UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 2, 1994
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from .............. to ...........
COMMISSION FILE NUMBER 1-9498
ALLEGHENY LUDLUM CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1364894
------------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1000 Six PPG Place, Pittsburgh,PA 15222-5479
--------------------------------- ----------
(Address of principal executive offices) (Zip Code)
412-394-2800
------------
(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 (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
--- ---
Number of shares of Common Stock outstanding as of October 31, 1994
70,819,912
1
<PAGE>
ALLEGHENY LUDLUM CORPORATION
SEC FORM 10-Q
FISCAL QUARTER ENDED OCTOBER 2, 1994
INDEX
Page No.
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statement of Income 3
Condensed Consolidated Balance Sheets 5
Condensed Consolidated Statement of Cash Flows 7
Notes to Condensed Consolidated Financial
Statements 9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 11
PART II. - OTHER INFORMATION
Item 6. Exhibits 15
Signatures 16
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
ALLEGHENY LUDLUM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(In thousands of dollars except per share amounts)
Fiscal Fiscal Fiscal Fiscal
Quarter Quarter Nine Mos. Nine Mos.
Ended Ended Ended Ended
October 2, October 3, October 2, October 3,
1994 1993 1994 1993
---------- --------- ---------- ----------
NET SALES $262,255 $262,323 $748,374 $831,812
Costs and expenses:
Cost of products sold 211,720 211,432 648,720 660,967
Research, development
and technology 8,847 10,410 28,052 31,722
Commercial and
administrative 11,190 10,593 35,836 34,138
Depreciation and
amortization 9,585 7,386 28,521 22,059
------- ------- ------- -------
241,342 239,821 741,129 748,886
------- ------- ------- -------
INCOME FROM STEEL
OPERATIONS 20,913 22,502 7,245 82,926
Other income (expense):
Interest expense - net (1,774) (426) (4,308) (1,485)
Gain (loss) from
limited partnership - 2,942 (2,590) 6,013
Other -- net 383 3,554 252 2,358
------- ------- ------- -------
(1,391) 6,070 (6,646) 6,886
------- ------- ------- -------
Income before income
taxes 19,522 28,572 599 89,812
Income taxes 9,194 12,013 1,332 36,380
------- ------- ------- -------
NET INCOME (LOSS) $ 10,328 $ 16,559 $ (733) $ 53,432
======== ======== ======= =======
3
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
ALLEGHENY LUDLUM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(In thousands of dollars except per share amounts)
-Continued-
Fiscal Fiscal Fiscal Fiscal
Quarter Quarter Nine Mos. Nine Mos.
Ended Ended Ended Ended
October 2, October 3, October 2, October 3,
1994 1993 1994 1993
---------- --------- ---------- ---------
Per common share:
Primary $.14 $.25 $(.01) $.81
========== ========= ========== =========
Fully diluted N.D. $.24 N.D. $.78
========== ========= ========== =========
Dividends declared
per common share $.12 $.12 $.36 $.35
========== ========= ========== =========
N.D. Non-Dilutive
See notes to condensed consolidated financial statements
4
<PAGE>
ALLEGHENY LUDLUM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands of dollars)
October 2, January 2,
1994 1994
----------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 9,589 $ 48,107
Short-term investments - 50,466
Trade receivables--net 122,465 110,962
Inventories (Note 2) 223,702 254,764
Prepaid expenses and other current
assets 8,925 5,489
--------- --------
TOTAL CURRENT ASSETS 364,681 469,788
Properties, plants and equipment--net 459,743 447,942
Cost in excess of net assets
acquired 141,481 144,132
Investment in limited partnership - 22,764
Deferred income taxes 57,276 54,220
Assets acquired from Athlone and
held for sale 29,037 29,117
Other assets 35,375 6,086
--------- ---------
TOTAL ASSETS $1,087,593 $1,174,049
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,993 $ 3,158
Senior secured notes assumed in
Athlone acquisition - 25,000
Accounts payable 70,236 83,752
Accrued compensation and benefits 57,106 50,864
Income taxes payable and deferred 13,134 20,634
Other accrued expenses 23,062 27,469
--------- ---------
TOTAL CURRENT LIABILITIES 165,531 210,877
Long-term debt, less current portion 133,571 138,870
Pensions 123,824 106,227
Postretirement benefit liability 267,688 285,122
Other 24,285 29,531
---------- ---------
TOTAL LIABILITIES 714,899 770,627
5
<PAGE>
ALLEGHENY LUDLUM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands of dollars)
-Continued-
October 2, January 2,
1994 1994
------------ ----------
SHAREHOLDERS' EQUITY:
Preferred stock, par value $1:
authorized--50,000,000 shares;
issued--none
Common stock, par value $ .10:
authorized--250,000,000 shares;
issued--72,878,242 shares 7,288 7,288
Additional capital 270,203 269,112
Retained earnings 125,829 152,258
Equity adjustment related to
minimum liability for pension plans (2,353) (2,353)
Common stock in treasury at cost--
2,058,330 and 1,844,381 shares (28,273) (22,883)
