<PAGE> 1
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 March 31, 1996
or
/ / 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 1-11126-60
J&L SPECIALTY STEEL, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1564186
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification No.)
P.O. Box 3373
One PPG Place, Pittsburgh, PA 15230-3373
(Address of principal executive offices) (Zip code)
412-338-1600
(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 April 28, 1996: 38,670,000
<PAGE> 2
J&L SPECIALTY STEEL, INC.
SEC FORM 10-Q
Quarter Ended March 31, 1996
Index
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements
of Income 3
Condensed Consolidated Balance Sheets 4
Condensed Consolidated Statements of
Cash Flows 5
Notes to Condensed Consolidated
Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and
Results of Operations 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
Signature 10
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
J&L SPECIALTY STEEL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1996 1995
-------- --------
<S> <C> <C>
Trade sales, net $171,861 $219,610
Sales to affiliates, net 13,065 22,037
-------- --------
Total sales, net 184,926 241,647
Cost of products sold 152,045 196,038
Depreciation and amortization expenses 5,695 5,602
-------- --------
Gross profit 27,186 40,007
Selling, general and administrative
expenses 4,846 4,655
Research and technology expense 1,535 947
-------- --------
Operating income 20,805 34,405
Interest income (158) (507)
Interest expense 1,213 2,901
Other expense, net 304 149
-------- --------
Income before income taxes 19,446 31,862
Income taxes 8,764 13,901
-------- --------
Net income $ 10,682 $ 17,961
======== ========
Per share data:
Net income per common share $ .28 $ .46
======== ========
Dividends declared per common share $ .10 $ .09
======== ========
Weighted average number of common
shares outstanding 38,670,000 38,670,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 4
J&L SPECIALTY STEEL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
March 31, Dec. 31,
ASSETS 1996 1995
-------- --------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,379 $ 35,428
Trade receivables, less allowances of
$4,380 and $4,336, respectively 89,020 64,575
Trade receivables from affiliates 8,437 7,523
Inventories 163,553 161,787
Deferred income taxes 9,718 9,326
Prepaid expenses and other current assets 901 1,192
-------- --------
Total current assets 273,008 279,831
-------- --------
Property, plant and equipment, net 230,021 217,060
Goodwill, net of accumulated amortization
of $62,848 and $61,066, respectively 243,555 245,337
Other noncurrent assets 11,726 11,590
-------- --------
Total assets $758,310 $753,818
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Common stock dividend payable $ 3,867 $ 3,480
Short-term debt 5,404 402
Trade accounts payable 78,676 86,976
Construction accounts payable 22,373 24,246
Accrued employee compensation and benefits 23,080 30,741
Accrued income taxes 9,876 3,882
Reserve for claims and allowances 8,506 9,445
Other accrued liabilities 11,470 7,635
-------- --------
Total current liabilities 163,252 166,807
-------- --------
Long-term debt 147,513 147,620
Postretirement benefits liability 47,796 46,786
Other noncurrent liabilities 12,280 12,380
Shareholders' equity:
Preferred stock (par value $.01 per share;
2,000,000 shares authorized, no shares
issued and outstanding) - -
Common stock (par value $.01 per share;
100,000,000 shares authorized, 38,670,000
shares issued and outstanding) 387 387
Additional paid-in capital 307,091 306,662
Retained earnings 79,991 73,176
-------- --------
Total shareholders' equity 387,469 380,225
-------- --------
Total liabilities and shareholders' equity $758,310 $753,818
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
J&L SPECIALTY STEEL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
1996 1995
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net cash (used) provided by operating
activities $(18,668) $ 46,379
-------- --------
Cash flows from investing activities:
Capital expenditures (16,796) (22,295)
-------- --------
Net cash used by investing activities (16,796) (22,295)
-------- --------
Cash flows from financing activities:
Common stock dividends paid (3,480) (3,480)
Short-term bank borrowings 5,000 -
Other debt, net (105) (14)
-------- --------
Net cash provided (used) by financing
activities 1,415 (3,494)
-------- --------
Net (decrease) increase in cash and cash
equivalents (34,049) 20,590
-------- --------
Cash and cash equivalents at beginning of
period 35,428 28,219
-------- --------
Cash and cash equivalents at end of period $ 1,379 $ 48,809
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 2,028 $ 3,159
Income taxes 3,386 3,051
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
J&L SPECIALTY STEEL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(unaudited)
Note 1 Financial Statements
The information contained in these financial statements and notes for the
quarter ended March 31, 1996 should be read in conjunction with the audited
financial statements and notes contained in the J&L Specialty Steel, Inc.
Annual Report and Form 10-K for the year ended December 31, 1995. The
accompanying unaudited Condensed Consolidated Financial Statements have been
prepared in accordance with generally accepted accounting principles and the
rules and regulations of the Securities and Exchange Commission. The condensed
interim statements do not include all of the information and footnotes required
for complete financial statements. It is management's opinion that all
adjustments (including all normal recurring adjustments) considered necessary
for a fair presentation have been made; however, results for the interim period
are not necessarily indicative of results to be expected for the full year.
Certain amounts in the prior year financial statements have been reclassified
to conform to the current year presentation.
Note 2 Inventories
Inventories are stated at the lower of cost or market. Raw materials in all
levels of inventory are valued using the Last In, First Out (LIFO) method. The
remaining costs of work-in-process and finished goods inventories are valued
using the specific identification cost method.
