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 1, 1995
[ ] 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 November 10,
1995 67,470,109
<PAGE>
ALLEGHENY LUDLUM CORPORATION
SEC FORM 10-Q
FISCAL QUARTER ENDED OCTOBER 1, 1995
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 1. Legal Proceedings 13
Item 5. Other Information 13
Item 6. Exhibits and Report on Form 8-K 14
Signatures 15
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 1, October 2, October 1, October 2,
1995 1994 1995 1994
---------- ---------- ---------- ----------
NET SALES $373,631 $262,255 $1,159,431 $748,374
Costs and expenses:
Cost of products sold 288,985 211,720 904,033 648,720
Research, development
and technology 11,501 8,847 34,785 28,052
Commercial and
administrative 14,169 11,190 42,525 35,836
Depreciation and
amortization 10,515 9,585 30,011 28,521
------- ------- --------- -------
325,170 241,342 1,011,354 741,129
------- ------- --------- -------
INCOME FROM STEEL
OPERATIONS 48,461 20,913 148,077 7,245
Operating income from
assets held for sale 2,465 - 9,733 -
Other income (expense):
Interest expense - net (257) (1,774) (1,133) (4,308)
Loss from limited
partnership - - - (2,590)
Other -- net (31) 383 1,122 252
------- ------- -------- -------
2,177 (1,391) 9,722 (6,646)
------- ------- -------- -------
Income before
income taxes 50,638 19,522 157,799 599
Income taxes 20,519 9,194 64,356 1,332
------- ------- -------- -------
NET INCOME (LOSS) $ 30,119 $ 10,328 $ 93,443 $ (733)
======= ======= ========= =======
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 1, October 2, October 1, October 2,
1995 1994 1995 1994
---------- ---------- ---------- ----------
Per common share:
Primary $.44 $.14 $1.34 $(.01)
========== ========== ========== ==========
Fully diluted $.42 N.D. $1.28 N.D.
========== ========== ========== ==========
Dividends declared
per common share $.12 $.12 $.36 $.36
========== ========== ========== =========
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 1, January 1,
1995 1995
---------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 59,412 $ 11,185
Trade receivables--net 166,310 141,042
Inventories (Note 2) 192,916 232,379
Prepaid expenses and other current
assets 13,623 11,035
--------- ---------
TOTAL CURRENT ASSETS 432,261 395,641
Properties, plants and equipment--net 451,022 464,977
Cost in excess of net assets
acquired 131,288 133,862
Deferred income taxes 44,622 49,027
Assets held for sale 44,217 37,738
Other assets 12,716 13,453
--------- ---------
TOTAL ASSETS $1,116,126 $1,094,698
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,973 $ 1,993
Accounts payable 80,945 96,417
Accrued compensation and benefits 72,777 46,115
Income taxes payable and deferred 6,715 7,123
Other accrued expenses 26,717 18,632
--------- ---------
TOTAL CURRENT LIABILITIES 189,127 170,280
Long-term debt, less current portion 131,598 133,097
Pensions 117,054 135,758
Postretirement benefit liability 264,523 267,136
Other 29,686 26,721
--------- ---------
TOTAL LIABILITIES 731,988 732,992
5
<PAGE>
ALLEGHENY LUDLUM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands of dollars)
-Continued-
October 1, January 1,
1995 1995
---------- ----------
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 271,430 270,571
Retained earnings 204,484 136,027
Equity adjustment related to
minimum liability for pension plans (20,682) (20,682)
Common stock in treasury at cost--
4,440,670 and 2,227,671 shares (78,382) (31,498)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 384,138 361,706
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $1,116,126 $1,094,698
========= =========
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 1, October 2,
1995 1994
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 93,443 $ (733)
Adjustment to reconcile net income
to cash flow from operating activities:
Depreciation and amortization 30,011 28,521
Net reinvested earnings of assets
held for sale (6,479) -
