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 28, 1998
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, 1998
Common Stock, $.01 Par Value, 15,032,108
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Statements of Earnings
(Dollars and shares in thousands except per share amounts)
<TABLE>
<CAPTION>
<S> <C> <C>
FIRST QUARTER
Thirteen Weeks Ended
March 28, March 29,
1998 1997
- ------------------------------------------------------------------------------------------------------- ---------------
Net Sales $ 258,342 248,118
Operating Costs and Expenses
Cost of products sold 245,881 233,837
Selling and administrative expenses 14,371 12,386
- ------------------------------------------------------------------------------------------------------- ---------------
Total operating costs and expenses 260,252 246,223
Operating Earnings (Loss) (1,910) 1,895
Interest expense 4,507 4,729
- ------------------------------------------------------------------------------------------------------- ---------------
Earnings (Loss) Before Income Taxes (6,417) (2,834)
Income tax expense (benefit) (Note 2) (2,034) (856)
- ------------------------------------------------------------------------------------------------------- ---------------
Net Earnings (Loss) $ (4,383) (1,978)
- ------------------------------------------------------------------------------------------------------------------------
Dividend requirements for preferred stock (497) (499)
Net Earnings (Loss) Applicable to Common Stock $ (4,880) (2,477)
- ------------------------------------------------------------------------------------------------------------------------
Earnings (Loss) Per Common Share
Basic $ (.33) (.17)
Diluted $ (.33) (.17)
Common Shares and Equivalents Outstanding
Basic 14,838 14,805
Diluted 16,532 16,251
Cash Dividends on Common Stock - Per Share $ .25 .25
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
1
<PAGE>
Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
March 28, December 27,
1998 1997
- -------------------------------------------------------------------------------------------------------------- ----------------
Assets
Current Assets
Cash and cash equivalents $ 6,138 6,629
Receivables, less allowance of $6,734 in 1998 and $6,716 in 1997 124,056 118,026
Inventories
Products finished and in process 115,224 117,455
Raw materials 27,050 23,326
Supplies 4,332 4,806
-------------------------------------------------------------------------------------------------------- ----------------
146,606 145,587
Deferred income taxes 13,725 13,725
Prepaid expenses and other 1,275 1,733
-------------------------------------------------------------------------------------------------------- ----------------
Total current assets 291,800 285,700
Plant and Equipment 963,665 960,823
Less accumulated depreciation 476,028 463,264
-------------------------------------------------------------------------------------------------------- ----------------
Net plant and equipment 487,637 497,559
Intangible Assets,net of accumulated amortization of $12,062 in 1998
and $11,352 in 1997 56,542 58,139
Deferred Income Taxes 37,109 34,599
Other Assets 1,481 1,433
-------------------------------------------------------------------------------------------------------- ----------------
Total Assets $ 874,569 877,430
----------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Investment
Current Liabilities
Accounts payable $ 96,817 87,618
Accrued employment costs 39,423 43,787
Other accrued expenses (Note 3) 26,724 33,510
Current maturities of long-term debt 6,622 6,276
-------------------------------------------------------------------------------------------------------- ----------------
Total current liabilities 169,586 171,191
Long-Term Debt 247,030 244,671
Retirement Benefits
Pensions 55,062 53,690
Medical and life insurance 152,240 151,307
Other Liabilities 14,974 14,821
-------------------------------------------------------------------------------------------------------- ----------------
Total liabilities 638,892 635,680
Commitments and Contingencies (Note 3)
Stockholders' Investment
Series preferred stock, 1,000,000 shares authorized
Series B ESOP convertible preferred
(454,308 shares outstanding in 1998 and 470,300 in 1997) 27,259 28,218
Common stock, 40,000,000 shares authorized and 15,813,259 issued 158 158
Capital in excess of par value 89,790 88,444
Earnings invested 141,520 150,140
Foreign currency translation adjustments (1,640) (1,739)
Deferred compensation - ESOP (9,308) (10,619)
Deferred compensation - restricted stock (2,623) (2,574)
Repurchased stock, at cost (804,242 shares in 1998 and 872,032 in 1997) (9,479) (10,278)
-------------------------------------------------------------------------------------------------------- ----------------
Total stockholders' investment 235,677 241,750
-------------------------------------------------------------------------------------------------------- ----------------
Total Liabilities and Stockholders' Investment $ 874,569 877,430
