Annual Report — [x] Reg. S-K Item 405 — Form 10-K
Filing Table of Contents
Document/Exhibit Description Pages Size
1: 10-K405 Annual Report -- [x] Reg. S-K Item 405 55 262K
2: EX-10.1 Material Contract 15 45K
5: EX-10.11 Material Contract 17 72K
3: EX-10.2 Material Contract 23 56K
4: EX-10.3 Material Contract 27 52K
6: EX-11 Statement re: Computation of Earnings Per Share 1 9K
7: EX-21 Subsidiaries of the Registrant 1 8K
8: EX-27 Financial Data Schedule (Pre-XBRL) 1 11K
9: EX-27.1 Financial Data Schedule (Pre-XBRL) 1 11K
10: EX-27.2 Financial Data Schedule (Pre-XBRL) 1 11K
11: EX-27.3 Financial Data Schedule (Pre-XBRL) 1 11K
12: EX-27.4 Financial Data Schedule (Pre-XBRL) 1 11K
13: EX-27.5 Financial Data Schedule (Pre-XBRL) 1 11K
14: EX-27.6 Financial Data Schedule (Pre-XBRL) 1 11K
15: EX-27.7 Financial Data Schedule (Pre-XBRL) 1 11K
16: EX-27.8 Financial Data Schedule (Pre-XBRL) 1 11K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/X/Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE FISCAL YEAR ENDED DECEMBER 27, 1997
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
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Exchange on Which Registered
Common Stock, $.01 Par Value New York Stock Exchange
7.625% Notes Due 2004 Not Listed
6.5% Medium-Term Notes,
Series A, Due 2006 Not Listed
Securities registered pursuant to Section 12(g) of the Act: NONE
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 / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
Based on the closing price of March 2, 1998, the aggregate market value of
common stock held by nonaffiliates of the registrant was $329.6 million.
The number of common shares outstanding of the registrant was 14,977,090 as of
March 2, 1998.
PART I
ITEM 1. BUSINESS.
General
Headquartered in Coatesville, Pennsylvania, Lukens Inc. is a holding company
incorporated in Delaware. The largest subsidiary of the company, Lukens Steel
Company, manufactures carbon, alloy and clad steel plates, and stainless steel
sheet, strip, plate, hot band and slabs. Production facilities and markets are
located primarily in the United States.
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 (converted to common) for $30 per share.
Consideration is a combination of cash and Bethlehem stock. At year-end 1997,
the number of common shares outstanding, combined with the conversion of
outstanding preferred stock, would total 16,352,127 shares and result in
proceeds of $490.6 million in cash and Bethlehem stock. The merger is contingent
on shareholder approval. A special meeting of stockholders is expected to be
held during the second quarter of 1998.
Forward-Looking Information
Sections of this Form 10-K include disclosures about future economic conditions
and Lukens' future financial performance, capital structure, goals and
objectives. Except to the extent that these discussions contain historical
facts, these forward-looking statements are subject to risks and uncertainties
that could cause actual events to materially differ from those projected. These
risks and uncertainties include, but are not limited to, materially adverse
changes in general economic conditions, domestic and foreign competition,
weather, raw material price fluctuations, possible labor interruptions and
regulatory or legislative changes.
Business Groups
Lukens has two business groups, the Carbon & Alloy Group and the Stainless
Group. Financial information for these business groups is incorporated herein by
reference to Note 2 to the financial statements included in Part II, Item 8 of
this Form 10-K. The charts below outline the business group composition of
consolidated net sales and shipped tons for each of the last three years.
Composition of Consolidated Net Sales by Business Group
1997 1996 1995
--------- --------- ---------
Carbon & Alloy % 51.9 49.6 41.9
Stainless 48.1 50.4 58.1
--------- --------- ---------
Total % 100.0 100.0 100.0
========= ========= =========
Shipped Tons by Business Group
1997 1996 1995
--------- --------- ---------
Carbon & Alloy 753,900 652,600 589,100
Stainless 257,700 262,100 267,200
Carbon & Alloy Group
The Carbon & Alloy Group specializes in the production of carbon, alloy and clad
steel plate. Primary production locations are in Coatesville and Conshohocken,
Pennsylvania. Both plants have hot rolling and finishing facilities, and the
Coatesville plant operates a melt shop. Production from these facilities ranks
the group as one of the largest domestic plate steel producers and the largest
domestic producer of alloy plate steel. There are several domestic and foreign
competitors. Major competitors are U.S. Steel Group, a subsidiary of the USX
Corporation, and Bethlehem Steel Corporation.
The group's competitive position is enhanced by a concentration on plate with a
product line that includes a wide range of sizes and grades. Price competition
has been and is expected to remain intense as new capacity enters the market. In
addition to price and quality, customer satisfaction, measured by factors like
shipped-on- time performance and production lead times, has become increasingly
important in the competitive environment. Customer satisfaction is also the
focus of our customer business teams that integrate sales, technical,
manufacturing, financial and purchasing expertise.
The Steckel Mill Advanced Rolling Technology (SMART) system, located at the
Conshohocken plant, expanded the group's production capabilities and products to
include wide, light-gauge plate, including plate coils. During 1997, integration
of the SMART system and the wide anneal and pickle line, discussed in the
Stainless Group section, was initiated.
Products are sold primarily by an in-house sales force. Steel service centers
are the largest market for the group. The market accounted for approximately 48
percent of annual sales in 1997 and averaged approximately 38 percent of annual
sales in 1996 and 1995. The Carbon & Alloy Group supplies a wide range of
markets in the capital goods sector of the economy, including markets for:
o Machinery and Industrial Equipment
o Infrastructure
o Environmental and Energy
o Transportation.
Some sales involve government contracts which may be subject to termination or
renegotiation. Terminations for convenience of the government generally provide
for payments to a contractor for its costs and a portion of its profit. We do
not expect any material portion of our business to be terminated or
renegotiated.
Raw materials used in the production of carbon and alloy steel plate include
carbon scrap, alloy scrap and alloy additives. Generally, these materials are
purchased in the open market and are available from several sources. Prices and
availability are also affected by the operating level of the domestic steel
industry, the quantity of scrap exported, currency exchange rates, and world
political and economic conditions. Scrap remains readily available, but scrap
prices remain at relatively high levels.
Principal energy sources used in production include electricity and natural gas.
Stainless Group
The Stainless Group specializes in manufacturing and marketing stainless steel
sheet, strip, plate, hot band and slabs. The group's competitive position is
built on the ability to serve niche markets by providing a wide range of quality
products. Manufacturing facilities are located in Washington and Houston,
Pennsylvania, and Massillon, Ohio. Primary competitors include
Allegheny-Teledyne Incorporated, J&L Specialty Steel, Inc., North American
Stainless Corporation and Avesta Sheffield Pipe Inc.
Washington Specialty Metals Corporation is a service and distribution center
that specializes in marketing stainless steel. There are numerous competitors on
both a national and a regional scale. Washington Specialty Metals is a leading
distributor of flat-rolled stainless steel.
Similar to the competitive environment in the Carbon & Alloy Group, customer
satisfaction, measured by factors like shipped-on-time performance and
production lead times, has become increasingly important. Customer satisfaction
is also the focus of our customer business teams. The teams integrate sales,
technical, manufacturing, financial and purchasing expertise to solve our
customers' problems. Price and quality remain significant factors in the
competitive environment.
As evidenced by the Stainless Group results in 1997 and 1996, high levels of
stainless steel imports accentuated pricing pressures. We continue to support
the imposition of trade sanctions on stainless steel imports. Without these
sanctions, we do not expect that prices will rebound significantly from 1997
levels and the introduction of new production capacity by competitors will
continue to exert pressure on selling prices over the next two or three years.
The installation of the wide anneal and pickle line at the Massillon plant was
completed in 1996. Commercialization of products from the line continued during
1997. Although product shipments increased consistently throughout the year,
utilization of the facility was low in 1997 and is expected to remain relatively
low in 1998.
Stainless products processed on the Carbon & Alloy Group's SMART system and
finished on the wide anneal and pickle line are anticipated to create quality,
size and cost advantages in the long term.
Products are sold primarily by the group's own sales organizations. Service
centers are the largest market for the group and they averaged approximately 37
percent of annual sales in the last three years. The Stainless Group ultimately
supplies diverse markets, including:
o Process Industries
o Food Service Equipment
o Architecture and Construction
o International
o Consumer Durables.
Raw materials used in production include stainless scrap, chrome, nickel and
molybdenum. Generally, these materials are purchased in the open market and are
available from several sources. Some of these raw materials sources are located
in countries subject to potential interruptions of supply that could cause
shortages and affect the availability and price. Prices and availability are
also affected by the operating level of the worldwide stainless steel industry,
the quantity of scrap exported, currency exchange rates, and world political and
economic conditions. Nickel costs remain highly volatile. Forward exchange or
hedge contracts for nickel are used to manage the group's exposure to market
price volatility. Principal energy sources used in production include
electricity and natural gas.
Sales Order Backlog
(Dollars in thousands)
Listed below is the backlog at the end of 1997 and 1996. The backlog at year-end
1997 is anticipated to be shipped in 1998.
12/27/97 12/28/96
-------- --------
Carbon & Alloy $118,553 68,134
Stainless 48,461 59,396
-------- --------
Total $167,014 127,530
======== ========
Environment
Lukens is subject to Federal, state, and local environmental laws and
regulations. An environmental committee meets quarterly to review environmental
and remediation issues. Also, outside consultants are used on certain technical
issues. The trend for tighter environmental standards is expected to result in
higher waste disposal and monitoring costs, and additional capital expenditures
in the long term. The Environmental Protection Agency's air quality standards
for particulate matter were enacted in July 1997. Implementation is dependent on
the results of environmental studies being conducted over the next several
years. Although it is difficult to estimate, the cost of installing new
environmental control systems across our manufacturing facilities could be
significant in the long term.
In 1997, capital expenditures for environmental compliance projects were $4.7
million. In 1998 and 1999, capital expenditures are anticipated to be
approximately $4.3 million and $3.8 million, respectively.
Lukens has been designated a potentially responsible party 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.
Lukens 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.
During the second quarter of 1997, a tentative settlement was reached in a
Superfund remediation case where Lukens was designated a potentially responsible
party. The obligation for the Superfund site was previously recognized in the
fourth quarter of 1996.
Based on information currently available, the liability recorded for
environmental remediation costs was approximately $17.0 million at year-end 1997
and $16.8 million at year-end 1996. Due to their uncertain nature, amounts
accrued 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.
Employees
The average number of employees during 1997 was 3,300. The labor contract for
the Coatesville facility of the Carbon & Alloy Group terminates in 2000. Labor
contracts for the manufacturing facilities of the Stainless Group expire in 1999
and 2000.
ITEM 2. PROPERTIES.
Carbon & Alloy Group
Refined molten steel is produced by an electric arc furnace melt shop.
Approximately 66 percent of 1997 production at this facility was continuously
cast into slabs, with the balance used for ingots. The facility also has two
plate mills, plate-finishing lines and heat-treating facilities.
The Conshohocken, Pennsylvania, facility houses the SMART system. The system
includes two reheat furnaces, a roughing mill, a four- high reversing Steckel
mill, accelerated on-line cooling and a cut-
to-length line. During 1997, production on the SMART system was approximately
400,000 tons. Conshohocken also has an automated quench and temper line and a
batch heat-treating system for lighter gauge carbon and alloy plate products.
Carbon & Alloy Group facilities are also used to produce stainless products.
Stainless steel is melted and refined in Coatesville and subsequently processed
on the SMART system. For business group reporting of results, discussed in Item
1, all stainless product sales and earnings are included in the Stainless Group
results.
A relatively small fabrication facility is located in Newton, North Carolina. It
uses plasma arc cutting technology to produce blanks and shapes from carbon and
alloy plate.
In 1998, steel slabs will continue to be purchased to supplement melting
capacity. Given current market conditions, Carbon & Alloy Group facilities are
essentially operating at capacity.
Stainless Group
The group has manufacturing facilities in Washington and Houston, Pennsylvania,
and in Massillon, Ohio. The Washington facility cold rolls stainless sheet and
strip products on Sendzimir mills and finishes on annealing and pickling lines.
Other capabilities include stainless coil polishing, stretcher leveling,
slitting and processing stainless hot bands on a hot anneal and pickle line.
Stainless steel is melted, cast, and rolled at the Houston location. The plant
has two electric arc furnaces, an argon oxygen decarburization (AOD) refining
unit and a variable width caster with sequence casting capability.
The Massillon, Ohio, facility is the site of the wide anneal and pickle line.
This system enables us to produce stainless plate in coils up to 96 inches wide.
With its integrated cut-to-length capability, the line has the flexibility to
make coiled and discrete stainless plate. Utilization of the wide anneal and
pickle line was low in 1997. In addition to the wide anneal and pickle line, the
Massillon plant operates a hot and cold anneal and pickle line and other
finishing facilities.
Washington Specialty Metals Corporation has fabrication and
distribution facilities in Wheeling and Carol Stream, Illinois, and
Lawrenceville, Georgia. Additional distribution centers are listed
below.
o Carrollton, Texas o Youngsville, North Carolina
o Tampa, Florida o Brampton, Ontario, Canada
o Vaudreuil, Quebec, Canada
Capacity of facilities is considered adequate to support projected sales.
ITEM 3. LEGAL PROCEEDINGS.
On December 23, 1997, a purported stockholder of Lukens, Carrie Anne Polonetsky,
filed a purported class action (the "Polonetsky Action") in the Court of
Chancery of the State of Delaware (the "Court of Chancery") against the Lukens
Board alleging, among other things, that the Lukens Board had breached its
fiduciary duties by failing to obtain the highest value reasonably available in
a sale of Lukens. Two other purported stockholders of Lukens, Wretha Evelyn
Walker and Michael Abramsky, filed purported class actions (collectively with
the Polonetsky Action, the "Delaware Actions") in the Court of Chancery on
December 29, 1997 and January 6, 1998, respectively, making substantially
similar allegations. The Delaware Actions have been consolidated by order of the
Court of Chancery dated March 11, 1998. On March 27, 1998, the plaintiffs in the
Delaware Actions filed a consolidated amended complaint against the Lukens Board
alleging, among other things, that the Lukens Board had breached its fiduciary
duties by failing to obtain the highest value reasonably available in a sale of
Lukens. The defendants intend to defend the Delaware Actions vigorously.
Lukens is involved in litigation and administrative proceedings which seek the
recovery of response costs with respect to certain waste disposal sites and is a
potentially responsible party under Superfund law at some of these sites.
