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 June 30, 1996
[ ] 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 August 2, 1996
66,030,602
ALLEGHENY LUDLUM CORPORATION
SEC FORM 10-Q
FISCAL QUARTER ENDED June 30, 1996
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 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
2
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 Six Mos. Six Mos.
Ended Ended Ended Ended
June 30, July 2, June 30, July 2,
1996 1995 1996 1995
-------- -------- -------- --------
NET SALES $338,553 $390,468 $691,655 $785,800
Costs and expenses:
Cost of products sold 266,147 301,306 552,254 615,048
Research, development
and technology 10,682 12,067 21,574 23,284
Commercial and
administrative 14,579 14,323 27,158 28,356
Depreciation and
amortization 11,380 9,630 22,843 19,496
------- ------- ------- -------
302,788 337,326 623,829 686,184
------- ------- ------- -------
INCOME FROM STEEL
OPERATIONS 35,765 53,142 67,826 99,616
Operating earnings from
assets held for sale 700 4,254 1,876 7,268
Other income (expense):
Interest expense - net (1,783) (119) (3,116) (876)
Other -- net 1,094 860 1,690 1,153
------ ------ ------ ------
(689) 741 (1,426) 277
------ ------ ------- -------
Income before income
taxes 35,776 58,137 68,276 107,161
Income taxes 15,315 23,667 28,716 43,837
------- ------ ------- -------
NET INCOME $ 20,461 $ 34,470 $ 39,560 $ 63,324
======== ======= ======= =======
3
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 Six Mos. Six Mos.
Ended Ended Ended Ended
June 30, July 2, June 30, July 2,
1996 1995 1996 1995
-------- ------- -------- --------
Per common share:
Primary $.31 $.49 $.60 $.90
======== ======= ======== ========
Fully diluted $.47 $.86
======= ========
Dividends declared
per common share $.13 $.12 $.26 $.24
======== ======= ======== ========
See notes to condensed consolidated financial statements
4
ALLEGHENY LUDLUM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands of dollars)
June 30, December 31,
1996 1995
--------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 92,585 $ 70,913
Trade receivables--net 145,525 137,016
Inventories (Note 2) 225,173 236,459
Prepaid expenses and other current
assets 12,384 9,886
--------- ---------
TOTAL CURRENT ASSETS 475,667 454,274
Properties, plants and equipment--net 442,102 451,623
Cost in excess of net assets
acquired 128,384 130,103
Deferred income taxes 46,426 44,670
Other assets including assets held
for sale 44,207 63,602
--------- ---------
TOTAL ASSETS $1,136,786 $1,144,272
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,960 $ 1,941
Accounts payable 70,782 93,464
Accrued compensation and benefits 55,175 60,892
Income taxes payable and deferred 10,098 12,897
Other accrued expenses 31,336 14,293
--------- ---------
TOTAL CURRENT LIABILITIES 169,351 183,487
Long-term debt, less current portion 179,847 181,157
Pensions 108,834 105,699
Postretirement benefit liability 272,819 265,559
Other 29,279 32,922
-------- ---------
TOTAL LIABILITIES 760,130 768,824
5
ALLEGHENY LUDLUM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands of dollars)
-Continued-
June 30, December 31,
1996 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 271,348 271,473
Retained earnings 236,558 214,128
Equity adjustment related to
minimum liability for pension plans (14,727) (14,727)
Common stock in treasury at cost--
6,855,866 and 5,771,371 shares (123,811) (102,714)
--------- --------
TOTAL SHAREHOLDERS' EQUITY 376,656 375,448
--------- --------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $1,136,786 $1,144,272
========= =========
See notes to condensed consolidated financial statements
6
ALLEGHENY LUDLUM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(in thousands of dollars)
Fiscal Fiscal
Six Months Six Months
Ended Ended
June 30,1996 July 2, 1995
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 39,560 $ 63,324
Adjustment to reconcile net income
to cash flow from operating activities:
Depreciation and amortization 22,843 19,496
Reinvested earnings from assets
held for sale 329 (5,130)
Deferred taxes (3,132) 3,015
Change in operating assets
and liabilities:
Long-term retirement liabilities 8,876 (12,988)
Trade receivables (8,509) (15,181)
Inventories 11,286 45,076
Trade payables (22,682) (13,268)
Net change in other current assets
and current liabilities (885) 20,275
Other changes (1,587) 3,163
------- -------