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE>
Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
FIRST QUARTER
Thirteen Weeks Ended
March 28, March 29,
1998 1997
- ---------------------------------------------------------------------------------------------------------- --------------
Operating Activity
Net earnings (loss) $ (4,383) (1,978)
Adjustments to Reconcile Net Earnings (Loss) to
Cash Flow (Used for) From Operating Activity
Depreciation and amortization 13,395 12,481
Income taxes deferred (2,510) (1,568)
Provision for uncollectible accounts 1,555 1,637
Retirement benefit funding less than expense 3,192 820
Changes in working capital affecting operations
Accounts receivable (7,585) (25,875)
Inventories (1,019) (9,825)
Prepaid expenses and other 458 675
Accounts payable 9,218 25,594
Accrued expenses (11,150) (5,238)
Other, net 757 (223)
- ---------------------------------------------------------------------------------------------------------- --------------
Cash flow from (used for) operating activity 1,928 (3,500)
Financing Activity
Long-term debt
Other borrowed 4,100 10,200
Other repaid (112) (48)
Dividends paid (4,269) (4,277)
Proceeds from stock options exercised 472 -
- ---------------------------------------------------------------------------------------------------------- --------------
Net from financing activity 191 5,875
Investing Activity
Capital expenditures (2,610) (4,402)
Proceeds from sale of assets/subsidiaries - 371
Other, net - 454
- ---------------------------------------------------------------------------------------------------------- --------------
Net for investing activity (2,610) (3,577)
Cash and Cash Equivalents
Increase (decrease) (491) (1,202)
Start of period 6,629 10,282
- ---------------------------------------------------------------------------------------------------------- --------------
End of period $ 6,138 9,080
- ------------------------------------------------------------------------------------------------------------------------------
</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
On December 15, 1997, Lukens entered into a merger agreement with Bethlehem
Steel Corporation. The agreement was subsequently amended as of January 4,
1998. Under the merger agreement, Bethlehem Steel Corporation would acquire
Lukens outstanding common and preferred stock. A special meeting of
stockholders is expected to be held on May 28, 1998, to vote on the merger
agreement.
The Consolidated Financial Statements and Notes to Consolidated Financial
Statements were prepared assuming a going-concern basis and did not
recognize the impact of the merger.
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 included in the 1997 Form 10-K.
Results from any interim period are not necessarily indicative of the
results for a full year.
2. Income Taxes
Year-to-date results were used to develop the effective tax rates in 1998
and 1997.
3. Commitments and Contingencies
Regarding the Helen Kramer Superfund site, Lukens' settlement agreement
(the Settlement Agreement) was finalized on April 14, 1998. The Primary
Settling Parties submitted their signature pages on or before April 20,
1998. Pursuant to the terms of the Settlement Agreement, Lukens is
obligated to pay approximately $5,600 to the Primary Settling Parties
within 30 days of the effective date of the Settlement Agreement. In
consideration of this
4
<PAGE>
payment, the Primary Settling Parties agreed to use their best efforts to
cause Lukens to be included as a party in any consent decree or other
settlement document relating to the site entered into with the United
States and/or the State of New Jersey. In addition, the Primary Settling
Parties provided a release and covenant not to sue Lukens for claims
covered by the Settlement Agreement. The release and covenant not to sue is
subject to certain limited reopeners.
Lukens submitted a signature page to the Primary Settling Parties for
inclusion in the consent decree, which the Primary Settling Parties entered
into with the United States (the US Consent Decree). Lukens believes the
Primary Settling Parties submitted the executed signature page to the
United States on April 22, 1998. The US Consent Decree provides, among
other things, that (i) the responsibility of Lukens shall be limited to the
payment of money in the amount and on the terms provided in the Settlement
Agreement, (ii) Lukens will avoid joint and several liability to the United
States if Lukens complies with the terms of the Settlement Agreement, (iii)
the United States will provide a site-wide covenant not to sue, subject to
certain limited reservation of rights and reopeners, as well as a covenant
not to sue from the trustees of Federal natural resources for natural
resource damages, subject to the usual reservation of rights and reopeners,
(iv) Lukens will receive contribution protection for matters addressed in
the Consent Decree and (v) all settling parties, including Lukens, covenant
not to sue and to dismiss all claims they have against each other related
to the site.