Lukens' potential exposure in these actions will vary according to the amount of
responsibility attributed to Lukens, the allocation of responsibility among, and
financial viability of, other responsible parties, and the method and duration
of remedial action. Management does not anticipate that its long-term 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were voted upon during the fourth quarter of 1998.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following executive officers were elected by the Board of Directors until
their respective successors are elected:
[Download Table]
Executive Officer
Executive Officer/Title Age Since
R. W. Van Sant 59 October 1991
Chairman and Chief Executive Officer
William W. Beible 45 November 1996
Chief Information Officer
John H. Bucher 58 April 1993
Vice President-Technology
P. Blaine Clemens 60 January 1997
Vice President and Controller
C. B. Houghton, Jr. 57 November 1994
Vice President-Business Development
T. Grant John 59 February 1993
Senior Vice President-Strategic Planning
Richard D. Luzzi 46 February 1993
Vice President-Human Resources
James J. Norton 41 April 1992
Senior Vice President-President and
Chief Operating Officer-
Washington Specialty Metals
Frederick J. Smith 54 April 1993
Senior Vice President-Operations
William D. Sprague 56 October 1988
Vice President,
General Counsel and Secretary
John C. van Roden, Jr. 49 February 1987
Senior Vice President
and Chief Financial Officer
Listed below are executive officers that have been employed by Lukens in an
executive or managerial capacity for less than five years.
T. Grant John was previously with the Axel Johnson Group, a privately-owned
Swedish company with extensive holdings of stainless steel businesses. During
his 14 years with Axel Johnson, Mr. John held operating and management positions
in the corporation's United States operations. In 1985, Mr. John was appointed a
corporate vice president of Axel Johnson, Inc.
Richard D. Luzzi joined Rockwell International Corporation in 1980 and became
vice president-human resources at Rockwell Graphic Systems, Inc. in 1988. In
1991, he assumed the additional responsibility of vice president-international
human resources for Rockwell International.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The information contained in the section entitled "Dividends" in Part II, Item 7
of this Form 10-K and the section entitled "Quarterly Financial Data" in Part
II, Item 8 of this Form 10-K is incorporated herein by reference in response to
this item.
ITEM 6. SELECTED FINANCIAL DATA.
Selected Financial Highlights
[Enlarge/Download Table]
1997 1996 1995 1994 1993
For The Year
Net sales $ 994,380 970,320 1,049,158 947,013 862,072
---------- ------- --------- ------- -------
Operating earnings (loss) 13,404 (26,053) 67,980 49,570 36,602
Net non-operating (expense) income (19,073) (16,735) (13,471) (13,213) (16,319)
Income tax expense (benefit) (1,049) (14,377) 20,495 14,179 7,161
---------- ------- --------- ------- -------
Earnings (loss) from continuing operations (4,620) (28,411) 34,014 22,178 13,122
Discontinued operations, net of tax -- -- -- -- 2,780
---------- ------- --------- ------- -------
Net earnings (loss) before cumulative
effect of accounting changes (4,620) (28,411) 34,014 22,178 15,902
Per common share-- basic
Continuing operations (.45) (2.06) 2.18 1.38 .77
Discontinued operations -- -- -- -- .19
---------- ------- --------- ------- -------
Net earnings (loss) (.45) (2.06) 2.18 1.38 .96
Percent of stockholders' investment
-- start of year %(1.9) (9.5) 12.3 8.3 4.8
Shares outstanding--
weighted average 14,806 14,784 14,696 14,582 14,508
---------- ------- --------- ------- -------
Cash dividends-- common 14,805 14,781 14,696 14,583 14,508
Per share 1.00 1.00 1.00 1.00 1.00
---------- ------- --------- ------- -------
Cash flow from operations 29,396 43,667 85,491 79,180 72,290
Depreciation and amortization 51,831 48,949 41,304 43,962 45,488
Capital expenditures 19,369 57,092 104,120 120,342 67,424
Average number of employees 3,300 3,450 3,660 4,060 4,769
---------- ------- --------- ------- -------
At Year-End
Inventories $ 145,587 148,925 163,125 134,928 160,060
Current assets 285,700 266,656 314,891 281,036 307,739
Working capital 114,509 99,158 106,221 106,480 146,034
Current ratio 1.7 1.6 1.5 1.6 1.9
Plant and equipment, net of depreciation 497,559 533,326 529,432 478,129 431,853
Total assets 877,430 888,751 919,663 826,434 817,178
---------- ------- --------- ------- -------
Long-term debt 244,671 248,695 217,339 201,351 220,768
Total debt 250,947 253,573 228,189 208,485 226,589
Redeemable stock -- 13,427 -- -- --
---------- ------- --------- ------- -------
Stockholders' investment 241,750 244,642 298,719 277,057 266,754
Per common share 16.18 16.53 20.27 18.91 18.36
Common shares outstanding 14,941 14,802 14,736 14,652 14,529
Stockholders of record 4,800 4,900 5,700 6,000 5,600
---------- ------- --------- ------- -------
Dollars and shares in thousands except per share amounts
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
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 (converted to common) for $30 per share.
Consideration is a combination of cash and Bethlehem stock. At year-end 1997,
the number of common shares outstanding combined with the conversion of
outstanding preferred stock, would total 16,352,127 shares and result in
proceeds of $490,564 in cash and Bethlehem stock. The merger is contingent on
shareholder approval. A special meeting of stockholders to vote on the merger is
expected to be held during the second quarter of 1998.
The Consolidated Financial Statements, Notes to Consolidated Financial
Statements and the discussion below were prepared assuming a going-concern basis
and did not recognize the impact of the merger. For a discussion of the
contingent liabilities associated with the merger, see Note 10.
The following discussion focuses on the results of operations and on the
financial condition of Lukens Inc. In addition to the consolidated results
analysis, the results of Lukens' two business groups are discussed.
This section should be read in conjunction with the consolidated financial
statements and notes.
Consolidated Results of Operations
Net Sales.
A graph of net sales appears in this section.
1995 $1,049,158
1996 $ 970,320
1997 $ 994,380
Sales were up 2 percent in 1997. The increase was attributable to strong
Carbon & Alloy Group sales that were largely offset by depressed market
conditions in the Stainless Group.
1996 sales were down 8 percent compared to 1995. During the second half of
1996, stainless steel market conditions began to deteriorate and contributed to
lower Stainless Group sales. The decrease was partially offset by higher
shipments in the Carbon & Alloy Group.
Operating Earnings (Loss).
A graph of operating earnings (loss) appears in this section.
1995 $ 67,980
1996 $(26,053)
1997 $ 13,404
Operating earnings in 1997 were attributable to the Carbon & Alloy Group,
which benefited from market conditions, cost reduction initiatives and increased
utilization of new facilities. Depressed selling prices experienced by the
Stainless Group resulted in a loss for the group in 1997.
Included in 1996 results were unusual charges totaling $26,115. A second
quarter provision of $10,782 was recognized for a work force reduction. In the
fourth quarter, $9,400 was recognized for environmental remediation and $5,933
for fixed asset write-downs. Excluding the 1996 unusual items for comparison
purposes, operating earnings were up $13,342 in 1997.
The 1996 loss represented a dramatic reversal from strong 1995 earnings.
Excluding the unusual items discussed above for comparison purposes, operating
earnings were $62 in 1996. The reversal in results tracks the change in
stainless steel market conditions that resulted in significant selling price
declines. Results in 1996 were also limited by higher utility costs caused by
severe winter weather and by signing bonuses associated with a new labor
contract.
Summary of Results 1997 1996 1995
Net sales $ 994,380 970,320 1,049,158
Operating earnings (loss) $ 13,404 (26,053) 67,980
Interest expense $ 19,073 16,735 13,471
Income tax expense (benefit) $ (1,049) (14,377) 20,495
Effective income tax rate % (18.5) (33.6) 37.6
Net earnings (loss) $ (4,620) (28,411) 34,014
Dollars in thousands except per share amounts
Interest Expense.
A graph of interest expense appears in this section.
1995 $ 13,471
1996 $ 16,735
1997 $ 19,073
Interest expense in 1997 was up 14 percent with the increase primarily
related to higher amounts of capitalized interest recorded in 1996. Interest
expense in 1996 was up 24 percent compared to 1995. Higher debt levels in 1996
were the primary reason for the increase.
Income Tax Expense (Benefit).
A graph of effective income tax rate appears in this section.
1995 37.6%
1996 (33.6%)
1997 (18.5%)
The effective tax rate applied against losses was 18.5 percent in 1997 and
33.6 percent in 1996. The difference between the 1997 and 1996 rates reflected
the impact of non-deductible expenses, state taxes and other items that have a
greater percentage impact on the effective rate at lower results levels. The tax
benefits recognized in the past two years primarily resulted in a build in
deferred tax assets that reflected the availability of tax credit carryforwards.
In 1995, the effective tax rate applied to earnings was 37.6 percent.
Deferred tax assets recognized represent future tax benefits. Recog-nition
of deferred tax assets is based on the combination of the historical earnings
trend, future reversals of existing taxable temporary differences, carryback and
carryforward availability, tax planning strategies and future taxable income.
Net Earnings (Loss).
A graph of net earnings (loss) appears in this section.
1995 $ 34,014
1996 $(28,411)
1997 $ 4,620
A net loss was recorded both in 1997 and 1996. On an after-tax basis, the
unusual items recorded in 1996 reduced results by $16,673. Excluding the unusual
items for comparison purposes, the 1996 net loss was $11,738. Net earnings in
1995 reflected strong Stainless Group results.
Business Groups
Carbon & Alloy.
Business group graphs appear in this section.
Carbon & Alloy net sales:
1995 $439,330
1996 $481,237
1997 $516,499
Carbon & Alloy operating earnings (loss):
1995 $ 11,946
1996 $ (2,554)
1997 $ 50,410
Net sales were up 7 percent in 1997. Shipped tons were 753,900 compared to
652,600 tons in 1996. The 16 percent increase reflected higher utilization of
the Steckel Mill Advanced Rolling Technology (SMART(R)) system, evidenced by a
more than 80,000 ton increase in carbon shipments. With the growth in carbon
shipments in 1997, sales reflected a lower-value shipment mix.
The 10 percent sales increase in 1996 compared to 1995 was largely
attributable to an increase in shipments, particularly in carbon products.
Shipments in 1996 were up 11 percent compared to 589,100 tons in 1995.
The group recorded strong operating earnings in 1997. Earnings benefited
from a continued focus on cost reduction initiatives and increased utilization
of the SMART system. The operating loss in 1996 was due to unusual charges of
$15,578. A work force reduction charge reduced results by $6,178 and an
environmental remediation provision was $9,400. Excluding the provisions for
comparison purposes, 1997 operating earnings were up $37,386 from 1996. Also
impacting 1996 results was a $3,756 charge for signing bonuses associated with
the new labor agreement at the Coatesville, Pennsylvania, facility, severe
winter weather and disruptions associated with the commissioning of the SMART
system.
The operating loss in 1996 compared to operating earnings in 1995. The 1996
loss was the result of the charges discussed previously. Excluding the charges,
operating earnings of $13,024 were up 9 percent from 1995. Although to a lesser
extent than 1995, results in 1996 continued to be impacted by production
disruptions and expenses associated with the commissioning of the SMART system.
Dollars in thousands except per share amounts
Stainless.
Business group graphs appear in this section.
Stainless net sales:
1995 $609,828
1996 $489,083
1997 $477,881
Stainless operating earnings (loss):
1995 $ 75,148
1996 $ (7,058)
1997 $(20,488)
Selling price erosion that began in 1996 continued in 1997. Higher levels
of low-priced imports continued to exert pressure on selling prices across
product lines. Shipments for 1997 were 257,700 tons, down 2 percent compared to
262,100 tons in 1996.
Weak stainless steel market conditions in 1996 led to a 20 percent decrease
in sales compared to 1995. The sales decline reflected customer inventory
corrections during the first half of the year that reduced cold rolled
shipments. For the balance of 1996, the selling prices fell across all product
lines. A lower-value shipment mix also contributed to the decrease. Shipments
for 1996 were down slightly from 1995 shipments of 267,200 tons. Excluding
lower-value conversion tonnage, shipments were down 12 percent from 1995,
primarily due to decreases in hot rolled and hot band stainless product
shipments.
The operating loss recorded in 1997 was significantly larger than the 1996
loss. Results in 1996 included unusual charges totaling $9,628. The charges
consisted of $3,695 for a work force reduction and $5,933 to write down idle
assets and other equipment replaced as a result of capital improvements.
Excluding the unusual charges for comparison purposes, operating results fell by
$23,058 in 1997, largely due to depressed selling prices discussed previously.
Excluding the 1996 unusual charges for comparison purposes, operating
earnings of $2,570 were down 97 percent from 1995. The decline primarily
reflected a significant deterioration in stainless steel market conditions as
previously discussed. In addition, 1996 earnings from the service center
operations did not match their excellent 1995 results.
Business Outlook
Similar to 1997, strong market conditions should translate to solid
earnings for the Carbon & Alloy Group. Selling prices will be the key to
Stain-less Group profitability. A continued focus on cost reduction initiatives
and increased utilization of facilities aimed at the stainless plate market
should also contribute to earnings.
We continue to support the imposition of trade sanctions on stainless steel
imports. Without these sanctions, we do not expect that prices will rebound
significantly from 1997 levels. The introduction of new production capacity by
competitors will continue to exert pressure on selling prices over the next two
or three years.
Stainless Group results should benefit from increased stainless plate sales
fueled by the continued integration of the SMART system with the wide anneal and
pickle line (WAPL). However, utilization of the WAPL facility is still expected
to be relatively low in 1998. Weak results are expected to continue if there is
no improvement in the current market conditions.
Financial Condition
Capital Structure.
A graph of current assets and working capital appears in this section.
Current assets:
1995 $314,891
1996 $266,656
1997 $285,700
Working capital:
1995 $106,221
1996 $ 99,158
1997 $114,509
At the end of 1997, cash and cash equivalents totaled $6,629, a decrease of
$3,653 from the end of 1996. Working capital of $114,509 was up $15,351 from
year-end 1996. The increase primarily reflected a higher accounts receivable
balance. At year-end 1997, the current ratio was 1.7 compared to 1.6 at year-end
1996.
Included in other accrued expenses at the end of 1997 was an environmental
reserve that was reclassified during the second quarter of 1997 from other
liabilities in the long-term section of the Consolidated Balance Sheets. The
reclassification reflected a tentative settlement agreement negotiated for a
Superfund site where we were designated a potentially responsible party.
Debt at the end of 1997 was $250,947, a slight decrease of $2,626 from
year-end 1996. Included in year-end debt was $10,619 of ESOP debt, which is
guaranteed by Lukens.
The ratio of long-term debt to total capital was 50.3 percent at the end of
1997 and 51.7 percent at year-end 1996. The 1996 ratio included 2.6 percent from
the reclassification
Dollars in thousands except per share amounts
of preferred stock and deferred ESOP compensation as redeemable stock, discussed
below. Based on conditions at the end of 1997, additional borrowings of
approximately $65,400 were available under the committed line of credit
covenant.
During the second quarter of 1997, Standard & Poor's lowered their rating
on Lukens notes from BBB+ to BBB. During the third quarter of 1997, Moody's
lowered their rating from Baa2 to Baa3.
In 1997, the Board of Directors approved the issuance of performance vested
restricted stock to certain officers and other executives as part of an
incentive compensation program. During the first quarter of 1997, 134,000
restricted shares were awarded. The shares carry voting and dividend rights and
were recorded at fair market value on the grant date. A corresponding charge to
deferred compensation was recorded in the stockholders' investment section of
the Consolidated Balance Sheets. The deferred compensation balance was
subsequently adjusted for changes in the market price of Lukens common stock and
for compensation expense recognized. The awards vest at the end of three years,
contingent on continued employment and the achievement of performance goals that
are tied to Lukens' total shareholder return relative to other steel companies.