Limited partnership loss - 2,590
Deferred taxes 1,196 1,353
Change in operating assets
and liabilities:
Long-term retirement liabilities (21,317) (8,958)
Trade receivables (25,268) (11,503)
Inventories 39,463 31,062
Trade payables (15,472) (13,516)
Net change in other current assets
and current liabilities 33,120 (13,302)
Other changes 6,839 (2,921)
------- -------
CASH FROM OPERATING ACTIVITIES 135,536 12,593
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of properties, plants
and equipment--net (19,457) (37,649)
Sales of short-term investments - 50,466
Long-term investments 346 -
Increase in notes receivable (25) (353)
------- -------
CASH (USED BY) FROM
INVESTING ACTIVITIES (19,136) 12,464
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on senior secured debt
assumed in the 1993 acquisition - (25,000)
Payments on long-term debt and
capital leases (1,519) (6,464)
Dividends paid (16,891) (25,494)
Purchases of treasury stock (50,458) (7,539)
Employee stock plans 695 922
------- -------
CASH USED BY FINANCING ACTIVITIES (68,173) (63,575)
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 1, October 2,
1995 1994
----------- -----------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 48,227 (38,518)
Balance of cash and cash equivalents
at beginning of period 11,185 48,107
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 59,412 $ 9,589
======= =======
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 1, 1995.
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 1, 1995 are not
necessarily indicative of results of operations that may be expected for
the fiscal year ending December 31, 1995.
Net income per common share was computed based on the weighted average
number of shares of common stock outstanding during the periods: 68,963,949
and 69,830,601 shares for the fiscal quarter and nine months, respectively,
ended October 1, 1995 and 70,787,897 and 70,839,623 shares for the fiscal
quarter and nine months, respectively, ended October 2, 1994.
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 1, January 1,
1995 1995
----------- ---------
(in thousands of dollars)
Raw materials $ 40,468 $ 52,332
Work-in-process and finished products 221,786 213,282
Supplies 16,612 16,048
------- -------
Total inventories at current cost 278,866 281,662
Less allowances to reduce current
cost values to LIFO basis 85,950 49,283
------- -------
$192,916 $232,379
======= =======
Substantially all of the Company's inventories are determined by the LIFO
method.
9
<PAGE>
NOTE 3--LITIGATION
In August 1995, a jury verdict in favor of the Company was entered in a
case brought by Allegheny International, Inc. (AI) to recover a $5.5
million refund plus interest. The refund was received by the Company in
1989 with respect to a federal income tax overpayment. The case, which was
brought in the United States District Court for the Western District of
Pennsylvania, arose out of the 1980 management-led buyout of the Company
from AI and was pursued by Sunbeam Corporation, the successor to AI
following AI's bankruptcy reorganization. Sunbeam has appealed the jury
verdict. The Company intends to vigorously defend the favorable decision.
On June 28, 1995, the U.S. Department of Justice commenced an action
against the Company in the United States District Court for the Western
District of Pennsylvania, asserting, in 64 claims, multiple violations of
the federal Clean Water Act occurring at various times since 1987. The
complaint seeks injunctive relief and assessment of penalties of up to
$25,000 per day of violation. While it is too early to predict the outcome
of the case, the Company believes that any costs or penalties should not be
material to the financial condition of the Company or its results of
operations.
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.
The 1994 fiscal nine months and, to a lesser extent, the 1994 third
quarter include the effects of a 10-week labor strike that began April 1,
1994.