--------- --------
TOTAL SHAREHOLDERS' EQUITY 372,694 403,422
--------- --------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $1,087,593 $1,174,049
========= =========
See notes to condensed consolidated financial statements
6
<PAGE>
ALLEGHENY LUDLUM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(in thousands of dollars)
Fiscal Fiscal
Nine Months Nine Months
Ended Ended
October 2, October 3,
1994 1993
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) Income $ (733) $ 53,432
Adjustment to reconcile net income
to cash flow from operating activities:
Depreciation and amortization 28,521 22,059
Limited partnership loss (gain) 2,590 (6,013)
Deferred taxes 1,353 (2,081)
Change in operating assets
and liabilities:
Long-term retirement liabilities (8,958) 4,002
Trade receivables (11,503) (17,801)
Inventories 31,062 39,584
Trade payables (13,516) (23,702)
Net change in other current assets
and current liabilities (13,370) 573
Other changes (4,848) (482)
-------- -------
CASH FROM OPERATING ACTIVITIES 10,598 69,571
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of properties, plants
and equipment--net (37,649) (26,338)
Sales (purchases) of
short-term investments 50,466 (14,668)
Long-term investments - (1,369)
Increase in notes receivable (473) (1,379)
-------- -------
CASH FROM (USED BY)
INVESTING ACTIVITIES 12,344 (43,754)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on senior secured debt
assumed in Athlone acquisition (25,000) -
Payments on long-term debt and
capital leases (6,464) (1,501)
Dividends paid (25,494) (23,047)
Purchases of treasury stock (7,539) (1,130)
Employee stock plans 3,037 1,821
------ -------
CASH USED BY FINANCING ACTIVITIES (61,460) (23,857)
7
<PAGE>
ALLEGHENY LUDLUM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(in thousands of dollars)
-Continued-
Fiscal Fiscal
Nine Months Nine Months
Ended Ended
October 2, October 3,
1994 1993
------------ ----------
(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (38,518) 1,960
Balance of cash and cash equivalents at
beginning of period 48,107 51,437
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 9,589 $53,397
====== ======
See notes to condensed consolidated financial statements
8
<PAGE>
ALLEGHENY LUDLUM CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1--FINANCIAL STATEMENTS
This financial information should be read in conjunction with the
financial statements and notes thereto for the fiscal year ended
January 2, 1994. The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial
information and with the instructions for Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting only of normal accruals)
considered necessary for a fair presentation have been included.
Operating results for the fiscal quarter and nine months ended
October 2, 1994 are not necessarily indicative of results of
operations that may be expected for the fiscal year ending January
1, 1995.
Net income per common share was computed based on the weighted
average number of shares of common stock outstanding during the
periods: 70,787,897 and 70,839,623 shares for the fiscal quarter
and nine months, respectively, ended October 2, 1994 and 65,834,659
and 65,845,960 shares for the fiscal quarter and nine months,
respectively, ended October 3, 1993.
The Company's fiscal year and fiscal quarters end on the Sunday
closest to the last day of the calendar month.
NOTE 2--INVENTORIES
Inventories consisted of the following:
October 2, January 2,
1994 1994
----------- ---------
(in thousands of dollars)
Raw materials $ 32,384 $ 55,647
Work-in-process and finished products 212,644 208,648
Supplies 15,030 16,609
------- -------
Total inventories at current cost 260,058 280,904
Less allowances to reduce current
cost values to LIFO basis 36,356 26,140
------- -------
$223,702 $254,764
======= =======
Substantially all of the Company's inventories are determined by
the LIFO method.
9
<PAGE>
NOTE 3--LITIGATION
The Company is involved in various lawsuits from time to time
arising in the ordinary course of business and otherwise. In April
1994, the United States District Court for the Western District of
Pennsylvania issued an order adverse to the Company in a case filed
in 1989. The order, which granted a motion for summary judgement
filed by Sunbeam-Oster Company, Inc., would have required Allegheny
Ludlum to pay approximately $8 million to Sunbeam-Oster. The
Company appealed the District Court's judgment to the United States
Court of Appeals for the Third Circuit. In November 1994, the
Circuit Court reversed the decision of the District Court. As a
result of the Circuit Court's decision, the case will be remanded
to the District Court for trial on the merits. The Company
believes that Sunbeam-Oster's claims are without merit and is
defending the case vigorously.
10
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion should be read in conjunction with the
information in the Condensed Consolidated Financial Statements and
Notes to the Condensed Consolidated Financial Statements.