Lukens Series B Convertible Preferred Stock is redeemable in common stock,
cash or a combination at the option of Lukens when the price of Lukens common
stock is $20 per share or greater. If the price is below $20 per share,
participants in a company-sponsored 401(k) employee savings plan have the option
to redeem preferred stock in the combination above. At year-end 1996, preferred
stock and the related ESOP deferred compensation were classified as redeemable
stock because the price of Lukens common stock was below $20 per share on
December 28, 1996, the fiscal year-end. The reclassification from stockholders'
investment reflected the ability of 401(k) participants to elect a cash payout
option at redemption. The classification was not made in 1997 or years prior to
1996 because the company had the ability and intention to redeem preferred stock
with Lukens common stock.
Lukens enters into forward exchange contracts (derivatives) with the
objective to manage or hedge exposure to market price changes of certain
commodities used in manufacturing. The company does not speculate or trade in
these agreements for profit. These contracts generally provide for the exchange
of a market price for a fixed price based on a notional quantity. Contracts are
executed under the guidelines of a corporate policy. The policy specifies
members of management with the authority to execute agreements and establishes
limits on the amount of contracts outstanding. As of year-end 1997, Lukens was
party to several agreements maturing in 1998, which are discussed in Note 8.
Liquidity -- Short Term.
Graphs of cash flow from operations and capital expenditures appear in this
section.
Cash flow from operations:
1995 $85,491
1996 $43,667
1997 $29,396
Capital expenditures:
1995 $104,120
1996 $ 57,092
1997 $ 19,369
Cash flow from operating activity was relatively low at $29,396 in 1997
compared to $43,667 in 1996. The decrease was primarily due to higher working
capital requirements.
Financing activity required $15,066 with net borrowings of $2,018 partially
offset by dividend payments of $17,084. Investing activity required $17,983,
primarily for capital expenditures of $19,369.
Improving cash flows from operating activity in 1998 is dependent on
reduced working capital requirements coupled with the earnings factors
identified in the Business Outlook section. Capital expenditures for 1998 are
expected to be relatively low at approximately $36,000. The anticipated cash
flow from operating activity and low capital expenditure requirements should
result in an improved capital structure compared to year-end 1997.
Dollars in thousands except per share amounts
Consolidated backlog at year-end 1997 was $167,000, up 31 percent from the
beginning of the year. The increase was primarily attributable to the Carbon &
Alloy Group.
Liquidity -- Long Term. In the long term, Lukens relies on the ability to
generate sufficient cash flows from operating activity to fund investing and
financing requirements. Our target long-term debt-to-capital ratio is 35
percent. A key to reach our target will be the ability to increase utilization
of facilities added during our recent capital improvement program. Lukens has
generated cash from operations totaling $158,554 over the past three years.
Environmental Compliance. Capital expenditures for environmental compliance are
projected to be approximately $4,279 in 1998 and $3,838 in 1999. The trend for
tighter environmental standards is expected to result in higher waste disposal
and monitoring costs and additional capital expenditures in the long term.
Lukens has been designated a potentially responsible party under Superfund
law at certain waste disposal sites and continually monitors a range of other
environmental issues. As discussed in Note 3, a $9,400 environmental remediation
provision was recorded in 1996. During the second quarter of 1997, a tentative
settlement was reached in a Superfund remediation case. The timing of the
estimated payments will not be determined until final resolution of the related
administrative and judicial proceedings. The company's exposure to remediation
costs at these sites depends on several factors discussed in Note 10.
Based on information currently available, 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.
Debt Financing. Lukens' notes outstanding of $150,000 are due in 2004. The
Medium-Term Notes, Series A, outstanding of $75,000 are due in 2006. Supporting
both short- and long-term liquidity needs are agreements for a committed line of
credit.
Other Commitments. A contract for the supply of oxygen and related products to a
Carbon & Alloy Group manufacturing facility runs until 2007 and includes
take-or-pay provisions totaling $24,087 over the remaining term.
A software modification program is in process to address programming
requirements related to the year 2000.
Inflation. On average, inflation rates for the domestic economy have been
relatively low over the past few years. Although long-term inflation rates are
difficult to predict, Lukens believes it has the flexibility in operations and
capital structure to maintain a competitive position.
Dividends.
A graph of net earnings per common share and dividends per common share appears
in this section.
Net earnings (loss) per common share:
1995 $ 2.18
1996 $(2.06)
1997 $( .45)
Dividends per common share:
1995 $1.00
1996 $1.00
1997 $1.00
Lukens paid $1.00 per share in common stock dividends in 1997. A quarterly
common dividend of $.25 per share was paid on February 20, 1998. It is the
company's objective to pay common dividends approximating 35 percent of net
earnings over the long term. The merger agreement with Bethlehem Steel
Corporation discussed in Note 1, limits the quarterly dividend to $.25 per
share. As of February 6, 1998, there were approximately 4,600 common
stockholders of record.
The Series B Convertible Preferred Stock held by the ESOP carries a
cumulative annual dividend of $4.80 per share.
Lukens common stock is listed and traded on the New York Stock Exchange,
symbol LUC. Dividends and stock market price ranges for the last two years are
included in the table on page 21.
Dollars in thousands except per share amounts
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Consolidated Statements of Earnings
for the 52 weeks ended December 27, 1997, December 28, 1996, and December 30,
1995
[Enlarge/Download Table]
1997 1996 1995
Net Sales $ 994,380 970,320 1,049,158
Operating Costs and Expenses (Notes 1, 4, 6, 8 and 10)
Cost of products sold 925,984 915,113 922,667
Selling and administrative expenses 54,992 55,145 58,511
Unusual items (Note 3)
Work force reduction provision -- 10,782 --
Environmental remediation provision -- 9,400 --
Fixed asset write-downs -- 5,933 --
---------- ------- ---------
Total operating costs and expenses 980,976 996,373 981,178
Operating Earnings (Loss) 13,404 (26,053) 67,980
Interest expense (Note 8) 19,073 16,735 13,471
---------- ------- ---------
Earnings (Loss) Before Income Taxes (5,669) (42,788) 54,509
Income tax expense (benefit) (Note 5) (1,049) (14,377) 20,495
---------- ------- ---------
Net Earnings (Loss) $ (4,620) (28,411) 34,014
---------- ------- ---------
Dividend requirements for preferred stock (Note 9) (2,015) (1,994) (1,962)
Net Earnings (Loss) Applicable to Common Stock $ (6,635) (30,405) 32,052
---------- ------- ---------
Earnings (Loss) Per Common Share (Note 1)
Basic $ (.45) (2.06) 2.18
Diluted $ (.45) (2.06) 2.05
Common Shares and Equivalents Outstanding (Note 1)
Basic 14,806 14,784 14,696
Diluted 16,244 16,278 16,334
Cash Dividends on Common Stock-- Per Share $ 1.00 1.00 1.00
---------- ------- ---------
The notes are an integral part of these statements.
Dollars and shares in thousands except per share amounts
Consolidated Balance Sheets
as of December 27, 1997, and December 28, 1996
[Enlarge/Download Table]
Assets 1997 1996
Current Assets
Cash and cash equivalents (Note 1) $ 6,629 10,282
Receivables, less allowance of $6,716 in 1997 and $7,750 in 1996 118,026 92,356
Inventories (Notes 1 and 7) 145,587 148,925
Deferred income taxes (Note 5) 13,725 13,129
Prepaid expenses and other 1,733 1,964
--------- -------
Total current assets 285,700 266,656
Plant and Equipment (Notes 1, 3 and 10)
Land 12,237 11,880
Buildings 88,918 87,875
Machinery and equipment 850,419 842,334
Construction in progress 9,249 11,664
--------- -------
960,823 953,753
Less accumulated depreciation 463,264 420,427
--------- -------
Net plant and equipment 497,559 533,326
Intangible Assets, net of accumulated amortization
of $11,352 in 1997 and $9,114 in 1996 (Notes 1 and 4) 58,139 57,158
Deferred Income Taxes (Note 5) 34,599 29,937
Other Assets 1,433 1,674
--------- -------
Total Assets $ 877,430 888,751
--------- -------
Liabilities & Stockholders' Investment
Current Liabilities
Accounts payable $ 87,618 92,252
Accrued employment costs (Notes 3, 4 and 6) 43,787 46,603
Other accrued expenses (Note 10) 33,510 23,765
Current maturities of long-term debt (Note 8) 6,276 4,878
--------- -------
Total current liabilities 171,191 167,498
Long-Term Debt (Note 8) 244,671 248,695
Retirement Benefits (Notes 3 and 4)
Pensions 53,690 43,995
Medical and life insurance 151,307 148,479
Other Liabilities (Notes 3 and 10) 14,821 22,015
--------- -------
Total liabilities 635,680 630,682
Commitments and Contingencies (Note 10)
Redeemable Stock (Note 9)
Series preferred stock -- 28,801
Deferred compensation-- ESOP -- (15,374)
--------- -------
Total redeemable stock -- 13,427
Stockholders' Investment
Series preferred stock (Note 9) 28,218 --
Common stock (Note 9) 158 158
Capital in excess of par value 88,444 86,002
Earnings invested 150,140 171,730
Foreign currency translation adjustments (1,739) (1,332)
Deferred compensation-- ESOP (Notes 6 and 9) (10,619) --
Deferred compensation-- restricted stock (Note 6) (2,574) --
Repurchased stock, at cost (10,278) (11,916)
--------- -------
Total stockholders' investment 241,750 244,642
--------- -------
Total Liabilities & Stockholders' Investment $ 877,430 888,751
--------- -------
The notes are an integral part of these statements.
Dollars in thousands
Consolidated Statements of Stockholders' Investment
for the 52 weeks ended December 27, 1997, December 28, 1996, and December 30,
1995
[Enlarge/Download Table]
1997 1996 1995
Shares Dollars Shares Dollars Shares Dollars
Series Preferred Stock (Note 9)
(1,000,000 shares authorized)
Series B
Balance at beginning of year -- $ -- 494,413 $ 29,665 510,592 $ 30,635
Reversal of redeemable stock
classification (Note 9) 480,018 28,801 -- -- -- --
Conversion (9,718) (583) (14,395) (864) (16,179) (970)
Redeemable stock classification
(Note 9) -- -- (480,018) (28,801) -- --
--------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 470,300 28,218 -- -- 494,413 29,665
Common Stock (Note 9)
(40,000,000 shares authorized) 15,813,259 158 15,813,259 158 15,813,259 158
Capital in Excess of Par Value
Balance at beginning of year 86,002 85,204 84,088
Stock option activity (Note 6) 124 565 716
Conversion of Series B
preferred stock 37 233 400
Restricted stock activity (Note 6) 2,281 -- --
--------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 88,444 86,002 85,204
Earnings Invested
Balance at beginning of year 171,730 216,934 199,586
Net earnings (loss) (4,620) (28,411) 34,014
Dividends declared
Preferred ($4.80 per share) (2,266) (2,339) (2,405)
Common ($1.00 per share) (14,805) (14,781) (14,696)
Restricted stock ($1.00 per share) (134) -- --
Tax benefit on ESOP preferred
stock dividends 235 327 435
--------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 150,140 171,730 216,934
Foreign Currency Translation
Adjustments
Balance at beginning of year (1,332) (1,141) (1,303)
Effect of rate changes (407) (191) 162
--------------------------------------------------------------------------------------------------------------------------------
Balance at end of year (1,739) (1,332) (1,141)
Deferred Compensation -- ESOP (Note 6)
Balance at beginning of year -- (19,404) (22,767)
Reversal of redeemable stock
classification (Note 9) (15,374) -- --
Allocations to employees 4,755 4,030 3,363
Redeemable stock classification (Note 9) -- 15,374 --
--------------------------------------------------------------------------------------------------------------------------------
Balance at end of year (10,619) -- (19,404)
Deferred Compensation --
Restricted Stock (Note 6)
Balance at beginning of year -- -- --
Restricted stock activity (3,861) -- --
Amortization of deferred compensation 1,287 -- --
--------------------------------------------------------------------------------------------------------------------------------
Balance at end of year (2,574) -- --
Repurchased Stock, at cost
Balance at beginning of year 1,010,988 (11,916) 1,077,305 (12,697) 1,161,460 (13,340)
Stock option activity (Note 6) -- -- (36,750) 433 (35,675) 74
Conversion of Series B
preferred stock (4,956) 59 (29,567) 348 (48,480) 569
Issuance of restricted stock (Note 6) (134,000) 1,579 -- -- -- --
--------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 872,032 (10,278) 1,010,988 (11,916) 1,077,305 (12,697)
Stockholders' Investment $ 241,750 $ 244,642 $ 298,719
--------------------------------------------------------------------------------------------------------------------------------
The notes are an integral part of these statements.
Dollars in thousands except per share amounts
Consolidated Statements of Cash Flows
for the 52 weeks ended December 27, 1997, December 28, 1996, and December 30,
1995
[Download Table]
1997 1996 1995
Operating Activity
Net earnings (loss) $ (4,620) (28,411) 34,014
Adjustments to Reconcile Net Earnings (Loss)
to Cash Flow from Operating Activity
Depreciation and amortization 51,831 48,949 41,304
Income taxes deferred (2,393) (18,323) 9,270
Provision for uncollectible accounts 5,130 11,348 10,044
Retirement benefit funding less than expense 9,208 12,078 4,859
Environmental remediation provision -- 9,400 --
Fixed asset write-downs -- 5,933 --
Changes in working capital affecting operations
Accounts receivable (27,178) 26,897 (25,102)
Inventories 3,338 14,200 (29,746)
Prepaid expenses and other 231 (297) 144
Accounts payable (4,622) (29,654) 36,585
Accrued expenses (3,527) (11,901) 1,894
Other, net 1,998 3,448 2,225
-------- ------ ------
Cash flow from operating activity 29,396 43,667 85,491
Financing Activity
Long-term debt
Proceeds from issuance of notes -- 74,538 --
Other borrowed 27,800 -- 70,350
Other repaid (25,782) (45,230) (47,346)
Dividends paid (17,084) (17,137) (17,121)
Proceeds from stock options exercised -- 802 408
Other, net -- (537) (12)
-------- ------ ------
Net from (for) financing activity (15,066) 12,436 6,279
Investing Activity
Capital expenditures (19,369) (57,092) (104,120)
Proceeds from sale of assets/subsidiaries 987 466 17,106
Other, net 399 (251) (3,506)
-------- ------ ------
Net for investing activity (17,983) (56,877) (90,520)
Cash and Cash Equivalents
Increase (decrease) (3,653) (774) 1,250
Start of year 10,282 11,056 9,806
-------- ------ ------
End of year $ 6,629 10,282 11,056
-------- ------ ------
The notes are an integral part of these statements.
Dollars in thousands
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Accounting Policies
Merger Agreement and Change in Control. 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 (converted to common) for $30 per share. Consideration is a
combination of cash and Bethlehem stock. At year-end 1997, the number of common
shares outstanding, combined with the conversion of outstanding preferred stock,
would total 16,352,127 shares and result in proceeds of $490,564 in cash and
Bethlehem stock. The merger is contingent on shareholder approval. A special
meeting of stockholders is expected to be held during the second quarter of
1998.