RESULTS OF OPERATIONS
Net sales by product line were as follows:
Fiscal Quarter Fiscal Nine Months
Ended Ended
---------------------- ---------------------
October 1, October 2, October 1, October 2,
1995 1994 1995 1994
--------- --------- ---------- ---------
(millions) (millions)
Stainless steel $314.7 $199.7 $ 961.3 $581.9
Silicon electrical steel 33.7 34.9 102.1 95.8
Other specialty alloy 25.2 27.7 96.0 70.7
----- ----- ------- -----
Total net sales $373.6 $262.3 $1,159.4 $748.4
===== ===== ======= =====
Net sales and shipments in the 1995 periods were considerably higher
than the 1994 periods primarily due to strong market demand, higher prices
and selling price surcharges in 1995. In addition, net sales and shipments
in the first nine months of 1994 and, to a lesser extent, in the third
quarter of 1994, were adversely affected by the labor strike. Shipments
were 133,596 tons and 444,155 tons in the 1995 third quarter and nine
months, respectively, compared to 117,412 tons and 334,588 tons in the 1994
periods.
Stainless steel market demand was at relatively high levels in the
1995 third quarter. Both 1995 periods benefited from price increases,
selling price surcharges and improved product mix, especially reduced
shipments of lower-priced commodity stainless steel for exhaust systems.
Selling price surcharges based on nickel, molybdenum and chromium costs are
expected to continue, at lesser rates, into the 1995 fourth quarter.
Silicon electrical steel sales in the 1995 periods benefited from
higher prices for most products. The sales decrease in the 1995 third
quarter compared to the 1994 third quarter resulted from lower demand for
certain domestic products and lower shipments of exported products.
Although silicon electrical steel sales in the 1995 nine months are higher
than the 1994 nine months, they did not return to pre-strike levels.
Other specialty alloy sales decreased in the 1995 third quarter
compared to the 1994 third quarter as a result of lower shipments,
especially of tool steels, which were only partially offset by higher
selling prices and higher shipments of some plate products.
11
<PAGE>
Cost of products sold as a percentage of net sales were 3.4 and 8.7
percentage points more favorable in the 1995 third quarter and nine months,
respectively, as compared to the 1994 periods. The improvements in the
1995 periods reflect higher sales levels and continued efforts to contain
costs. Also, the 1994 nine-month period was adversely affected by the
strike which resulted in lower sales without a corresponding reduction in
fixed costs and the further negative cost effect of the hourly signing
bonus under the new labor agreement and the related bonus for salaried
employees.
Research, development and technology costs increased in the third
quarter and first nine months of 1995 compared to the 1994 periods
primarily due to higher expense for profit-related compensation plans and
higher technical support of manufacturing processes due to increased
production levels.
Commercial and administrative costs increased in the 1995 periods
compared to the 1994 periods primarily due to higher expense for profit-
related compensation plans, which was partially offset by lower expense for
the Washington Plant due to realized synergies.
Earnings from assets held for sale are attributable primarily to two
non-specialty steel companies which were acquired in 1993. The results of
these businesses continue to reflect the Company's successful efforts to
improve the productivity and reduce the costs of these businesses as well
as favorable market conditions. See "FINANCIAL CONDITION AND LIQUIDITY."
The effective tax rate of 40.5% in the 1995 third quarter compares
favorably with the effective tax rate of 47.1% in the 1994 period. The
lower 1995 rate reflects a reduction in Pennsylvania's effective tax
rate. Also, the 1994 rate temporarily increased as a result of low
earnings caused by the continued effect of the strike coupled with
the fixed amortization of cost in excess of net assets acquired which is
not tax deductible. The effective tax rate in the 1995 nine months was
40.8% compared to the 1994 period in which taxes exceeded income before
income taxes as a result of the strike.
12
<PAGE>
FINANCIAL CONDITION AND LIQUIDITY
Working capital increased to $243.1 million at the end of the third
quarter of 1995 compared to $225.4 million at the end of 1994. The current
ratio remains at 2.3 for both periods. The increase in working capital is
primarily reflected in higher trade receivables, due to higher sales, as
well as lower balances in accounts payable and taxes. These changes were
partially offset by lower inventories and increased liabilities for
compensation and benefits.