LABOR STRIKE
As previously disclosed, at the expiration of its contract,
the United Steelworkers of America called a strike at most of the
Company's plants on April 1, 1994. A new 4-year agreement was
reached and employees began returning to work on June 9, 1994. The
strike had a significant adverse impact on the Company's sales and
earnings and caused the first quarterly operating loss in its
history in the second quarter of 1994. The Company's level of
operations has improved in each of the months in the third quarter.
The Company expects this trend to continue into the fourth quarter
and into 1995 due to the current strong market demand.
RESULTS OF OPERATIONS
Net sales by product line were as follows:
Fiscal Quarter Fiscal Nine Months
Ended Ended
--------------------- --------------------
October 2, October 3, October 2, October 3,
1994 1993 1994 1993
--------- --------- --------- ---------
(millions) (millions)
Stainless steel $199.7 $212.0 $581.9 $675.3
Silicon electrical steel 34.9 39.3 95.8 121.2
Other specialty alloy 27.7 11.0 70.7 35.3
----- ----- ----- -----
Total net sales $262.3 $262.3 $748.4 $831.8
===== ===== ===== =====
11
<PAGE>
Despite the lingering effects of the strike, net sales were
essentially the same in the third fiscal quarter of 1994 compared
to the third fiscal quarter of 1993. Net sales decreased 10% in
the first nine months of 1994 compared to the same 1993 period.
Shipments were 117,412 tons and 334,588 tons in the 1994 third
quarter and nine months, respectively, compared to 124,566 tons and
394,699 tons in the 1993 periods. Sales from the Washington Plant
(Jessop), acquired in the fourth quarter of 1993, offset the lower
sales in the 1994 third quarter that resulted from the continuing
effects of the strike. The strike caused the sales decline in the
first nine months of 1994 which was partially offset by the
inclusion of sales from the Washington Plant which continued to
produce and ship during the strike. The 1994 periods also
benefited from the 5% price increase for stainless sheet and strip
products effective September 5, 1994.
The Company has announced price increases approximating 4% to
7% effective October 17, 1994 for high technology alloy products.
The Company has announced price increases of approximately 4%
effective November 7, 1994 for stainless steel cut plate products.
The Company also has announced price increases approximating 5% for
stainless sheet, strip and continuous mill plate products and price
increases approximating 6% for all silicon electrical steel
products, both effective January 2, 1995.
The decreases in stainless steel and silicon electrical steel
sales in the 1994 periods compared to the 1993 periods were a
result of the strike.
The increases in other specialty alloy sales were due to the
inclusion of tool and other alloy sales from the Washington Plant
(Jessop) in the 1994 periods.
Cost of products sold in the 1994 third quarter was virtually
unchanged from the 1993 period. Although raw material costs and
energy costs have increased, continued efforts to reduce other
operating costs offset the increases in the third quarter. Cost of
products sold as a percent of sales was 7.2 percentage points
higher in the first nine months of 1994 compared to the 1993
period. The increase was primarily caused by reduced sales due to
the strike, continuing fixed costs, the expense for the hourly
signing bonus resulting from the new labor contract and a related
bonus for salaried employees with production responsibilities.
Research, development and technology costs decreased in the
third quarter and first nine months of 1994 as compared to the 1993
periods. The Company's continued control over spending was the
primary cause for the decrease in both periods.
12
<PAGE>
Commercial and administrative costs increased in the 1994
periods compared to the 1993 periods primarily due to the inclusion
of expenditures of the Washington Plant (Jessop). These costs were
partially offset by the Company's continued control over spending.
Interest expense-net increased in the 1994 periods as a result
of lower interest income due to lower cash balances available for
investment due to the strike.
Loss or gain from the limited partnership investment reflected
the recording of equity valuation decreases or increases for the
partnership investment. At the end of the first quarter of 1994,
the Company voluntarily contributed an investment in the limited
partnership fund to an irrevocable trust established for the
purpose of partially funding the retiree medical benefits
obligation the Company has to its employees represented by the
United Steelworkers of America. The Company has also contributed
$5 million in cash and the interest arising from a $3.5 million
capital contribution to a second limited partnership fund to the
trust. Returns from investments in this trust are being recorded
in accordance with FAS No. 106.
Other income was particularly significant in the 1993 periods
due to the receipt of a patent infringement settlement from Nippon
Steel Corporation in the third quarter of 1993.