The Consolidated Financial Statements and the Notes to Consolidated Financial
Statements were prepared assuming a going-concern basis and did not recognize
the impact of the merger. For a discussion of the contingent liabilities
associated with the merger, see Note 10.
Basis of Presentation. The consolidated financial statements include the
accounts of Lukens Inc. and all majority-owned subsidiaries. Our fiscal year is
the 52- or 53-week period that ends on the last Saturday of December. Certain
subsidiaries are consolidated on a calendar year basis. The preparation of
financial statements in conformity with generally accepted accounting principles
requires estimates and assumptions that affect the reported amounts and
contingency disclosures.
Cash and Cash Equivalents. Highly liquid investments with maturities of three
months or less when purchased are recognized as cash equivalents.
Inventories. Inventories are recorded at the lower of cost or market. Cost is
determined by the last-in, first-out (LIFO) method for most product and raw
material inventories. The service center operations of the Stainless Group
determine cost by the first-in, first-out (FIFO) method. Supplies are valued at
the lower of average cost or market. Additional disclosures are included in Note
7.
Plant and Equipment. Plant and equipment are stated at cost and are depreciated
using the straight-line method over the estimated useful life. The useful life
ranges from 30 to 40 years for buildings and from 10 to 18 years for most
production machinery and equipment. The cost of plant and equipment retired in
the normal course of business is generally charged against accumulated
depreciation. Gains and losses on other retirements are reflected in earnings.
Intangible Assets. Intangible assets consist primarily of goodwill resulting
from the Washington Steel Corporation acquisition in 1992. Goodwill from the
acquisition is amortized on a straight-line basis over 25 years. Also included
in intangible assets are pension related assets, discussed in Note 4.
Derivative Financial Instruments. Derivative financial instruments, such as
forward exchange contracts, are used to manage or hedge exposure to changes in
market conditions for certain raw material purchases. Gains or losses on these
contracts are deferred and recognized as a component of the raw material cost
based on the maturities of the contracts. Any gains or losses from the early
termination of these derivative financial instruments are deferred and
recognized over the original term of the contract. Additional disclosures are
included in Note 8.
Environmental Remediation. Environmental liabilities recognized represent our
best estimate of remediation expenditures that are probable and that can be
reasonably estimated. Environmental costs are expensed unless they increase the
value of the related asset and/or prevent or mitigate future contamination. In
November 1996, the American Institute of Certified Public Accountants issued
guidance on accounting for environmental liabilities. The adoption of this
guidance in 1997 did not have a material effect on the company's consolidated
financial condition or results of operations. Additional disclosures are
included in Notes 3 and 10.
Start-Up Costs. Costs incurred in the start-up of a facility, including training
and production testing, are expensed as incurred.
Software Modification Costs for Year 2000 Compliance. Costs incurred to modify
software packages to operate in the year 2000 and beyond are expensed as
incurred.
Dollars in thousands except per share amounts
Stock-Based Compensation. In 1996, Lukens adopted Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation."
This statement provided for an implementation option, reflecting the controversy
surrounding the measurement of compensation expense for stock options and other
stock-based compensation. One option was to recognize compensation expense in
the consolidated financial statements using a fair-value based method, applied
to virtually all stock-based compensation. The alternative did not change the
current intrinsic-value approach of expense recognition, but required pro forma
disclosure in the notes to consolidated financial statements using the
fair-value method. We elected to continue the intrinsic-value method of expense
recognition and to provide the pro forma disclosures required under SFAS No.
123. Additional disclosures are included in Note 6.
Earnings Per Share. In 1997, Lukens adopted SFAS No. 128, "Earnings per Share."
This statement specified the computation, presentation and disclosure
requirements for earnings per share (EPS). The main objectives of the statement
were to simplify the EPS calculation and to make EPS comparable on an
international basis. Effective in 1997, primary and fully diluted EPS were
replaced by basic and diluted EPS. Prior period results were restated for
comparative purposes. A significant difference compared to the prior method is
that basic EPS does not assume potentially dilutive securities in the
computation.
Basic earnings per common share are calculated by dividing net earnings
applicable to common stock by the average number of common shares outstanding.
On a diluted basis, both net earnings and shares outstanding are adjusted to
reflect the conversion of convertible preferred stock. Shares outstanding in the
diluted calculation also assume common stock equivalents, such as stock options.
Diluted common shares and equivalents outstanding disclosed in the Consolidated
Statements of Earnings reflect the maximum dilution possible. Adjustments that
would be antidilutive or reduce a loss per share are not recognized.
Also in 1997, Lukens adopted SFAS No. 129, "Disclosure of Information about
Capital Structure." This statement was issued in conjunction with the earnings
per share statement discussed above and was intended to centralize capital
structure disclosure requirements and to expand the number of companies subject
to the requirements. Since we were in compliance with the existing capital
structure disclosure requirements, we did not materially change our disclosures
under the new standard.
Future Accounting Changes -- Comprehensive Income. In June 1997, SFAS No. 130,
"Reporting Comprehensive Income," was released. Comprehensive income is a
concept that includes the total of net earnings (loss) reported in the
Consolidated Statements of Earnings, plus revenues, expenses, gains and losses
that are recognized directly in the stockholders' investment section of the
Consolidated Balance Sheets. The purpose of the statement was to more
prominently highlight comprehensive income items and to report a total amount
for a reporting period. Effective in 1998, Lukens will be required to disclose
comprehensive income and its components within our financial statements. Prior
period financial statements will be restated for comparative purposes.
Future Accounting Changes -- Business Segments. SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," was also issued in June of
1997. Beginning in 1998, disclosures will be based on the way management
organizes business segments to make decisions about resource allocation and to
measure performance. Disclosures will include interim reporting requirements.
Previously reported information will be restated for comparative purposes. We do
not expect to materially change our segment disclosures under the new standard.
2. Business Groups
Listed below is a description of our business groups, which operate primarily in
the United States. Sales to foreign countries are not significant.
Carbon & Alloy Group -- specializes in the production of carbon, alloy and clad
plate steels. The group operates in a wide range of markets in the capital goods
sector of the economy. Steel service centers, the largest market for the group,
accounted for approximately 48 percent of annual sales in 1997 and averaged
approximately 38 percent of sales in 1996 and 1995. The primary facilities are
located in Coatesville and Conshohocken, Pennsylvania. The labor contract for
the Coatesville plant expires in 2000.
Stainless Group -- specializes in the production of stainless steel sheet,
strip, plate, hot band and slabs. Manufacturing facilities located in Houston
and Washington, Pennsylvania, and Massillon, Ohio, primarily serve the capital
goods and consumer durables sectors of the economy. Labor contracts for these
facilities expire in 1999 and 2000. The group also operates stainless steel
service centers in the United States and Canada. The primary market for the
group is service centers, which averaged approximately 37 percent of annual
sales in the last three years.
Dollars in thousands except per share amounts
Summary business group information is included in the following chart.
1997 1996 1995
Net sales
Carbon & Alloy $ 516,499 481,237 439,330
Stainless 477,881 489,083 609,828
--------- ------- ---------
$ 994,380 970,320 1,049,158
Operating earnings (loss)
Carbon & Alloy(a) $ 50,410 (2,554) 11,946
Stainless(b) (20,488) (7,058) 75,148
Corporate(c) (16,518) (16,441) (19,114)
--------- ------- ---------
$ 13,404 (26,053) 67,980
Assets
Carbon & Alloy $ 426,405 421,034 420,665
Stainless 418,830 440,711 468,515
Corporate(d) 32,195 27,006 30,483
--------- ------- ---------
$ 877,430 888,751 919,663
Depreciation and
amortization
Carbon & Alloy $ 24,061 23,453 18,696
Stainless 27,007 24,505 21,994
Corporate 763 991 376
Discontinued Operations -- -- 238
--------- ------- ---------
$ 51,831 48,949 41,304
Capital expenditures
Carbon & Alloy $ 6,213 13,747 36,940
Stainless 6,049 40,298 63,803
Corporate 7,107 3,047 3,236
Discontinued Operations -- -- 141
--------- ------- ---------
$ 19,369 57,092 104,120
--------- ------- ---------
a. Carbon & Alloy Group Operating Results: 1996 -- Results included a $3,756
charge for signing bonuses associated with the bargaining unit contract. Unusual
items discussed in Note 3 included a $6,178 work force reduction charge and a
provision for environmental remediation of $9,400.
b. Stainless Group Operating Results: 1996 -- As discussed in Note 3, results
included provisions of $3,695 for a work force reduction and $5,933 for fixed
asset write-downs.
c. Corporate Expenses: 1997 -- Merger related expenses (Note 1) totaled $2,215.
1996 -- Expenses included a $909 work force reduction charge
(Note 3) and environmental expenses, offset by reduced professional fees and
incentive compensation expense. 1995 -- Results included higher incentive
compensation expense and environmental expenses. Corporate environmental
expenses are associated with properties retained from divested subsidiaries.
d. Corporate Assets: Corporate assets consist primarily of cash and cash
equivalents, properties held for sale, office facilities and deferred income
taxes.
3. Unusual Items
Work Force Reduction. During the second quarter of 1996, Lukens announced a work
force reduction program of approximately 150 salaried positions. The program was
primarily aimed at reducing costs by integrating administrative functions.
Termination benefits accrued and charged to expense in the second quarter
totaled $10,782. On an after-tax basis, the provision reduced results by $6,859,
or $.46 per share.
The charge included severance related benefits of $6,784. Termination benefits
paid and charged against the liability were essentially completed during 1997.
Pension related benefits included $3,998 from the combination of pension plan
benefits that are triggered at termination and from the recognition of a
curtailment loss. Pension benefits were measured at a 7.75 percent discount
rate.
Environmental Remediation. During the fourth quarter of 1996, $9,400 of expenses
for environmental remediation were recognized. The provision represented our
best estimate of costs for a Superfund site and other waste disposal sites. On
an after-tax basis, the charge reduced results by $5,978, or $.40 per share. As
discussed in Note 10, during the second quarter of 1997, a tentative settlement
was reached at a Superfund site where Lukens was designated a potentially
responsible party.
Fixed Asset Write-Downs. Fixed asset write-downs were recorded during the fourth
quarter of 1996 for idle assets and other equipment replaced as a result of
capital improvements. The charge increased the pre-tax loss by $5,933 and the
net loss by $3,836, or $.26 per share.
4. Retiree Benefits
Pensions. Lukens has defined benefit plans that provide pension and survivor
benefits for most employees. Benefits are primarily based on the combination of
years of service and compensation. Plans are funded in accordance with
applicable regulations.
Pension benefits triggered by a change in control (Note 1) are discussed in Note
10.
Dollars in thousands except per share amounts
The components of pension expense are listed below.
1997 1996 1995
Service cost for
benefits earned(a) $ 8,642 8,246 6,829
Interest cost on projected
benefit obligation 31,674 30,298 29,279
Actual return on assets (64,200) (44,870) (67,841)
Amortization and deferrals
Deferred return on assets 31,092 13,894 41,770
Prior service cost(a) 4,195 4,263 2,900
Other, net 35 100 25
------- ------ ------
Net pension expense(a) $11,438 11,931 12,962
======= ====== ======
a. The increase in service cost and amortization of prior service cost,
beginning in 1996, reflected plan improvements to the bargaining unit plan in
the Carbon & Alloy Group and improvements to the Lukens Inc. salary plan.
The following table reconciles the net funded status of our plans to amounts
recognized in the Consolidated Balance Sheets.
1997 1996
Actuarial present value of
Vested benefit obligation(a) $(403,807) (365,780)
Nonvested benefit obligation(a) (43,968) (33,013)
--------- --------
Accumulated benefit obligation(a) (447,775) (398,793)
Effect of projected future
compensation(a) (33,703) (24,765)
--------- --------
Projected benefit obligation(a) (481,478) (423,558)
Plan assets at fair value(b) 403,802 365,083
--------- --------
Plan assets less than projected
benefit obligation (77,676) (58,475)
--------- --------
Unrecognized net loss (gain) 1,652 (15,735)
Unrecognized prior service cost(a) 37,108 41,642
Unrecognized net obligation
at transition 144 178
Adjustment to recognize
minimum liability(c) (20,421) (14,503)
--------- --------
Net pension liability $ (59,193) (46,893)
--------- --------
a. The increase in the 1997 benefit obligations primarily reflected a lower
discount rate and another actuarial assumption change.
b. Plan assets primarily consist of stocks, bonds and short-term investments.
Contributions to defined benefit plans were $4,029 in 1997 and $7,563 in 1996.
c. The minimum liability was recognized in intangible assets in the Consolidated
Balance Sheets.
The net pension liability was recognized in the following accounts in the
Consolidated Balance Sheets.
1997 1996
Accrued employment costs $ (7,908) (7,753)
Retirement benefits -- pensions (53,690) (43,995)
Intangible assets 2,405 4,855
-------- -------
Net pension liability $(59,193) (46,893)
-------- -------
Significant assumptions used in the calculation of expense and obligations are
listed below.
1997 1996 1995
Discount rate % 6.8 7.5 7.0
Rate of compensation
increase % 3-7 3-7 3-7
Long-term rate of return
on plan assets % 9.5 9.5 9.5
Retiree Medical and Life Insurance Benefits. Lukens provides retiree medical and
life insurance benefits for most employees if they continue to work for the
company until they reach retirement age.
As required under the 1996 contract for bargaining unit employees at
Coatesville, Pennsylvania, a Voluntary Employees' Beneficiary Association (VEBA)
Trust was established to provide funding for retiree medical and life insurance
programs. The trust agreement requires an annual contribution of $2,500 during
the four-year term of the contract. At the end of 1997, two contributions are
remaining.
Benefit payments from the trust are restricted until required funding levels are
achieved. Based on current conditions, benefit payments from the trust are not
anticipated in the short term. In addition to the VEBA requirement, benefits are
funded as claims are submitted.
The components of retiree medical and life insurance expense are listed below.
1997 1996 1995
Service cost for
benefits earned $2,405 2,794 2,074
Interest cost on accu-
mulated postretirement
benefit obligation 10,192 10,939 10,433
Actual return on assets (214) (67) --
Net amortization
and deferrals (339) (49) (500)
------- ------ ------
Net postretirement
benefit expense $12,044 13,617 12,007
------- ------ ------
Dollars in thousands except per share amounts
The following table reconciles the net funded status of our obligations to the
liability recognized in the Consolidated Balance Sheets.
1997 1996
Accumulated postretirement
benefit obligation
Retirees(a) $ (92,629) (83,179)
Fully eligible active participants(a) (24,035) (21,398)
Other active participants(a) (41,392) (37,888)
--------- --------
Total accumulated postretirement
benefit obligation(a)(b) (158,056) (142,465)
Plan assets at fair value(c) 5,281 2,567
--------- --------
Plan assets less than accumulated
postretirement benefit obligation (152,775) (139,898)
Unrecognized gain (1,032) (11,081)
--------- --------
Net postretirement
benefit liability(d) $(153,807) (150,979)
--------- --------
a. The increase in 1997 benefit obligations primarily reflected a lower discount
rate.
b. Obligations include life insurance benefits of $16,495 in 1997 and $15,109 in
1996.
c. Plan assets consist of short-term investments.
d. At year-end 1997 and 1996, $2,500 was included in current liabilities --
accrued employment costs for the VEBA contribution.