CASH FROM OPERATING ACTIVITIES 46,099 107,782
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of properties, plants
and equipment--net (11,624) (10,227)
Proceeds from assets held for sale 24,602 -
Long-term investments (4,535) 346
Notes receivable 218 (12)
------- ------
CASH FROM (USED BY)
INVESTING ACTIVITIES 8,661 (9,893)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt and
capital leases (1,291) (1,278)
Dividends paid (8,646) (8,480)
Purchases of treasury stock (23,710) (30,023)
Employee stock plans 559 262
------- -------
CASH USED BY FINANCING ACTIVITIES (33,088) (39,519)
7
ALLEGHENY LUDLUM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(in thousands of dollars)
-Continued-
Fiscal Fiscal
Six Months Six Months
Ended Ended
June 30,1996 July 2, 1995
------------ -------------
INCREASE IN CASH AND CASH EQUIVALENTS 21,672 58,370
Balance of cash and cash equivalents at
beginning of period 70,913 11,185
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $92,585 $69,555
====== ======
See notes to condensed consolidated financial statements
8
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
December 31, 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 six months ended
June 30, 1996 are not necessarily indicative of results of operations
that may be expected for the fiscal year ending December 29, 1996.
Net income per common share was computed based on the weighted
average number of shares of common stock outstanding during the
periods: 66,009,201 and 66,300,786 shares for the fiscal quarter and
six months, respectively, ended June 30, 1996 and 69,959,030 and
70,263,501 shares for the fiscal quarter and six months,
respectively, ended July 2, 1995.
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:
June 30, December 31,
1996 1995
-------- ---------
(in thousands of dollars)
Raw materials $ 38,426 $ 63,994
Work-in-process and finished products 253,431 249,139
Supplies 17,220 16,515
------- -------
Total inventories at current cost 309,077 329,648
Less allowances to reduce current
cost values to LIFO basis 83,904 93,189
------- -------
$225,173 $236,459
======= =======
Substantially all of the Company's inventories are determined by
the LIFO method.
9
NOTE 3--LITIGATION
In June 1996, the United States Court of Appeals for the Third
Circuit upheld a lower court ruling that found in favor of the
Company in a case brought by Allegheny International, Inc. (AI) to
cover a $5.5 million refund received by Allegheny Ludlum 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 asked the Third Circuit for a rehearing
which the Court denied. The Company intends to continue 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.
NOTE 4--COMBINATION
As previously announced, on April 1, 1996, Allegheny Ludlum and
Teledyne, Inc. entered into an Agreement and Plan of Merger and
Combination. Pursuant to this Agreement, Allegheny Ludlum and
Teledyne would each become a subsidiary of a new corporation named
Allegheny Teledyne Incorporated, each share of Allegheny Ludlum
common stock would be converted into one share of Allegheny
Teledyne common stock and each share of Teledyne common stock would
be converted into 1.925 shares of Allegheny Teledyne common stock.
The transaction is subject to approval by the shareholders of
Allegheny Ludlum and Teledyne and other customary closing
conditions. Special shareholder meetings of each company are
scheduled for August 15, 1996. If shareholder approval is
obtained, the Combination is expected to be consummated as soon as
practicable following the shareholder meetings.
10
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.
On April 1, 1996, the Company and Teledyne, Inc. announced
that they had entered into an Agreement and Plan of Merger and
Combination. See NOTE 4 of the Notes to Condensed Consolidated
Financial Statements (Unaudited).
During the first quarter of 1996, two unplanned equipment
outages occurred resulting in additional operating expenses of
approximately $.03 per share. The impact of the outages on
finishing operations and customer shipments was not significant.
However, operating and utilization rates were adversely affected
and higher cost equipment was used to meet some customer
commitments.
In the second quarter of 1996, the Company incurred investment
banking, legal and related costs of $.03 per share of common stock
related to the pending combination with Teledyne, Inc.