Lukens submitted signature pages to the Primary Settling Parties for
inclusion in the consent decree and the natural resource damages consent
decree, which the Primary Settling Parties entered into with the State of
New Jersey (the State Consent Decrees). The State Consent Decrees provide,
among other things, that (i) the responsibility of Lukens shall be limited
to the payment of money in the amount and on the terms provided in the
Settlement Agreement, (ii) Lukens will avoid joint and several liability to
the State of New Jersey if Lukens complies with the terms of the Settlement
Agreement, (iii) the State of New Jersey will provide a site- wide covenant
not to sue, subject to certain limited reservation of rights and reopeners
and (iv) Lukens will receive contribution protection for matters addressed
in the Consent Decrees.
5
<PAGE>
There have not been any significant developments to the other environmental
issues previously discussed in the 1997 Form 10-K.
Lukens has been designated a potentially responsible party (PRP) under
Superfund law at certain waste disposal sites and continually monitors a
range of other environmental issues. Superfund designations are made
regardless of the extent of the company's direct or indirect involvement.
These claims are in various stages of administrative or judicial
proceedings, and include demands for recovery of incurred costs and for
future investigation or remedial actions. The company accrues costs
associated with environmental matters when they become probable and can be
reasonably estimated. In assessing environmental liability, the company
considers the extent and type of hazardous substances at a site, the range
of technologies that can be used for remediation, evolving laws and
regulations, the allocation of costs among potentially responsible parties,
and the number and financial strength of those parties.
Due to their uncertain nature, amounts accrued for environmental
liabilities could differ, perhaps significantly, from the actual costs that
will be incurred. No potential insurance recoveries were taken into account
in determining the company's cost estimates or reserves. Management does
not anticipate that its financial position will be materially affected by
additional environmental remediation costs, although quarterly or annual
operating results could be materially affected by future developments.
The company is party to various claims, disputes, legal actions and other
proceedings involving negligence, contracts, equal employment opportunity,
occupational safety 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.
6
<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 28, 1998
Capital Structure
Cash and cash equivalents totaled $6,138 at the end of the first quarter, a
decrease of $491 from the end of 1997. Working capital of $122,214 was up $7,705
from the end of 1997. The increase primarily reflected a build in accounts
receivables. The current ratio was 1.7 at the end of the first quarter and at
year-end 1997.
Debt at the end of the first quarter was $253,652, an increase of $2,705 from
the beginning of the year. The increase reflected borrowings under our revolving
credit agreement. The ratio of long-term debt to capital was 51.2 percent, which
compared to 50.3 percent at year-end 1997.
Liquidity
Cash flow from operating activity totaled $1,928 for the first quarter compared
to cash required from operating activity of $3,500 in the comparable 1997
period. Lower working capital requirements combined with lower retirement
benefit funding contributed to the improved cash flow.
Financing activity generated $191 with net borrowings of $3,988 and proceeds
from the exercise of stock options essentially offset by dividend payments of
$4,269. Investing activity required $2,610 for capital expenditures.
As discussed in Note 3 to the Consolidated Financial Statements, a $5,600
settlement payment will be made in the second quarter of 1998 related to a
Superfund site. Order backlog was $178,100 at the end of the first quarter,
which was 7 percent higher than year-end 1997 backlog.
7
<PAGE>
Results of Operations for the Quarters Ended
March 28, 1998 and March 29, 1997
Operating Results
A first quarter operating loss of $1,910 compared to operating earnings of
$1,895 in the first quarter of 1997. Despite a strong improvement in Carbon &
Alloy Group results, the Stainless Group recorded significantly higher losses
that resulted in a consolidated loss for the quarter. Sales for the first
quarter were $258,342, up 4 percent from 1997 sales of $248,118. Most of the
increase in sales resulted from higher shipments in the Carbon & Alloy Group.
Interest Expense
Interest expense of $4,507 was down 5 percent compared to 1997 expense of
$4,729.
Income Tax Expense (Benefit)
The effective tax rate was 31.7 percent in 1998 and 30.2 percent in 1997.
Year-to-date results were used to develop the effective tax rates in 1998 and
1997.
Net Earnings (Loss)
A net loss of $4,383 was recorded for the first quarter of 1998 compared to a
net loss of $1,978 for the same period in 1997.