Significant assumptions used in the calculation of expense and obligations are
listed below.
1997 1996 1995
Discount rate % 6.8 7.5 7.0
Health-care cost increase(a) % 6.5-7.6 6.7-8.1 6.9-8.6
Long-term rate of return
on plan assets % 5.0 5.0 --
a. Health-care cost increase assumptions are reduced to a rate of 5% beginning
in 2003.
A one-percentage point increase in the medical cost trend rate for each year
would increase the accumulated postretirement benefit obligation by
approximately $19,265 and would increase net postretirement benefit expense by
approximately $2,087.
5. Income Taxes
The effective tax rate that determined the income tax expense (benefit)
recognized is listed below. Essentially all earnings and losses are from United
States sources.
1997 1996 1995
Federal statutory rate % (35.0) (35.0) 35.0
State income taxes net of
federal tax benefit 8.3 .1 2.4
State income tax changes -- -- .2
Non-deductible expenses 16.0 1.9 1.5
ESOP dividends (9.6) (1.2) (.8)
Other 1.8 .6 (.7)
------- ----- ----
Effective income tax rate % (18.5) (33.6) 37.6
------- ----- ----
The components of the deferred income tax assets (liabilities) are listed below.
1997 1996
Deferred tax assets
Retirement benefits $ 81,926 75,330
Tax credit carryforwards 28,613 17,500
Other deductible temporary
differences 23,965 24,210
Valuation allowance (2,770) (2,705)
------- -------
131,734 114,335
Deferred tax liabilities
Plant and equipment (73,758) (61,612)
Other taxable temporary differences (9,652) (9,657)
------- -------
(83,410) (71,269)
------- -------
Net deferred tax assets $ 48,324 43,066
------- -------
The current and deferred components of the income tax expense (benefit) are
listed below.
1997 1996 1995
Current
U.S. Federal $4,542 3,272 11,439
State and other 551 865 1,609
-------- ------- ------
5,093 4,137 13,048
Deferred to future years
U.S. Federal (7,299) (18,720) 4,870
State and other 1,092 76 2,494
-------- ------- ------
(6,207) (18,644) 7,364
Change in tax rate -- -- 83
Change in valuation
allowance 65 130 --
-------- ------- ------
Income tax expense
(benefit) $ (1,049) (14,377) 20,495
-------- ------- ------
On a cash basis, the following amounts of income taxes were paid.
1997 1996 1995
$5,315 $4,938 $13,018
At year-end 1997, $28,613 of alternative minimum tax credit carryforwards were
available.
During 1997, settlements were reached in the Internal Revenue Service audits of
1993, 1994 and 1995. Management believes that the outcome of the outstanding
audits will not have a material adverse effect on the financial condition,
liquidity or results of operations of the company.
Dollars in thousands except per share amounts
During the third quarter of 1997, the 1997 Taxpayer Relief Act (1997 TRA) was
enacted. Changes to the Federal tax structure included a restructuring of the
depreciable lives used in the alternative minimum tax calculation. Additionally,
the net operating loss carryback period was reduced to two years and the
carryforward period was increased to 20 years. These changes will become
effective in the coming years and will likely have a favorable impact on the tax
position of Lukens. The enactment of the 1997 TRA did not require any
recognition in the 1997 tax provision for the remeasurement of our deferred tax
balances or for changes to the estimated amount of 1997 Federal taxes payable.
6. Compensation Plans
Stock Options. The 1985 Stock Option and Appreciation Plan provides for the
issuance of non-qualified stock options and incentive stock options (ISOs) to
officers and other executives. At the Annual Meeting of Stockholders on April
24, 1996, stockholders approved an amendment to the plan that increased the
number of shares of common stock available for issuance by 900,000 to a total of
2,737,500. These options to purchase Lukens common stock were available for
grant until February 26, 1998, at an exercise price not less than the fair
market value on the grant date. Options were also issued as part of an executive
incentive compensation program. These options vest after three years and expire
in seven years. All other options vest after one year and expire in 10 years.
The Lukens Inc. Stock Option Plan for Non-Employee Directors provides for the
issuance of up to 75,000 non-qualified options to purchase Lukens common stock
at an exercise price based on the fair market value on the grant date. These
options vest after one year and expire in 10 years.
During 1991, 330,000 non-qualified stock options were granted to Mr. Van Sant as
part of his employment agreement. These options become exercisable ratably over
11 years. The options carry an exercise price of $23.38 per share, which was 85
percent of the fair market value on the grant date. Compensation expense from
this discount from fair market value is being recognized on a straight-line
basis over the term of his employment agreement.
During 1996, Lukens adopted a new stock-based compensation accounting standard,
discussed in Note 1. As provided for in the statement, the company elected to
continue the intrinsic-value method of expense recognition. If compensation cost
for these plans had been determined using the fair-value method prescribed by
SFAS No. 123, the company's results would have been reduced to the pro forma
amounts indicated below.
1997 1996 1995
Net earnings (loss) $ (5,717) (29,703) 33,028
Earnings (loss) per
share-- basic $ (.52) (2.14) 2.11
Earnings (loss) per
share-- diluted $ (.52) (2.14) 1.99
The pro forma effect on results may not be representative of the impact in
future years because the fair-value method was not applied to options granted
before 1995.
The fair value of each option was estimated on the grant date using the
Black-Scholes option pricing model. Based on the assumptions presented below,
the weighted average fair value of options granted was $4.33 per option in 1997,
$7.26 per option in 1996 and $8.76 per option in 1995.
1997 1996 1995
Expected life in years 8.0 7.0 7.0
Risk-free interest rate % 6.6 5.6 7.7
Volatility % 30.6 27.4 28.5
Dividend yield % 5.4 3.6 3.6
Dollars in thousands except per share amounts
A summary of stock option activity is presented below.
Weighted
Average
Shares Exercise Price
1995
Outstanding, beginning of year 767,818 $ 27.99
Granted 246,347 $ 28.19
Exercised (50,525) $ 18.23
Forfeited/canceled (28,445) $ 35.02
--------- -------------
Outstanding, end of year 935,195 $ 28.35
--------- -------------
Exercisable, end of year 487,643 $ 30.58
--------- -------------
Available for grant, end of year 436,873
---------
1996
Outstanding, beginning of year 935,195 $ 28.35
Granted 308,942 $ 27.81
Exercised (36,750) $ 21.82
Forfeited/canceled (33,800) $ 32.26
--------- -------------
Outstanding, end of year 1,173,587 $ 28.30
--------- -------------
Exercisable, end of year 618,893 $ 29.93
--------- -------------
Available for grant, end of year 1,061,731
---------
1997
Outstanding, beginning of year 1,173,587 $ 28.30
Granted 326,110 $ 18.45
Exercised -- $ --
Forfeited/canceled (121,450) $ 29.61
--------- -------------
Outstanding, end of year 1,378,247 $ 25.86
--------- -------------
Exercisable, end of year 746,043 $ 28.88
--------- -------------
Available for grant, end of year 857,071
---------
For options outstanding at the end of 1997, exercise prices ranged from $16.625
to $47.25 and the weighted average remaining life was approximately 6.5 years.
Restricted Stock. In 1997, the Board of Directors approved the issuance of
performance vested restricted stock to officers as part of an incentive
compensation program. During the first quarter of 1997, 134,000 restricted
shares were awarded. The shares carry voting and dividend rights and were
recorded at fair market value on the grant date. A corresponding charge to
deferred compensation was recorded in the stockholders' investment section of
the Consolidated Balance Sheets. The deferred compensation balance was
subsequently adjusted for changes in the market price of Lukens common stock and
for compensation expense recognized. The awards vest at the end of three years,
contingent on continued employment and the achievement of performance goals that
are tied to Lukens' total shareholder return relative to other steel companies.
Compensation expense recognized for these awards totaled $1,287 in 1997.
Incentive Compensation. Most Lukens employees participate in incentive
compensation plans. These plans are based on the consolidated results of Lukens
Inc., and on the results and performance measures of various subsidiaries.
Compensation expense under these plans is listed below.
1997 1996 1995
$12,754 $9,944 $24,875
Employee Stock Ownership Plan (ESOP). The Lukens ESOP was designed to provide
401(k) employer matching benefits to most salaried employees in the form of
convertible preferred stock. The stock was acquired with the proceeds from a
$33,075 term loan (Note 8). The stock is released for allocation to
participants' accounts based on the relationship of debt and interest payments
to the total of all scheduled debt and interest payments. Dividends on allocated
stock are paid, in-kind, with preferred stock. As discussed in Note 8, the
quarterly payments of the ESOP debt were restructured in 1996. The projected
maturities of the ESOP loan over the remaining term are listed below.
1998 1999
$5,828 $4,791
The loan is guaranteed by Lukens, and the outstanding balance is recognized as
debt in the Consolidated Balance Sheets. An offsetting amount, representing
deferred compensation measured by the stated value of convertible preferred
stock, was recognized in the stockholders' investment section in 1997. In 1996,
this account was classified as redeemable stock, discussed in Note 9. Debt
service requirements of the ESOP are met by the combination of Lukens' cash
contributions to the ESOP and dividends on the preferred stock.
Regarding expense recognition, cash contributions to the ESOP are recorded as
compensation expense, and preferred stock dividends reduce retained earnings.
This recognition results in interest expense incurred on the ESOP debt not being
recognized as interest expense on Lukens' financial statements. Cash
contributions are listed below.
1997 1996 1995
$3,563 $3,187 $2,784
Change in Control. Compensation liabilities triggered by a change in control
(Note 1) are discussed in Note 10.
Dollars in thousands except per share amounts
7. Inventories
The components of inventory are listed below.
1997 1996
Products finished and in process $117,455 116,477
Raw materials 23,326 27,762
Supplies 4,806 4,686
-------- -------
Inventories(a) $145,587 148,925
-------- -------
a. The percent of inventories accounted for under the LIFO inventory valuation
method was approximately 80% in 1997 and 1996.
The estimated cost to replace inventories at year-end was $185,000 in 1997 and
$192,000 in 1996.
8. Financial Instruments
Long-Term Debt. Listed below is a summary of long-term debt outstanding.
Years Due 1997 1996
Notes payable, face amount 2004 $ 150,000 150,000
Unamortized discount (422) (486)
Coupon interest at 7.625%
Effective interest at 7.691%
Medium-term notes,
face amount 2006 75,000 75,000
Unamortized discount (373) (419)
Coupon interest at 6.5%
Effective interest at 6.585%
Short-term notes(a) 2002 9,300 10,700
Industrial revenue bonds 1998-2009 6,823 3,404
ESOP debt guarantee(b) 1998-1999 10,619 15,374
Total debt(c) 250,947 253,573
--------------------------------------------------------------------------
Less current portion 6,276 4,878
--------------------------------------------------------------------------
Long-term debt $ 244,671 248,695
--------------------------------------------------------------------------
a. The weighted-average interest rate was 5.8% at year-end 1997 and 5.7% at
year-end 1996. Short-term notes are classified as long term because they are
supported by the revolving credit agreement discussed below.
b. The ESOP debt, guaranteed by Lukens, carries an 8.26% interest rate on $6,691
as of December 27, 1997. The remaining ESOP debt carries a variable rate of
80.5% of the Prime Rate. For a discussion on ESOP accounting, see Note 6.
During 1996, the quarterly payments of the ESOP debt were restructured to align
anticipated benefits with the release of preferred stock (Note 9). The terms of
the variable-interest rate portion of the ESOP debt were not changed.
c. Annual maturities of long-term debt, excluding the ESOP debt guarantee, over
the next five years are listed below.
1998 1999 2000 2001 2002
$448 $418 $350 $361 $9,672
Notes Payable. There are $150,000 of notes due in 2004 and $75,000 of
Medium-Term Notes, Series A, due in 2006. Interest is payable semi-annually.
During the second quarter of 1997, Standard & Poor's lowered their rating from
BBB+ to BBB on these notes and during the third quarter of 1997, Moody's lowered
their rating from Baa2 to Baa3.
Lukens also has $25,000 of notes available for issuance under a shelf
registration. The notes were structured to provide Lukens with flexibility in
maturities, from nine months to 30 years, and flexibility in interest rate
structures.
Revolving Credit Agreement. Lukens' revolving credit agreement provides for a
$150,000 committed line of credit. Interest is based on one of the following
rates:
* the higher of the Prime Rate or the Federal Funds Rate plus .5%
* London Inter-Bank Offered Rate (LIBOR) adjusted for applicable reserves
plus .225% to .5% depending on the Standard & Poor's or Moody's rating of
the long-term notes of Lukens
* competitively bid rates from lenders.
A facility fee is required on the total line of credit and ranges from .125% to
.3% based on the lower of Standard & Poor's or Moody's rating of Lukens
long-term notes.
The agreement includes covenants that require a maximum leverage ratio (defined
in the agreement) of 55% and restrictions on additional debt and asset
dispositions. At year-end 1997, additional borrowings of approximately $65,400
were available under these covenants.
Interest Expense. Interest costs include interest on obligations and
amortization of debt set-up costs. For a discussion of ESOP debt accounting, see
Note 6. Interest components are listed below.
1997 1996 1995
Costs incurred $19,073 19,005 16,395
Interest capitalized -- (2,270) (2,924)
------- ------ ------
Interest expense $19,073 16,735 13,471
------- ------ ------
Interest paid $18,796 17,436 16,107
------- ------ ------
Derivative Financial Instruments --
Commodity Hedges. As of year-end 1997, Lukens was party to several commodity
hedge agreements maturing in 1998. Based on year-end market conditions, the
value of Lukens' contractual obligations for these commodity hedges was $15,020
and the obligation of the counterparties to the agreements was $12,645. Gains
and losses on these contracts are recognized as a component of cost of products
sold. Lukens is exposed to credit risk from nonperformance by the counterparties
to these agreements.
Dollars in thousands except per share amounts
Fair Value of Financial Instruments. The following table presents the fair value
of certain financial instruments as of year-end 1997 and 1996.
Asset (Liability)
Book Value Fair Value
1997
Debt(a) $(250,947) (257,376)
Commodity hedges(b) $ -- (2,168)
1996
Debt(a) $(253,573) (254,201)
Commodity hedges(b) $ -- (1,956)
a. Fair value was determined by discounting cash flows using comparable year-end
market interest rates.
b. Fair value was estimated by using quotes from brokers.
9. Stockholders' Investment
and Redeemable Stock
Common Stock. There are 40,000,000 common shares authorized with a par value of
$.01 per share. Under the stock option plans discussed in Note 6, 3,142,500
shares of common stock have been reserved.
Preferred Stock. There are 1,000,000 shares of series preferred stock, par value
$.01 per share, authorized. An ESOP was established in 1989 with the issuance of
551,250 shares of Series B Convertible Preferred Stock. The preferred stock is
stated at its liquidation preference of $60 per share and carries an annual
cumulative dividend of $4.80 per share. Each share may be converted into three
shares of common stock within the guidelines of an employee 401(k) savings plan
(Note 6). Holders of the Series B preferred stock are entitled to vote upon all
matters submitted to the holders of common stock for a vote. The number of votes
is equal to the number of common shares into which the preferred shares are
convertible. Lukens' redemption price of $61.80 per share declines gradually
each year to $60 per share on or after July 2, 2000.