RESULTS OF OPERATIONS
Net sales by product line were as follows:
Fiscal Quarter Fiscal Six Months
Ended Ended
--------------------- -------------------
June 30, July 2, June 30, July 2,
1996 1995 1996 1995
-------- ------- -------- -------
(millions) (millions)
Stainless steel $265.5 $324.6 $547.6 $646.6
Silicon electrical steel 39.4 32.8 76.6 68.5
Other specialty alloy 33.7 33.1 67.5 70.7
----- ----- ----- -----
Total net sales $338.6 $390.5 $691.7 $785.8
===== ===== ===== =====
Net sales decreased 13% in the second quarter of 1996 compared
to the exceptionally strong second quarter of 1995 and decreased
12% in the first six months of 1996 compared to the same 1995
period. Shipments were 135,851 tons and 270,376 tons in the 1996
second quarter and six months, respectively, compared to 145,176
tons and 310,559 tons in the 1995 periods.
11
Stainless steel sales decreased 18% and 15% in the 1996 second
quarter and first six months, respectively, compared to the 1995
periods. The decreases were a result of lower shipments in both
periods and lower prices in the second quarter of 1996. The
decreases were partially offset by improved sales mix as compared
to the prior year periods. Market pressure on selling prices for
commodity stainless steels has continued in the third quarter.
Silicon electrical steel sales increased 20% and 12% in the
1996 second quarter and first six months, respectively, compared to
the 1995 periods. The increases were the result of higher
shipments in the 1996 second quarter and improved product mix in
both periods which were partially offset in both periods by weaker
prices for most products. The Company has announced a 5% price
increase for its silicon steel products effective January 1, 1997.
Other specialty alloy sales increased 2% in the second quarter
of 1996 and decreased 5% in the first six months of 1996 compared
to the 1995 periods. The increase in the second quarter of 1996
was primarily due to higher sales of electronic and high
temperature alloy products. The decrease in the 1996 six-month
period was due to the lower sales in the first quarter.
The domestic price increases for stainless steel products
announced in the first quarter of 1996 have not become effective
due to increased imports and weak demand in foreign markets. The
decline in selling price surcharges in the 1996 first six months
has continued into the third quarter and will be eliminated by the
end of the quarter if the present trend continues.
Cost of products sold as a percentage of sales increased 1.4
and 1.5 percentage points in the second quarter and first six
months of 1996. The increases were primarily due to higher
chromium and ferrosilicon prices and contractual wage increases.
These increases were partially offset by lower nickel and
molybdenum prices, continuing efforts to control costs and the
utilization of more efficient equipment. The first six months of
1996 also included the effects of the unplanned outages that took
place in the first quarter. Raw material costs have declined in
the first six weeks of the third quarter of 1996.
Research, development and technology costs decreased in the
second quarter and first six months of 1996 as compared to the 1995
periods primarily due to the lower expense for incentive
compensation plans related to Company financial results and common
stock values.
12
Commercial and administrative expenses, exclusive of
combination costs, decreased in the 1996 second quarter and 1996
first six months compared to the 1995 periods primarily due to
lower compensation expense for plans which are based on Company
financial results and common stock values. Commercial and
administrative costs increased slightly in the 1996 second quarter
compared to 1995 when costs related to the pending combination with
Teledyne, Inc., in the amount of $1.7 million, are included.
Earnings from assets held for sale relate to the non-specialty
steel company that was acquired in the Athlone acquisition in 1993.
FINANCIAL CONDITION AND LIQUIDITY
Working capital increased to $306.3 million at the end of the
first half of 1996 compared to $270.8 million at the end of 1995.
The current ratio increased to 2.8 from 2.5 in the same periods.
The increase in working capital was primarily due to higher
balances of cash and trade receivables and lower accounts payable
which were partially offset by lower inventories and increased
liabilities for other accrued expenses.
In the first six months of 1996, cash on hand of $70.9 million
at the beginning of year and cash from operations of $46.1 million
was used to repurchase $23.7 million in common stock, invest $11.6
million in capital equipment, pay dividends of $8.6 million and pay
down $1.3 million in debt. The Company also received cash of $24.6
million from the proceeds of the sale of Reynolds Fasteners, Inc.
in the first quarter of 1996. These transactions resulted in a
cash position of $92.6 million at the end of the first half of
1996. The Company terminated its stock repurchase program
effective April 1, 1996.
The Company anticipates that capital expenditures for 1996
will be approximately $30 million.
The Company believes that internally generated funds, current
cash on hand and borrowing from existing credit lines will be
adequate to meet foreseeable needs.
