share $ (0.17) (0.33)
======== ========
Fully Diluted Earnings (Loss) per Common Share
Net earnings (loss) applicable to common stock
Net earnings (loss) $ -- --
Incremental cash contribution to the ESOP assuming conversion
of preferred stock to common -- --
Tax benefit on the incremental cash contribution -- --
-------- --------
Net earnings (loss) applicable to common stock $ -- --
-------- --------
Weighted average number of common shares and equivalents outstanding
Weighted average number of common shares outstanding -- --
Common stock equivalents:
Stock options, assuming exercised at greater of ending or average
market price -- --
Series B ESOP preferred stock -- --
-------- --------
Weighted average number of common shares and equivalents outstanding -- --
-------- --------
Fully Diluted Earnings (Loss) per Common Share $ (0.17)** (0.33)**
======== ========
</TABLE>
* Not applicable because it would result in an antidilutive calculation.
** Fully diluted calculation is not presented because it is antidilutive.
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM LUKENS INC.
FINANCIAL STATEMENTS FOR THE THIRTEEN WEEKS ENDED MARCH 29, 1997, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-START> DEC-29-1996
<PERIOD-END> MAR-29-1997
<CASH> 9,080
<SECURITIES> 0
<RECEIVABLES> 124,275
<ALLOWANCES> 7,681
<INVENTORY> 158,750
<CURRENT-ASSETS> 298,144
<PP&E> 956,316
<DEPRECIATION> 431,024
<TOTAL-ASSETS> 915,153
<CURRENT-LIABILITIES> 188,477
<BONDS> 257,184
<COMMON> 158
14,191
0
<OTHER-SE> 238,374
<TOTAL-LIABILITY-AND-EQUITY> 915,153
<SALES> 248,118
<TOTAL-REVENUES> 248,118
<CGS> 233,837
<TOTAL-COSTS> 233,837
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,637
<INTEREST-EXPENSE> 4,729
<INCOME-PRETAX> (2,834)
<INCOME-TAX> (856)
<INCOME-CONTINUING> (1,978)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,978)
<EPS-PRIMARY> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