Under the terms of the 401(k) plan, when the price of Lukens common stock is $20
per share or greater, the preferred stock is redeemable in common stock, cash or
a combination at the option of Lukens. If the price is below $20 per share, the
401(k) participants have the option to redeem preferred stock in the combination
above.
Redeemable Stock. At year-end 1996, Series B Convertible Preferred Stock and the
related ESOP deferred compensation (Note 6) were classified as redeemable stock
because the price of Lukens common stock was below $20 per share at the fiscal
year-end, December 28, 1996. The reclassification from stockholders' investment
reflected the ability of 401(k) participants to elect a cash payout option at
redemption. The classification was not made in 1997 or in years prior to 1996
because the company had the ability and intention to redeem preferred stock with
Lukens common stock.
Shareholder Rights Plan. Lukens has a Shareholder Rights Plan designed to deter
coercive or unfair takeover tactics and to prevent a buyer from gaining control
of Lukens without offering a fair price to stockholders. The plan entitles each
outstanding share of common stock to one right. Each right entitles stockholders
to buy one one-hundredth of a share of Series A Junior Participating Preferred
Stock at an exercise price of $80. The rights become exercisable if a person or
group acquires or makes a tender or exchange offer for 15 percent or more of
common stock outstanding. The rights can also become exercisable if the Board of
Directors determines, with the concurrence of outside directors, that a person
has certain interests adverse to Lukens and has acquired at least 10 percent of
common stock outstanding.
If the company is then acquired in a merger or other business combination
transaction, each right will entitle the holder to receive, upon exercise,
common stock of either Lukens or the acquiring company having a value equal to
two times the exercise price of a right.
Lukens will generally be entitled to redeem the rights at $.01 per right at any
time until the tenth day following public announcement that a 15 percent
position has been acquired. The purchase rights will expire on September 25,
2006. Of the 1,000,000 shares of series preferred stock authorized, 75,000 have
been reserved for the Series A preferred stock discussed above. As of December
27, 1997, there were 6,580,990 rights outstanding.
In connection with the Bethlehem merger agreement discussed in Note 1, the
Shareholder Rights Plan was amended to make the provisions of the plan not
applicable to the proposed merger.
10. Commitments and Contingencies
Change in Control. As discussed in Note 1, Lukens entered into a merger
agreement with Bethlehem Steel Corporation. In the event that the merger is
approved by stockholders, a change in control liability totaling approximately
$42,000 would be triggered. Components of the liability include obligations for
severance, pension, stock options and performance vested restricted stock.
Dollars in thousands except per share amounts
Leases. Lukens has various operating leases primarily for real estate and
production equipment. At year-end 1997, minimum rental payments under
noncancelable leases totaled $21,292. Listed below are the scheduled payments
over the next five years for these leases.
1998 1999 2000 2001 2002
$5,576 $5,074 $2,755 $1,905 $1,715
Rent expense for all operating leases is listed below.
1997 1996 1995
$7,961 $8,091 $7,177
Environmental Remediation. Lukens has been designated a potentially responsible
party 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.
During the second quarter of 1997, a tentative settlement was reached in a
Superfund remediation contingency where Lukens was designated a potentially
responsible party. The obligation for the Superfund site was previously
recognized in the fourth quarter of 1996. The tentative settlement resulted in a
reclassification from other long-term liabilities to other accrued expenses in
the Consolidated Balance Sheets.
Based on information currently available, the liability recorded for
environmental remediation costs was approximately $16,950 at year-end 1997 and
$16,800 at year-end 1996 (Note 3). Due to their uncertain nature, amounts
accrued 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.
Litigation. 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.
Commitments. At year-end 1997, purchase commitments for capital expenditures
were approximately $5,000. Capital expenditures projected for 1998 are
approximately $36,000.
Lukens Steel Company has a long-term contract for the supply of oxygen and
related products to its facility in Coatesville, Pennsylvania. The contract runs
until 2007 and has take-or-pay provisions totaling $24,087 for the remaining
term. Annual minimum commitments of $2,604 can be adjusted for inflation and are
representative of amounts expensed in the prior three years.
Report of Independent Public Accountants
To the Stockholders and Board of Directors, Lukens Inc.:
We have audited the accompanying consolidated balance sheets of Lukens Inc. (a
Delaware Corporation) and subsidiaries as of December 27, 1997 and December 28,
1996 and the related consolidated statements of earnings, stockholders'
investment and cash flows for each of the three fiscal years in the period ended
December 27, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Lukens Inc. and subsidiaries as
of December 27, 1997 and December 28, 1996, and the results of their operations
and their cash flows for each of the three fiscal years in the period ended
December 27, 1997 in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Philadelphia, Pennsylvania
January 19, 1998
Dollars in thousands except per share amounts
Quarterly Financial Data (Unaudited)
[Enlarge/Download Table]
First Second Third Fourth Fiscal
Quarter Quarter Quarter Quarter Year
Results of Operations
1997
Net sales $ 248,118 258,247 243,371 244,644 994,380
Cost of products sold $ 233,837 238,253 225,583 228,311 925,984
Net earnings (loss) $ (1,978) 1,181 133 (3,956) (4,620)
---------- ------- ------- ------- -------
1996
Net sales $ 264,172 255,955 234,421 215,772 970,320
Cost of products sold $ 252,464 236,343 223,192 203,114 915,113
Net earnings (loss) $ (4,375) (5,733)c (4,087) (14,216)d (28,411)
---------- ------- ------- ------- -------
Per Common Share
1997
Basic earnings (loss)(a) $ (.17) .05 (.03) (.30) (.45)
Diluted earnings (loss)(a) $ (.17) .05 (.03) (.30) (.45)
Dividends $ .25 .25 .50 b -- 1.00
---------- ------- ------- ------- -------
1996
Basic earnings (loss)(a) $ (.33) (.42)c (.31) (.99)d (2.06)
Diluted earnings (loss)(a) $ (.33) (.42)c (.31) (.99)d (2.06)
Dividends $ .25 .25 .50 b -- 1.00
---------- ------- ------- ------- -------
Market Prices of Common Stock
1997
High $ 21 7/8 20 3/8 21 13/16 29 29
Low $ 17 3/8 16 7/8 18 15 15
Close $ 17 3/8 19 1/8 19 9/16 28 13/16
---------- ------- ------- ------- -------
1996
High $ 30 1/4 27 3/8 24 1/8 19 1/4 30 1/4
Low $ 24 1/4 23 3/4 18 1/8 13 1/2 13 1/2
Close $ 24 7/8 23 7/8 18 1/8 19 1/8
---------- ------- ------- ------- -------
a. Earnings (loss) per share calculations were based on the weighted-average
shares and equivalents (diluted) outstanding during the period reported. No
adjustments were made that would be antidilutive or reduce the loss per share.
Consequently, the sum of the quarterly earnings per share amounts may not equal
the annual per share amounts. See Note 1 for a discussion regarding the impact
of a new accounting statement issued that addressed the earnings per share
calculations. Quarterly amounts have been restated under the new standard.
b. Due to the timing of the Board of Directors meetings, two quarterly common
stock dividends were declared in the third quarter, totaling $.50 per share.
c. A $10,782 work force reduction charge reduced results by $6,859, or $.46 per
share (Note 3).
d. Results include unusual charges of $15,333 for an environmental remediation
provision (Note 3) and fixed asset write-downs (Note 3). On an after-tax basis,
the provisions reduced results by $9,814, or $.66 per share.
Dollars in thousands except per share amounts and market prices of common stock
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
a. Directors
The directors of the Company, together with their ages and business
backgrounds, are as follows:
R. W. Van Sant, 59, has been Chairman of the Board, President and Chief
Executive Officer of the Company since December 1991. He held the offices of
President and Chief Operating Officer from October 1991 to December 1991. Mr.
Van Sant served as President and Chief Executive Officer of Blount, Inc., a
company engaged in construction and manufacturing operations, from December 1990
to October 1991. Mr. Van Sant has been a Director of the Company since 1988, is
Chairman of the Executive Committee and is a member of the Committee on the
Board and the Finance Committee. He is also a director of Amcast Industrial
Corporation.
Michael O. Alexander, 57, has been the President of The International
Forum Inc. since June 1993 and the Director of the International Forum at the
Wharton School, University of Pennsylvania, since 1988. The International Forum
Inc. is a business training and education concern. Mr. Alexander has been a
Director of the Company since 1993 and is a member of the Audit Committee, the
Executive Committee and the Finance Committee.
Rod Dammeyer, 57, is the managing director of Equity Group Investments,
Inc. ("EGI"), which has major investments in approximately 30 public and private
companies. He is also Chief Executive Officer and a director of Anixter
International Inc., where he has been employed since 1985. Mr. Dammeyer was
elected to the Board of Directors of the Company in 1995. He is a member of the
Audit Committee, the Committee on the Board and the Executive Development and
Compensation Committee. Mr. Dammeyer also serves as a director of Antec
Corporation, Capsure Holdings Corp., Falcon Building Products, Inc., IMC Global
Inc., Jacor Communications, Inc., Revco D.S., Inc., Sealy Corporation and
TeleTech Holdings, Inc., companies in which EGI has a major investment interest,
and is a trustee of Van Kampen American Capital, Inc. closed end funds.
T. Kevin Dunnigan, 60, has been the Chairman of Thomas & Betts
Corporation, a manufacturer of electrical equipment, since 1992. He was also the
Chief Executive Officer of that corporation since 1985 to May 1997 and has been
a member of its board of directors since 1975. Mr. Dunnigan has been a Director
of the Company since 1994. He is Chairman of the Committee on the Board and a
member of the Executive Committee and the Executive Development and Compensation
Committee. He is also a director of Elsag Bailey N.V. and C.R. Bard Inc.
Ronald M. Gross, 64, is currently Chairman and Chief Executive Officer
and a director of Rayonier Inc. (formerly known as ITT
Rayonier Inc.), a forest products company. After joining Rayonier, Inc. in March
1978 as President, Chief Operating Officer and a director, Mr. Gross was elected
Chief Executive Officer in 1981 and Chairman in 1984. Mr. Gross also serves as a
director of The Pittston Company and as President and a director of Rayonier
Forest Resources Company, the managing general partner of Rayonier Timberlands,
L.P., a publicly traded master limited partnership. Mr. Gross has been a
Director of the Company since 1991 and is Chairman of the Executive Development
and Compensation Committee and a member of the Committee on the Board and the
Executive Committee.
Sandra L. Helton, 48, has been Vice President and Corporate Controller
of Compaq Computer Corporation since May 1997. Compaq is a manufacturer of
personal computers and related equipment. From July 1994 until May 1997 Mrs.
Helton was Senior Vice President and Treasurer of Corning Incorporated since
July 1994. Corning Incorporated is an international corporation focused in three
business segments: Specialty Materials, Communications and Consumer Products.
From 1991 to July 1994 she served as Vice President and Treasurer of that
corporation. She has been a Director of the Company since 1995. Ms. Helton is a
member of the Audit Committee, the Committee on the Board and the Finance
Committee.
William H. Nelson, III, 69, retired from Scott Paper Company in 1986.
From 1981 to 1986, he served as Executive Vice President and President of the
Natural Resources Division of this company, primarily a manufacturer of pulp,
paper and forest-related products. He has been a Director of the Company since
1972. He is Chairman of the Audit Committee and a member of the Executive
Committee and the Executive Development and Compensation Committee.
David B. Price, Jr., 52, has been the Executive Vice President of B.F.
Goodrich Company and President and Chief Operating Officer of its Specialty
Chemicals segment since July 1997. B.F. Goodrich is a leading producer of
aerospace systems, products and services and specialty chemicals. Prior to that
time he was the President of the Performance Materials Division of Monsanto
Company since 1995. Monsanto Company is a global producer of chemicals,
agricultural products, food ingredients and pharmaceuticals. Previously at that
company, he was Vice President and General Manager of Commercial Operations, the
Industrial Products Division, from 1993 to 1995 and Vice President and General
Manager of the Performance Products Division from 1991 to 1993. Mr. Price was
elected to the Board of Directors in February 1996 and is a member of the
Finance Committee.
Joab L. Thomas, 65, currently President Emeritus of The Pennsylvania
State University, was President of that university from 1990 to 1995. Mr. Thomas
has been a Director of the Company since 1992 and is a member of the Audit
Committee, the Executive Committee and the Finance Committee. He is also a
director of Mellon Bank Corporation.
W. Paul Tippett, 65, has been a Director of the Company since 1989. He
retired from Springs Industries, Inc. in 1989. From 1985 to 1989, he served as
the President of this company, a manufacturer of finished fabrics, home
furnishings and industrial fabrics. Prior to that time, Mr. Tippett was Chairman
and Chief Executive Officer of American Motors Corporation. Mr. Tippett is
Chairman of the Finance Committee and a member of the Audit Committee and the
Executive Development and Compensation Committee. He is also a director of
Stride Rite Corporation.
b. Executive Officers of the Registrant
Information required by this item is contained in Part I of this Form 10-K in
the section entitled "Executive Officers of the Registrant."
c. Compliance With Section 16(a)
Section 16(a) of the Securities and Exchange Act of 1934 generally
requires the Company's Directors and Executive Officers and persons who own more
than 10% of a registered class of the Company's equity securities ("10% owners")
to file with the Securities and Exchange Commission and the New York Stock
Exchange initial reports of ownership and reports of changes in ownership of
common stock and other equity securities of the Company. Directors, Executive
Officers and 10% owners are required by Securities and Exchange Commission
regulation to furnish the Company with copies of all Section 16(a) forms they
file. To the Company's knowledge, based solely on review of copies of such
reports furnished to the Company and written representations that no other
reports were required to be filed during the 1997 fiscal year, all Section 16(a)
filing requirements applicable to its Directors, Executive Officers and 10%
owners were met.
ITEM 11. EXECUTIVE COMPENSATION.
The following information for the fiscal years ended December 30, 1995,
December 28, 1996 and December 27, 1997 is given as to the Chief Executive
Officer and each of the four other most highly compensated Executive Officers of
the Company who were serving as Executive Officers at the end of the 1997 fiscal
year and whose base salary and bonus exceeded $100,000 during the 1997 fiscal
year.