13
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 second quarter of 1996, Joseph F. Schatt was
named Vice President-Human Resources of the Company.
Jack Shilling, Senior Vice President-Technical, has been
appointed Executive Vice President of the Company effective
August 1, 1996.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(10) Extension Agreement as of June 30, 1996
with respect to Credit Agreement dated
as of June 30, 1995
(27) Financial Data Schedule
(b) Reports on Form 8-K
The Company filed reports on Form 8-K
dated April 2, 1996 regarding the proposed
combination with Teledyne, Inc., July 23, 1996,
regarding the second quarter earnings release
and July 24, 1996 regarding the regular cash
dividend declared on July 24, 1996.
14
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)
August 12, 1996
15
EXHIBIT INDEX
Exhibit
Number
_______
(10) Extension Agreement as of June 30, 1996
with respect to Credit Agreement dated as of
June 30, 1995
(27) Financial Data Schedule
16
EXHIBIT 10
EXTENSION AGREEMENT
THIS EXTENSION AGREEMENT dated as of June 30, 1996, by and
among ALLEGHENY LUDLUM CORPORATION, a Pennsylvania corporation
(the "Borrower"), PNC BANK, NATIONAL ASSOCIATION, BANK OF AMERICA
ILLINOIS, MELLON BANK, N.A., THE CHASE MANHATTAN BANK (NATIONAL
ASSOCIATION) and NATIONAL CITY BANK, PENNSYLVANIA as successor to
INTEGRA BANK (the "Lenders") and PNC BANK, NATIONAL ASSOCIATION,
as agent for the Lenders (in such capacity (the "Agent").
WHEREAS, the Borrower has requested and the Required Lenders
have agreed, all pursuant to Section 2.7 of the Credit Agreement
by and among the Borrower, the Lenders and the Agent (the
"Agreement"), to extend the Termination Date.
WHEREAS, the Borrower, the Lenders and the Agent desire to
recognize that National City Bank, Pennsylvania is successor to
Integra Bank.
NOW, THEREFORE, the parties hereto agree as follows:
1. EXTENSION OF TERMINATION DATE. The Termination
Date is hereby extended from June 30, 1998 to June
30, 1999.
2. NATIONAL CITY BANK. On and after the date hereof
all references to Integra Bank in each of the Loan
Documents shall be deemed to be references to
National City Bank, Pennsylvania.
3. INCLUSION OF DEFINED TERMS. All terms defined in
the Agreement shall have the same meanings herein
as in the Agreement.
WITNESS the due execution hereof with intent to be legally
bound hereby.
ALLEGHENY LUDLUM PNC BANK, NATIONAL
CORPORATION, a Pennsylvania ASSOCIATION as a Lender
corporation and as Agent
By: /s/Robert S. Park By: /s/Lawrence W. Jacobs
----------------- -----------------------
Name: Robert S. Park Name: Lawrence W. Jacobs
----------------- -----------------------
Title:Vice President-Treasurer Title: Vice President
-------------------------- ----------------------
BANK OF AMERICA, ILLINOIS MELLON BANK, N.A.
By: /s/Sandra S. Ober By: /s/Martin Hanning
------------------ --------------------
Name: Sandra S. Ober Name: Martin Hanning
------------------ --------------------
Title: Vice President Title:Vice President
----------------- -------------------
THE CHASE MANHATTAN BANK NATIONAL CITY BANK,
(National Association) PENNSYLVANIA
By: /s/James H. Ramage By: /s/William S. Harris
------------------- ---------------------
Name: James H. Ramage Name: William S. Harris
------------------- ---------------------
Title:Vice President Title:Vice President
------------------- ---------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
registrant's consolidated statement of income for the fiscal six months ended
June 30, 1996 and consolidated balance sheet as of June 30, 1996 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-29-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 92,585
<SECURITIES> 0
<RECEIVABLES> 149,379
<ALLOWANCES> 3,854
<INVENTORY> 225,173
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<PP&E> 697,757
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<TOTAL-ASSETS> 1,136,786
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<BONDS> 179,847
0
0
<COMMON> 7,288
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<TOTAL-LIABILITY-AND-EQUITY> 1,136,786
<SALES> 691,655
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<INCOME-TAX> 28,716
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