Cash and cash equivalents at the end of the 1995 nine months had grown
to $59.4 million from a beginning balance of $11.2 million. This net
increase resulted from cash generated from operations which was partially
used to repurchase $50.5 million in common stock, invest $19.5 million in
capital equipment, pay of dividends of $16.9 million and pay down $1.5
million in debt during the period.
The Company continues to anticipate that the two non-specialty steel
companies that are held for sale will be sold by the end of the 1995 fiscal
year.
The Company continues to estimate that capital expenditures for 1995
will be approximately $30 million.
On November 9, 1995, the Company's Board of Directors increased the
regular quarterly cash dividend from $.12 to $.13 per share of common stock
and expanded the Company's share repurchase program from 8 million shares
to a new total authorization of 12 million shares. Through November 10,
1995, the Company has repurchased approximately 6.3 million shares.
The Company anticipates that internally generated funds, current cash
on hand and borrowing from existing credit lines will be adequate to meet
foreseeable needs.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The information concerning certain litigation filed by the Department of
Justice against the Company set forth in NOTE 3 of the Notes to Condensed
Consolidated Financial Statements (Unaudited), PART I., Item 1. of this
filing is incorporated therein by reference.
Item 5. Other Information
During the 1995 third quarter, Anne Pol was appointed to the Board of
Directors. Mrs. Pol is President of the Shipping and Weighing Systems
Division of Pitney Bowes Inc.
13
<PAGE>
Item 6. Exhibits and Report on Form 8-K
(a) Exhibits
(11) Computation of Per Share Earnings
(27) Financial Data Schedule
(b) Report on Form 8-K
None
14
<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, 1995
15
<PAGE>
EXHIBIT INDEX
Exhibit
Number
_______
11 Computation of Per Share Earnings
27 Financial Data Schedule
16
<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 1, October 2, October 1, October 2,
1995 1994 1995 1994
--------- --------- --------- ----------
PRIMARY
Net income (loss) $ 30,119 $ 10,328 $ 93,443 $ (733)
------- ------- ------- -------
Weighted average number of
common shares 68,964 70,788 69,831 70,840
Per share of common stock:
Net income (loss) $.44 $.14 $1.34 $(.01)
======= ======= ======= =======
FULLY DILUTED(1)
-------------
Net income $ 30,119 $ 93,443
Tax effected interest related
to 5-7/8% convertible
subordinated debentures 880 2,609
------- ------
Adjusted Net Income $ 30,999 $ 96,052
Weighted average number of
common shares 68,964 69,831
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) 395 434
------- -------
74,297 75,203
Net income per share of
common stock $.42 $1.28
======= =======
(1) Anti-dilutive in the 1994 periods
(2) Not used in primary calculation due to dilution being
less than 3%.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
registrant's consolidated statement of income for the fiscal nine months ended
October 1, 1995 and consolidated balance sheet as of October 1, 1995 and is
qulaified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-02-1995
<PERIOD-END> OCT-01-1995
<CASH> 59,412
<SECURITIES> 0
<RECEIVABLES> 170,143
<ALLOWANCES> 3,833
<INVENTORY> 192,916
<CURRENT-ASSETS> 432,261
<PP&E> 676,673
<DEPRECIATION> 225,651
<TOTAL-ASSETS> 1,116,126
<CURRENT-LIABILITIES> 189,127
<BONDS> 131,598
<COMMON> 7,288
0
0
<OTHER-SE> 376,850
<TOTAL-LIABILITY-AND-EQUITY> 1,116,126
<SALES> 1,159,431
<TOTAL-REVENUES> 1,159,431
<CGS> 904,033
<TOTAL-COSTS> 904,033
<OTHER-EXPENSES> 96,466
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,133
<INCOME-PRETAX> 157,799
<INCOME-TAX> 64,356
<INCOME-CONTINUING> 93,443
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 93,443
<EPS-PRIMARY> 1.34
<EPS-DILUTED> 1.28
</TABLE>