Summary Compensation Table
[Enlarge/Download Table]
Long-Term
Annual Compensation Compensation
Other Awards
Annual Securities All Other
Name and Compen- Restricted Underlying Compen-
Principal sation Stock Options/ sation
Position(s) Year Salary($)(1) Bonus($)(1) ($)(1) Awards SARs(#) ($)(1)
R. W. Van Sant 1997 $600,000 $ -0- $ 69,032(2) 50,000(3) 75,000(4) $ 14,517(5)
Chairman, 1996 $603,056 $ -0- $ 65,657 -0- 59,412 $ 15,592
President and 1995 $565,563 $214,529 $ 51,043 -0- 27,735 $321,143
Chief Executive Officer
T. G. John 1997 $232,800 $ -0- $219,412(6) 14,000(3) 15,000(4) $ 11,637(7)
Senior Vice President, 1996 $232,800 $ -0- $141,545 -0- 22,510 $ 10,494
Strategic Planning 1995 $204,959 $ 63,365 $ 34,914 -0- 21,305 $ 9,986
J. J. Norton 1997 $205,572 $ -0- (8) 14,000(3) 15,000(4) $ 6,750(9)
Senior Vice President 1996 $205,572 $ -0- (8) -0- 21,398 $ 6,750
President and COO-WSM 1995 $193,210 $ 58,199 (8) -0- 17,882 $ 6,750
J. C. van Roden, Jr. 1997 $186,326 $ -0- $ 20,288(10) 14,000(3) 15,000(4) $ 8,107(11)
Senior Vice President and 1996 $176,556 $ -0- $ 21,428 -0- 20,212 $ 7,926
Chief Financial Officer 1995 $145,718 $ 43,420 $ 18,567 -0- 11,215 $ 7,535
R. D. Luzzi 1997 $184,920 $ -0- $ 21,557(10) 7,000(3) 10,000(4) $ 8,226(12)
Vice President, 1996 $184,920 $ -0- $ 21,098 -0- 14,298 $ 8,038
Human Resources 1995 $174,899 $ 51,808 (8) -0- 13,882 $ 7,466
<FN>
(1) Rounded to the nearest dollar.
(2) Includes $44,692 imputed to Mr. Van Sant for use of the Company airplane.
(3) The Board of Directors approved the issuance of performance vested
restricted stock to officers as part of an incentive compensation
program. During the first quarter of 1997, 134,000 restricted shares
were awarded. The shares carry voting and dividend rights and were
recorded at fair market value on the grant date. The awards vest at the
end of three years, contingent on continued employment and the
achievement of performance goals that are tied to Lukens' total
shareholder return relative to other steel companies.
(4) Options granted as part of such Executive Officer's regular annual
option grant.
(5) Represents $6,750 of Company contributions to the Lukens Inc. Employees
Capital Accumulation Plan adopted pursuant to Section 401(k) of the
Internal Revenue Code of 1986, as amended; $5,850 of Company-paid
premiums for life insurance coverage above $50,000; and $1,917 of
premiums paid by the Company on another term life insurance policy
which covers Mr. Van Sant and is owned by the Company. The Company is
the beneficiary under this second policy but has assigned the right to
proceeds equal to
2 1/2 times Mr. Van Sant's compensation to his designee.
(6) Includes $200,738 paid by the Company in connection with Mr. John's
relocation from the Company's Washington, Pennsylvania facility to its
Coatesville, Pennsylvania facility.
(7) Represents $6,750 of Company contributions to the Lukens Inc. Employees
Capital Accumulation Plan and $4,887 of Company-paid premiums for life
insurance coverage above $50,000.
(8) Does not exceed the lesser of $50,000 or 10% of the total of such
person's annual salary and bonus.
(9) Represents $6,750 of Company contributions to the Lukens Inc. Employees
Capital Accumulation Plan.
(10) Includes an automobile allowance provided by the Company of $13,512.
(11) Represents $6,750 of Company contributions to the Lukens Inc. Employees
Capital Accumulation Plan and $1,357 of Company-paid premiums for life
insurance coverage above $50,000.
(12) Represents $6,750 of Company contributions to the Lukens Inc. Employees
Capital Accumulation Plan and $1,476 of Company-paid premiums for life
insurance coverage above $50,000.
</FN>
The following table contains information regarding each type of option
grant to each Executive Officer named in the Summary Compensation Table during
the 1997 fiscal year.
Option Grants in Last Fiscal Year
Individual Grants
[Enlarge/Download Table]
% of Total
Number of Options
Securities Granted to
Underlying Employees Exercise or
Options in Fiscal Base Price Expiration Grant Date
Name Granted(#) (1) Year (2) ($/Sh) Date (3) Present Value ($) (4)
-------------- -------- ------ -------- ---------------------
R. W. Van Sant 75,000 23.7% $18.4375 2/28/07 $326,265
T. G. John 15,000 4.7% $18.4375 2/28/07 $ 65,253
J. J. Norton 15,000 4.7% $18.4375 2/28/07 $ 65,253
J. C. van Roden 15,000 4.7% $18.4375 2/28/07 $ 65,253
R. D. Luzzi 10,000 3.2% $18.4375 2/28/07 $ 43,502
<FN>
(1) Regular option grants under the 1985 Stock Option and Appreciation Plan
include options which qualify as incentive stock options under Section
422 of the Internal Revenue Code of 1986, as amended, and options which
do not so qualify. The options granted in 1997 became exercisable on
February 28, 1998.
(2) Rounded to the nearest one-tenth of one percent.
(3) Outstanding options may expire earlier due to death, disability or
termination of employment. The Company has agreed to cash-out
outstanding options of certain Executive Officers upon a change in
control.
(4) Based on the Black-Scholes option pricing model, using the following
assumptions: (a) 10 year option term; (b) 6.58% risk-free interest
rate; (c) 30.6% volatility; and (d) 5.4% dividend yield.
</FN>
The following table presents information about stock options exercised
during the 1997 fiscal year by the Executive Officers named in the Summary
Compensation Table and the amount and value of unexercised options held by such
Executive Officers at fiscal year-end, distinguishing between options that were
vested (i.e., exercisable at year-end) and options that were not vested (i.e.,
becoming exercisable in the future).
[Enlarge/Download Table]
Aggregated Option Exercises in Last Fiscal Year and
Fiscal Year-End Option Values
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal In-the-Money Options at
Shares Acquired Value Year-End(#) Fiscal Year-End($) (1)
Name on Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
R. W. Van Sant -0- -0- 210,000 282,147 $1,018,125 $1,604,360
T. G. John -0- -0- 41,700 32,815 30,875 158,890
J. J. Norton -0- -0- 23,000 31,280 27,688 158,645
J. C. van Roden -0- -0- 35,500 27,427 50,130 157,830
R. D. Luzzi -0- -0- 22,700 23,180 17,813 106,195
-----------
<FN>
(1) Rounded to the nearest dollar. Based on the difference between the
closing price of the Company's common stock on the New York Stock
Exchange Composite Tape at the fiscal year-end and the exercise price
of the options.
</FN>
Retirement Plans
The Lukens Inc. Salaried Employees Retirement Plan provides retirement
benefits to certain salaried employees who retire or otherwise terminate
employment after completing five or more years of service. The Lukens Inc.
Supplemental Retirement Plan for Lukens Performance Incentive Plan Participants
provides supplemental retirement benefits to participating managerial level
employees. Benefits under this Plan are offset by benefits payable under the
Lukens Inc. Salaried Employees Retirement Plan. In addition, the Lukens Inc.
Supplemental Retirement Plan for Designated Executives provides supplemental
retirement benefits to participating executives. Under this Plan benefits for
participating executives are calculated by crediting the executive with service
in addition to the executive's actual period of service as an employee. Benefits
payable under this Plan are offset by benefits payable under the Lukens Inc.
Salaried Employees Retirement Plan.
Each of the Executive Officers named in the Summary Compensation Table
participates in the Lukens Inc. Salaried Employees Retirement Plan. Messrs.
John, Luzzi and van Roden also participate in the Lukens Inc. Supplemental
Retirement Plan for Lukens Performance Incentive Plan Participants. Mr. Van Sant
also participates in the Lukens Inc. Supplemental Retirement Plan for Designated
Executives. Benefits under these Plans are payable monthly and are based upon
formulas which consider years of service and compensation (as defined in the
Plans) and age at retirement.
The following table shows the approximate annual retirement benefits
that Messrs. Van Sant, John, van Roden and Luzzi would receive under the Plans
described above based on
credited years of service if they retire at normal retirement age. Mr. Norton,
who participates in the Lukens Inc. Salaried Employees Retirement Plan but not
in any of the Company's supplemental retirement plans, would receive an annual
retirement benefit of $18,438 if he retires at normal retirement age. Lesser
amounts may be payable following a termination of employment before normal
retirement age.
[Enlarge/Download Table]
Years of Service
Remuneration (1) 10 Years 15 Years 20 Years 25 Years 30 Years 35 Years 40 Years
$ 100,000 $ 13,600 $ 20,300 $ 27,100 $ 33,900 $ 38,900 $ 43,900 $ 48,900
200,000 33,600 50,300 67,100 83,900 93,900 103,900 113,900
300,000 53,600 80,300 107,100 133,900 148,900 163,900 178,900
400,000 73,600 110,300 147,100 183,900 203,900 223,900 243,900
500,000 93,600 140,300 187,100 233,900 258,900 283,900 308,900
600,000 113,600 170,300 227,100 283,900 313,900 343,900 373,900
700,000 133,600 200,300 267,100 333,900 368,900 403,900 438,900
800,000 153,600 230,300 307,100 383,900 423,900 463,900 503,900
900,000 173,600 260,300 347,100 433,900 478,900 523,900 568,900
1,000,000 193,600 290,300 387,100 483,900 533,900 583,900 633,900
<FN>
(1) The estimated benefit calculated is based on salary plus bonus, as
designated in the Summary Compensation Table above.
</FN>
Benefits payable under the Lukens Inc. Supplemental Retirement Plan for
Lukens Performance Incentive Plan Participants and the Lukens Inc. Supplemental
Retirement Plan for Designated Executives are computed on a straight life
annuity basis and are subject to offset by any Social Security benefits to which
the participant is entitled.
Messrs. John, van Roden and Luzzi have credited service of
approximately five, 16 and five years, respectively, in the Lukens Inc. Salaried
Employees Retirement Plan and in the Lukens Inc. Supplemental Retirement Plan
for Lukens Performance Incentive Plan Participants. Mr. Van Sant has credited
service of approximately six years under the Lukens Inc. Salaried Employees
Retirement Plan and 25 years under the Lukens Inc. Supplemental Retirement Plan
for Designated Executives. Each Plan, with the exception of the Lukens Inc.
Salaried Employees Retirement Plan, contains provisions for a present value
lump-sum payment payable in the event of a change in control.
Compensation of Directors
An annual retainer of $24,000 is paid to Directors who are not
employees of the Company and an attendance fee of $900 is paid to such Directors
for each day or part of a day they attend a regular or special meeting of the
Board. A fee is also payable to such Directors for attendance at Board Committee
meetings. The fee is $800 for all Committees, except that members of the
Executive Committee are paid an attendance fee of $900. Attendance fees are paid
for Committee meetings on Board meeting days except for Committee meetings of an
administrative nature. An annual retainer of $2,500 per Committee is also paid
to Directors who serve as Committee Chairmen. Directors who serve a partial year
are paid a pro rata share of the annual retainer based upon the number of months
served.
Any Director of the Company who is separately compensated for Board
services may elect to defer compensation for distribution at a later date.
Deferred amounts may be invested in mutual funds or interest-bearing accounts
and may be paid in a lump sum or in annual
installments over a period of five years.
For periods before May 1, 1997, Lukens maintained a pension plan for
non-employee directors which was terminated as of April 30, 1997. Effective as
of May 1, 1997, Lukens adopted the Lukens Inc. Non-Employee Director Equity
Compensation Plan (the "ECP"). Under the ECP, the present value of the benefit
of each non-employee director under the terminated directors' retirement plan,
determined as of May 1, 1997, was credited to a bookkeeping account established
for the benefit of each non-employee director. The amount credited to each
account was deemed invested in hypothetical shares of Lukens Common Stock at the
average closing price of such shares for May 1997. Under the ECP, on each April
30 occurring after May 1, 1997, an additional amount will be credited to
accounts established for all non-employee directors, and deemed invested in
hypothetical shares of Lukens Common Stock based on the closing price of Lukens
Common Stock on the allocation date. The amount credited is based on the annual
retainer compensation for directors then in effect, discounted for a ten-year
period at the thirty-year U. S. Treasury bond rate then in effect. Pursuant to
the terms of the ECP, within sixty days following a change of control of Lukens,
the amount credited to each non-employee director's account under the ECP will
be paid in a cash lump sum.
Pursuant to the Company's Stock Option Plan for Non-Employee Directors,
each Director who is not an employee of the Company or any of its subsidiaries
receives an annual grant of options to purchase 1,000 shares of the Company's
common stock at an exercise price equal to the fair market value of the
Company's common stock on the date of grant. Options become exercisable one year
after the date of grant and expire ten years after the date of grant, except
that options terminate three years after a person ceases to be a Director.
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements
The Company has entered into an agreement with Mr. Van Sant which
provides for his employment by the Company until his 65th birthday. The
agreement provides for the following compensation: a minimum base salary of
$600,000 per annum, an annual bonus calculated and paid in accordance with the
Lukens Performance Incentive Plan at a target amount of 30% of base salary and
certain employee benefits. Pursuant to the agreement and adjusted to reflect a
50% stock dividend, Mr. Van Sant was issued 330,000 options to purchase common
stock of the Company at an exercise price of $23.375 per share, which, as
adjusted, was 85% of the fair market value of such common stock on the date of
the grant. Such options vest at a rate of 30,000 per year. The agreement further
provides that if Mr. Van Sant's employment is terminated by the Company prior to
his 65th birthday, other than for disability or for cause, he will be entitled
to continue to receive his full salary and certain other benefits under the
agreement until the earlier of the third anniversary of his termination or his
65th birthday.
Severance Agreements. On various dates during the period between
October 31, 1990 and January 29, 1997, Lukens entered into severance agreements
with Messrs. R. W. Van Sant, T. G. John, J. J. Norton, J. C. van Roden, Jr., R.
D. Luzzi and six other executive officers (the "Severance Agreements"). Under
each of the Severance Agreements, if the employment of any of such executive
officers is terminated within two years following the change in control of
Lukens for any reason other than termination by Lukens for "cause," the
executive officer's
death or disability or by the executive officer with "good reason," the
executive officer is entitled to receive (i) a lump sum cash payment in an
amount equal to (A) three times the sum of the executive officer's salary plus
the average of the highest three bonus awards made in respect of the five most
recently completed measuring periods preceding the termination of employment
plus (B) additional amounts in respect of contingent bonuses for uncompleted
measuring periods, elective deferred compensation, certain stock options and
certain supplemental retirement benefits, (ii) paid coverage for 36 months under
life, disability, and accident and health programs similar to those in effect at
the date of termination of employment and (iii) for any executive officer who,
as the result of the foregoing, becomes subject to the excise tax pursuant to
Section 280G of the Code, an additional lump sum cash payment in an amount such
that the executive officer will be in the same net after-tax position as the
executive officer would have been had no such excise tax been applicable. The
purpose of the agreements is to assure the continued dedication of such persons
to their duties and their unbiased counsel in the event of an unsolicited tender
offer.
In general, a "change in control" will be deemed to occur if (i) during
a period of two consecutive years, the individuals who constituted the Board of
Directors at the beginning of such period cease to constitute a majority of the
Board, (ii) any person or group acquires 20% or more of the combined voting
power of the Company's then outstanding securities, (iii) the Company is
acquired by merger or consolidation or (iv) the Company is liquidated or
substantially all of its assets are sold.