<TABLE>
<CAPTION>
March 31, December 31,
Inventories consisted of the following: 1996 1995
- - --------------------------------------- --------- ------------
<S> <C> <C>
Raw materials $ 27,327 $ 29,559
Work-in-process 145,745 157,236
Finished goods 35,025 22,426
-------- --------
Total inventories at current cost 208,097 209,221
Less allowance to reduce current cost
values to LIFO basis (44,544) (47,434)
-------- --------
Total inventories $163,553 $161,787
======== ========
</TABLE>
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Following is management's discussion and analysis of financial condition which
provides information with respect to the results of operations of the Company
for the three-month periods ended March 31, 1996 and 1995, respectively. This
discussion should be read in connection with the information in the Condensed
Consolidated Financial Statements and the notes pertaining thereto.
Results of Operations
Net sales decreased 23.5% to $184.9 million in the first quarter of 1996
compared with $241.6 million in the first quarter of 1995. The reduction in
net sales occurred because shipments decreased 24.9% to 83,433 tons for the
first quarter of 1996 as compared to the record 111,088 tons shipped in the
first quarter of 1995 when demand for the Company's products was at
unprecedented levels.
Cost of products sold as a percentage of net sales for the first quarter of
1996 increased slightly to 82.2% compared to 81.1% for the first quarter of
1995. Average selling prices and average raw material costs were relatively
flat for each respective quarter.
Research and technology expense as a percentage of net sales increased in 1996
to .8% from .4% in the first quarter of 1995. This $.6 million increase was
due to the scheduled increase in the cost of services provided under its
Research and Technology Agreement with Ugine, a division of Usinor Sacilor.
Interest income earned from invested cash decreased to $.2 million for the
first quarter of 1996 from $.5 million for the first quarter of 1995 due to
lower cash balances available for investment.
Interest expense decreased $1.7 million, or 58.2%, in the first quarter of 1996
when compared to the first quarter of 1995. This decrease is due primarily to
the capitalization of interest in the first quarter of 1996, which reduced
interest expense for the quarter by $1.1 million. The capitalized interest
primarily related to the Direct Roll Anneal and Pickle line capital project at
the Midland plant.
The effective income tax rates were 45.1% and 43.6% for the first quarter of
1996 and 1995, respectively. The higher rate for the 1996 quarter is due to
the fact that the amortization of the purchase
<PAGE> 8
accounting adjustment, primarily goodwill which is not deductible for income tax
purposes, was a relatively larger component of pretax income in 1996.
Due to the items described above, net income for the first quarter of 1996
decreased 40.5% to $10.7 million, or $.28 per share on 38,670,000 shares, from
net income of $18.0 million, or $.46 per share on 38,670,000 shares, in the
first quarter of 1995.
Liquidity and Capital Resources
Cash and cash equivalents decreased $34.0 million during the quarter due to
capital expenditures, dividend payments and changes in the other working
capital accounts. Most significant among the working capital changes was
accounts receivable which increased $25.4 million due to higher sales in the
current period as compared to sales in the fourth quarter of 1995. Due to the
net decrease in cash during the quarter, the Company utilized established
short-term lines of credit as a supplemental source of working capital. As of
March 31, 1996, $5.0 million was outstanding under such short-term lines of
credit.
The Company made capital expenditures of $16.8 million in the first quarter as
implementation of the five year capital plan continues. Expenditures for the
Direct Roll Anneal and Pickle line comprised the majority of the reported
capital spending for the first quarter of 1996. The Company believes that its
cash flow provided by operating activities and amounts available under its
financing sources will enable it to satisfy planned capital expenditures and
other cash requirements for the foreseeable future.
The Company paid dividends to its shareholders of $3.5 million during the
quarter and declared an increased quarterly cash dividend of $.10 per share
payable on April 24, 1996 to shareholders of record as of the close of business
on April 10, 1996.
Other Matters
Sales price pressure in the stainless steel flat-rolled market has led the
Company to rescind its previously announced 5% price increase originally
scheduled for May 6, 1996.
The Midland Plant's continuous caster was successfully returned to operational
status on May 5, 1996 after a planned 16-day maintenance outage that began
April 19, 1996.
<PAGE> 9
PART II. OTHER INFORMATION
Item 6. Exhibits And Reports On Form 8-K
(a) Exhibits
No. Description
--- -----------
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
<PAGE> 10
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.
J&L SPECIALTY STEEL, INC.
(Registrant)
May 13, 1996 /s/ KIRK F. VINCENT
-----------------------------
Kirk F. Vincent
Vice President - Finance and Law
(Principal financial officer and
duly authorized signatory)
<PAGE> 11
Exhibit Index
- - -------------
Exhibit No. Description
- - ----------- -----------
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheet at March 31, 1996 (Unaudited) and the
Condensed Consolidated Statement of Income for the Three Months Ended March 31,
1996 (Unaudited) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000912599
<NAME> J&L SPECIALTY STEEL, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,379
<SECURITIES> 0
<RECEIVABLES> 93,006
<ALLOWANCES> 4,380
<INVENTORY> 163,553
<CURRENT-ASSETS> 273,008
<PP&E> 312,499
<DEPRECIATION> 82,478
<TOTAL-ASSETS> 758,310
<CURRENT-LIABILITIES> 163,252
<BONDS> 147,513
0
0
<COMMON> 387
<OTHER-SE> 387,082
<TOTAL-LIABILITY-AND-EQUITY> 758,310
<SALES> 184,926
<TOTAL-REVENUES> 184,926
<CGS> 152,045
<TOTAL-COSTS> 152,045
<OTHER-EXPENSES> 5,695
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,213
<INCOME-PRETAX> 19,446
<INCOME-TAX> 8,764
<INCOME-CONTINUING> 10,682
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,682
<EPS-PRIMARY> .28
<EPS-DILUTED> .28
</TABLE>