The effective tax rate of 47.1% in the 1994 third quarter
compares to 42.0% in the third quarter of 1993. This temporary
increase was caused by the low earnings that resulted from the
continued effect of the strike compared with the fixed amortization
of cost in excess of net assets acquired which is not tax
deductible. In the first nine months of 1994 income taxes exceed
income before income taxes as a result of a decrease in the
Pennsylvania corporate net income tax rate from 12.25% to 9.99%
over the years 1994 through 1997. Since the Company has a deferred
tax asset, this change in rates reduced previously recorded
deferred tax benefits and required the Company to record a one-time
charge for additional tax expense of approximately $1 million in
the second quarter of 1994.
13
<PAGE>
FINANCIAL CONDITION AND LIQUIDITY
Working capital decreased to $199.2 million at the end of the
third quarter of 1994 compared to $258.9 million at the end of
1993. The current ratio was at 2.2 in both periods. The decrease
in working capital was primarily due to decreases in cash and
short-term investments which were used to pay expenses during and
related to the strike and historical decreases in inventories.
These were partially offset by increased accounts receivable caused
by strong September sales and historical decreases in accounts
payable.
In the first nine months of 1994, cash on hand, short-term
investments and cash generated from operations was used to pay down
$31.5 million in debt, invest $37.6 million in capital equipment,
pay dividends of $25.5 million and purchase $7.5 million in
treasury stock. The Company continues to anticipate that internally
generated funds and current cash on hand will be adequate to meet
foreseeable needs. In addition, the Company has $150 million of
unused credit lines. The Company believes that its ongoing
financial strength was not impaired by the labor strike.
As a result of plan amendments in settlement of the union
contract, in the 1994 third quarter, the Company increased its
pension liability and recorded a corresponding intangible asset
which is included in other assets. In addition, as part of the
contract settlement, the postretirement benefit liability increased
but this increase had no impact on the Company's balance sheet in
the current quarter. The decline in the postretirement liability
from year end resulted from the contributions the Company made to
the irrevocable trust discussed above.
The Company estimates that capital expenditures will be
approximately $50 million for the full year 1994.
14
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits
(a) Exhibits
________
(11) Computation of Per Share Earnings
(27) Financial Data Schedule
15
<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.
ALLEGHENY LUDLUM CORPORATION
By /s/ J.L. Murdy
----------------------------
J. L. Murdy
Senior Vice President - Finance
and Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
November 14, 1994
16
<PAGE>
EXHIBIT INDEX
Exhibit
Number
_______
11 Computation of Per Share Earnings
27 Financial Data Schedule
17
<PAGE>
Exhibit 11
Allegheny Ludlum Corporation
Computation of Per Share Earnings
(Dollars and Shares in Thousands)
Except Per Share Amounts)
Fiscal Quarter Ended Nine Months Ended
--------------------- ---------------------
October 2, October 3, October 2, October 3,
1994 1993 1994 1993
--------- --------- --------- ---------
PRIMARY
Net income (loss) $10,328 $16,559 $ (733) $53,432
------ ------ ------- ------
Weighted average number
of common shares 70,788 65,835 70,840 65,846
Per share of commons stock:
Net income (loss) $.14 $.25 $(.01) $.81
====== ====== ======= ======
FULLY DILUTED (1)
- -------------
Net income $16,559 $53,432
Tax effected interest
related to 5-7/8%
convertible subor-
dinated debentures 874 2,622
------ ------
Adjusted Net Income $17,433 $56,054
====== ======
Weighted average number
of common shares 65,835 65,846
Weighted average number
of convertible
subordinated debenture
common shares on an
"if converted" basis 4,938 4,938
Weighted average number
of common shares
related to employee
stock plans(2) 1,027 1,027
------ ------
71,800 71,811
Net income per share of
common stock $.24 $.78
====== ======
(1) Anti-dilutive in the 1994 periods.
(2) Not used in primary calculation due to dilution
being less than 3%
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated statement of income for the fiscal nine months ended
October 2, 1994 and the condensed consolidated balance sheets as of
October 2, 1994 and is qualified entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000811929
<NAME> ALLEGHENY LUDLUM CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-1-1995
<PERIOD-END> OCT-2-1994
<CASH> 9,589
<SECURITIES> 0
<RECEIVABLES> 122,465
<ALLOWANCES> 3,805
<INVENTORY> 223,702
<CURRENT-ASSETS> 364,681
<PP&E> 459,743
<DEPRECIATION> 190,976
<TOTAL-ASSETS> 1,087,593
<CURRENT-LIABILITIES> 165,531
<BONDS> 133,571
<COMMON> 7,288
0
0
<OTHER-SE> 365,406
<TOTAL-LIABILITY-AND-EQUITY> 1,087,593
<SALES> 748,374
<TOTAL-REVENUES> 748,374
<CGS> 648,720
<TOTAL-COSTS> 648,720
<OTHER-EXPENSES> 94,747
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,308
<INCOME-PRETAX> 599
<INCOME-TAX> 1,332
<INCOME-CONTINUING> (733)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (733)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