8
<PAGE>
Business Group Results
Operating
Net Sales Earnings (Loss)
1Q 1998 1Q 1997 1Q 1998 1Q 1997
Carbon & Alloy $139,465 123,010 16,187 7,896
Stainless 118,877 125,108 (13,019) (3,066)
Corporate -- -- (5,078) (2,935)
$258,342 248,118 (1,910) 1,895
Carbon & Alloy Group
Net sales increased 13 percent. The increase reflected higher shipments,
particularly in the carbon steel product line due to increased utilization of
the SMART system. Shipped tons were 207,900 in 1998, 19 percent higher than
175,400 tons in 1997. With the continued growth in carbon shipments, sales
reflected a lower- value shipment mix. The volume improvement, coupled with
strong manufacturing performance, translated into a significant earnings
improvement from the first quarter of 1997.
Stainless Group
The group recorded an operating loss in the first quarters of 1998 and 1997. The
continued deterioration in selling prices combined with lower shipment levels
resulted in a larger operating loss compared to 1997. Sales were down 5 percent
in 1998. Shipments of 66,900 tons in 1998 were down 6 percent compared to 71,200
tons in 1997.
9
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Legal proceedings disclosures concerning developments in the Helen Kramer
Superfund site are incorporated herein by reference to Note 3 Commitments and
Contingencies included in Part I of this Form 10-Q.
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
A report was filed on January 5, 1998, for Item 5. Other Events., and Item
7. Financial Statements, Pro Forma Financial Information and Exhibits.,
concerning an amendment to the merger with Bethleham Steel Corporation. No
other report on Form 8-K was filed during the quarter ended March 28, 1998.
9
<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, 1998 /s/ R. W. Van Sant
R. W. Van Sant
Chairman and Chief Executive Officer
May 7, 1998 /s/ John C. van Roden, Jr.
John C. van Roden, Jr.
Senior Vice President and
Chief Financial Officer
May 7, 1998 /s/ P. Blaine Clemens
P. Blaine Clemens
Vice President and Controller
10
EXHIBIT 11
Computation of Earnings Per Common Share
(Dollars and shares in thousands except per share amounts)
<TABLE>
<CAPTION>
<S> <C> <C>
FIRST QUARTER
Thirteen Weeks Ended
March 28, March 29,
1998 1997
----------- ------------
Basic Earnings (Loss) per Common Share
Net earnings (loss) applicable to common stock
Net earnings (loss) $ (4,383) (1,978)
ESOP dividend requirements
Preferred stock dividends declared (545) (570)
Tax benefit on dividends - unallocated shares 48 71
----------- ------------
Net earnings (loss) applicable to common stock $ (4,880) (2,477)
----------- ------------
Weighted average number of common shares outstanding 14,838 14,805
----------- ------------
Basic Earnings (Loss) per Common Share $ (0.33) (0.17)
=========== ============
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 - -
Assumed conversion of Series B ESOP preferred stock - -
----------- ------------
Weighted average number of common shares and equivalents outstanding - -
----------- ------------
Diluted Earnings (Loss) per Common Share $ (0.33)* (0.17)*
=========== ============
</TABLE>
* Diluted calculation is not presented because it is antidilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM LUKENS INC.
FINANCIAL STATEMENTS FOR THE THIRTEEN WEEKS ENDED MARCH 28, 1998, 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-26-1998
<PERIOD-START> DEC-28-1997
<PERIOD-END> MAR-28-1998
<CASH> 6,138
<SECURITIES> 0
<RECEIVABLES> 130,790
<ALLOWANCES> 6,734
<INVENTORY> 146,606
<CURRENT-ASSETS> 291,800
<PP&E> 963,665
<DEPRECIATION> 476,028
<TOTAL-ASSETS> 874,569
<CURRENT-LIABILITIES> 169,586
<BONDS> 247,030
<COMMON> 158
0
27,259
<OTHER-SE> 208,260
<TOTAL-LIABILITY-AND-EQUITY> 874,569
<SALES> 258,342
<TOTAL-REVENUES> 258,342
<CGS> 245,881
<TOTAL-COSTS> 245,881
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,550
<INTEREST-EXPENSE> 4,507
<INCOME-PRETAX> (6,417)
<INCOME-TAX> 2,034
<INCOME-CONTINUING> (4,383)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,383)
<EPS-PRIMARY> (0.33)
<EPS-DILUTED> (0.33)
</TABLE>