Accelerated Vesting of Restricted Stock under Lukens Inc. 1997
Performance Vested Restricted Stock Plan. Pursuant to the Performance Vested
Restricted Stock Plan (the "PVRS Plan"), 134,000 shares of Lukens Common Stock
have been granted as "restricted stock" to certain executive officers. Such
shares are subject to forfeiture, in whole or in part, unless Lukens achieves
certain performance objectives for the period commencing January 1, 1997 and
ending December 31, 1999. Upon a change of control of Lukens, all forfeiture
restrictions on such restricted shares will lapse.
Under the PVRS Plan, Mr. Van Sant has received 50,000 restricted shares
of Lukens Common Stock, Messrs. John, Norton and van Roden have each received
14,000 restricted shares of Lukens Common Stock, and Mr. Luzzi has received
7,000 restricted shares of Lukens Common Stock.
Supplemental Retirement Plans. Lukens has adopted three supplemental
retirement plans for the benefit of certain executive officers and other
employees: the Lukens Inc. Supplemental Retirement Plan for Designated
Executives, the Lukens Inc. Supplemental Retirement Plan for Lukens Performance
Incentive Plan Participants and the Lukens Inc. Supplemental Retirement Plan
(collectively, the "SERP"). In general, the SERP provides for the payment of
retirement benefits to certain executive officers and other employees of Lukens
in excess of the retirement benefits generally payable under the Lukens Inc.
Salaried Employees Retirement Plan.
The SERP previously provided for a cash lump sum payment of the value
of participants' accrued benefits upon a "change of control," without regard to
whether the participant's employment was terminated or whether the participant
continued to be eligible to participate in
the SERP. On December 9, 1997, the Lukens Board amended the SERP, so that (i)
participants' accrued benefits under the SERP become nonforfeitable upon the
completion of five or more years of continuous service in the management group;
(ii) at a change of control of Lukens, no cash lump sum payment will be made
automatically to participants in the SERP; and (iii) if a participant's
employment with the surviving corporation is terminated by the employer without
"cause," the participant resigns for "good reason" or the SERP is terminated
without replacement by a similar plan, in each case within five years following
the change of control, the participant, or all participants, as the case may be,
shall become entitled to a cash lump sum payment of the value of benefits
accrued under the SERP.
On December 9, 1997, the Lukens Board authorized the adoption of an
irrevocable grantor trust. On or before the consummation of a change of control
of Lukens, the present value of accrued benefits under the SERP as of such dates
will be deposited into the grantor trust and will be available for distribution
in accordance with the terms of the SERP.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Security Ownership of Certain Beneficial Owners
The following table sets forth information, as of December 31, 1997,
regarding each person who is known by the Company to beneficially own more than
5% of any class of stock of the Company. Such information was provided to the
Company by such persons or is based on data available to the Company.
[Enlarge/Download Table]
Shares
Name and Address Title of Beneficially Percent of
Class Owned Class(1)
State Street Bank and Trust Company
225 Franklin Street Preferred 470,328(2)(3) 100%
Boston, MA 02110
Merrill Lynch Asset Management, L.P.
800 Scudders Mill Road Common 2,197,035(4) 14.7%
Plainsboro, NJ 08536
Bankers Trust New York Corporation Common 792,930(5) 5.3%
130 Liberty Street
New York, NY 10006
<FN>
(1) Rounded to the nearest one-tenth of one percent and based on the number
of shares of the applicable class outstanding on December 31, 1997.
(2) Rounded to the nearest share.
(3) Held as trustee of the Lukens Inc. Employees Stock Ownership Trust
under the Lukens Inc. Employees Capital Accumulation Plan, as to which
State Street Bank and Trust Company disclaims beneficial ownership. The
trustee's duties include management of the trust and voting the
preferred stock held in the trust. Each share of preferred stock is
generally convertible into three shares of the Company's common stock.
If all of the shares of preferred stock were converted, State Street
Bank and Trust Company would hold 1,410,983 shares of common stock as
trustee. These shares, together with the 60,423 shares of
common stock held in separate or commingled funds managed by State
Street Bank and Trust Company, would represent approximately 9.0% of
the Company's common stock.
(4) Includes 1,417,035 shares held by Merrill Lynch Asset Management, L.P.
("MLAM"), of which Princeton Services, Inc. ("PSI") is the general
partner, and 780,000 shares held by Merrill Lynch Global Allocation
Fund, Inc. (the "Fund"), for which MLAM serves as investment adviser.
PSI disclaims beneficial ownership of the 1,417,035 shares held by
MLAM.
(5) Includes 527,875 shares for which Bankers Trust Company, a wholly owned
subsidiary of Bankers Trust New York Corporation, has sole voting and
dispositive power, 100,055 shares for which Bankers Trust Company has
sole dispositive power, and 165,000 shares for which BT Alex. Brown
Incorporated, an indirect wholly owned subsidiary of Bankers Trust New
York Corporation, has sole voting and dispositive power.
</FN>
Security Ownership of Management
The following table sets forth as of March 2, 1998, the approximate
number of shares of common stock and preferred stock of the Company (rounded to
the nearest share) beneficially owned by each Director, by each Executive
Officer named in the Summary Compensation Table and by all Directors and
Executive Officers of the Company as a group who are serving in such capacities
on that date.
[Enlarge/Download Table]
Shares Beneficially Percent
Owned of Class(1)
Name Common Preferred Common Preferred
R. W. Van Sant 398,618(2) 909 less than 1% less than 1%
Michael O. Alexander 5,700(3) -0- less than 1% None
Rod Dammeyer 7,000(4) -0- less than 1% None
T. Kevin Dunnigan 7,400(5) -0- less than 1% None
Ronald M. Gross 7,500(3) -0- less than 1% None
Sandra L. Helton 4,500(6) -0- less than 1% None
T. Grant John 89,757(7) 522 less than 1% less than 1%
Richard D. Luzzi 50,841(8) 556 less than 1% less than 1%
William H. Nelson, III 9,000(3) -0- less than 1% None
James J. Norton 65,392(9) -0- less than 1% None
David B. Price, Jr. 2,500(4) -0- less than 1% None
Joab L. Thomas 7,600(10) -0- less than 1% None
W. Paul Tippett 6,500(3) -0- less than 1% None
John C. van Roden 79,599(11) 1,098 less than 1% less than 1%
All Directors and Executive 1,045,184(12) 9,110 6.4% 2.0%
Officers as a Group
(19 Persons)
<FN>
(1) Rounded to the nearest one-tenth of one percent and based on (i) the number
of shares subject to options for common stock exercisable by such person(s)
on or before May 1, 1998, and 14,977,090 shares of common stock, which on
March 2, 1998, was the approximate number of shares outstanding and (ii)
458,338 shares of preferred stock, which on March 2, 1998, was the
approximate number of shares outstanding.
(2) Includes options to purchase 342,735 shares of common stock that are
currently exercisable and 50,000 performance vested restricted shares.
(3) Includes options to purchase 5,000 shares of common stock that are
currently exercisable or will become exercisable on May 1, 1998.
(4) Includes options to purchase 2,000 shares of common stock that are
currently exercisable or will become exercisable on May 1, 1998.
(5) Includes options to purchase 4,000 shares of common stock that are
currently exercisable or will become exercisable on May 1, 1998.
(6) Includes options to purchase 3,000 shares of common stock that are
currently exercisable or will become exercisable on May 1, 1998.
(7) Includes options to purchase 65,005 shares of common stock that are
currently exercisable, 14,000 performance vested restricted shares and
1,541 shares of common stock held by his wife in a retirement plan, as to
which he disclaims beneficial ownership.
(8) Includes options to purchase 39,082 shares of common stock that are
currently exercisable and 7,000 performance vested restricted shares.
(9) Includes options to purchase 45,882 shares of common stock that are
currently exercisable and 14,000 performance vested restricted shares.
(10) Includes 2,600 shares of common stock held jointly with his spouse and
options to purchase 5,000 shares of common stock that are currently
exercisable or will become exercisable on May 1, 1998.
(11) Includes options to purchase 55,715 shares of common stock that are
currently exercisable and 14,000 performance vested restricted shares.
(12) Includes options to purchase 790,145 shares of common stock that are
currently exercisable or will become exercisable on May 1, 1998, 134,000
performance vested restricted shares and 12,441 shares of common stock as
to which beneficial ownership is disclaimed.
</FN>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During fiscal year 1997, the Company had an outstanding loan in the
amount of $270,000 to Mr. John, Senior Vice President, Strategic Planning, on an
interest free basis. The purpose of this loan was to assist him in his
relocation.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
a. Documents filed as a part of this report.
1. Financial Statements
No financial statements have been filed with this Form 10-K other than
those included in Item 8.
2. Financial Statement Schedules
II Valuation and Qualifying Accounts
Schedules, other than Schedule II, have been omitted because they are
not applicable.
3. Exhibits
See Index to Exhibits.
b. Reports on Form 8-K.
On December 16, 1997, a report was filed for Item 5. Other Events., and
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.,
concerning a merger agreement with Bethlehem Steel Corporation.
No other reports on Form 8-K were filed during the quarter ended
December 27, 1997.
Subsequent to year-end 1997, 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 Bethlehem
Steel Corporation.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
(Registrant)
Date: February 25, 1998 By /s/ R. W. Van Sant
------------------
R. W. Van Sant
Chairman and
Chief Executive Officer
SIGNATURES (continued)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below, as of February 25, 1998, by the following persons on
behalf of the registrant and in the capacities indicated.
Signature and Title
/s/ Michael O. Alexander
-------------------------
Michael O. Alexander David B. Price, Jr.
Director Director
/s/ Rod Dammeyer /s/ Joab L. Thomas
------------------------- ---------------------------
Rod Dammeyer Joab L. Thomas
Director Director
/s/ W. Paul Tippett
---------------------------
T. Kevin Dunnigan W. Paul Tippett
Director Director
/s/ Ronald M. Gross /s/ R. W. Van Sant
------------------------- ---------------------------
Ronald M. Gross R. W. Van Sant
Director Chairman and
Chief Executive Officer
/s/ Sandra L. Helton /s/ John C. van Roden, Jr.
------------------------- ---------------------------
Sandra L. Helton John C. van Roden, Jr.
Director Senior Vice President and Chief
Financial Officer
/s/ William H. Nelson, III /s/ P. Blaine Clemens
------------------------- ---------------------------
William H. Nelson, III P. Blaine Clemens
Director Vice President and Controller
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements included in this Form 10-K, and have issued
our report thereon dated January 19, 1998. Our audits were made for the purpose
of forming an opinion on those statements taken as a whole. The financial
statement schedule referred to in Item 14 is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
The financial statement schedule has been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion,
fairly states in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Philadelphia, Pennsylvania
January 19, 1998
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports dated January 19, 1998 included or incorporated by reference in this
annual report on Form 10-K, into the Company's previously filed: Form S-8
Registration Statements File Numbers 33-6673, 33-23405, 33-29105, 33-54269,
33-54271, 33-54371, 33-69780 and 333-09451, and Form S-3 Registration Statement
File Number 33-53681.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Philadelphia, Pennsylvania
March 20, 1998
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Dollars in Thousands)
Allowance for Doubtful Receivables and Customer Claims
[Enlarge/Download Table]
Balance at Additions Charged to Balance at
Beginning Costs and End of
Fiscal Year Ended of Period Expenses Other Deductions (a) Period
December 27, 1997 $7,750 5,130 - 6,164 6,716
December 28, 1996 $6,632 11,348 - 10,230 7,750
December 30, 1995 $7,569 10,044 - 10,981 6,632
(a) Amounts determined not to be collectible, net of recoveries. Amount also
includes a reduction in the reserve from the divestiture of subsidiaries
of $145 in 1995.
Deferred Income Tax Asset Valuation Allowance
Balance at Additions Charged to Balance at
Beginning Costs and End of
Fiscal Year Ended of Period Expenses Other Deductions Period
December 27, 1997 $2,705 65 - -- 2,770
December 28, 1996 $2,575 130 - -- 2,705
December 30, 1995 $2,575 -- - -- 2,575
INDEX TO EXHIBITS (Note 1)
(2) Plan of acquisition, reorganization, arrangement, liquidation or succession
(2.1) Agreement and Plan of Merger, dated December 15, 1997
among Bethlehem Steel Corporation, Lukens Acquisition
Corporation and Lukens Inc. (Note 4)
(2.2) Amendment dated as of January 4, 1998 to the Agreement and Plan
of Merger, dated December 15, 1997 among Bethlehem Steel Corporation,
Lukens Acquisition Corporation and Lukens Inc. (Note 5)
(3) Certificate of incorporation and by-laws (Note 2)
(4) Instruments Defining the Rights of Security Holders including Indentures
(4.1) Lukens Inc. Indenture dated as of July 1, 1992
(Note 3)
(4.2) Renewed Rights Agreement, dated as of September 25, 1996 (Note 8)
(4.3) Amendment to Renewed Rights Agreement (Note 4)
(10) Material Contracts
(10.1) Lukens Inc. Supplemental Retirement Plan, as amended and
restated, effective December 9, 1997
(10.2) Lukens Inc. Supplemental Retirement Plan for Lukens
Performance Incentive Plan Participants, as amended and
restated, effective December 9, 1997
(10.3) Lukens Inc. Supplemental Retirement Plan for
Designated Executives, as amended and restated, effective
December 9, 1997
(10.4) Lukens Inc. Performance Incentive Plan, effective
January 1, 1995 (Note 11)
(10.5) Lukens Inc. 1997 Performance-Vested Restricted Stock
Plan, effective February 26, 1997 (Note 6)
(10.6) Lukens Inc. 1985 Stock Option and Appreciation Plan,
as amended (Note 9)
(10.7) Lukens Inc. Stock Option Plan for Non-employee
Directors (Note 13)
(10.8) Lukens Inc. Non-Employee Director Equity Compensation Plan,
effective May 1, 1997 (Note 6)
(10.9) Employment Agreement dated October 12, 1991, between R. William
Van Sant and Lukens Inc. (Note 15)
(10.10) Severance Agreement dated October 12, 1991, between R. William
Van Sant and Lukens Inc. (Note 15)
(10.11) Form of Severance Agreement between certain Executive Officers
and Lukens Inc.
(10.12) Form of Indemnification Agreement between certain Executive
Officers and Lukens Inc. (Note 16)
(10.13) Lukens Inc. Directors' Deferred Payment Plan (Note 17)
(10.14) Guaranty Agreement dated as of June 28, 1989, between Lukens
Inc. and The Toronto-Dominion Bank & Trust Company as Agent for the
Guaranteed Parties (Note 16)
(10.15) Retirement Plan for Non-Employee Directors of Lukens Inc., as
amended through November 30, 1994 (Note 12)
(10.16) Form of Indemnification Agreement between Directors and Lukens
Inc. (Note 16)
(10.17) Amended and Restated Credit Agreement, dated as of April 22,
1992, and Amended and Restated as of September 30, 1992 among Lukens
Inc. and Lukens Steel Company, as the Borrowers, Certain Commercial
Lending Institutions, the Toronto-Dominion Bank, and NBD Bank, N.A., as
the Co-Agents, and Provident National Bank, as the Administrative Agent
(Note 14)
(10.18) First Amendment, dated as of January 15, 1995, to Amended and
Restated Credit Agreement (Note 12)
(10.19) Extension Request, dated as of December 1, 1995, to Amended and
Restated Credit Agreement (Note 10)
(10.20) Extension Request, dated as of December 5, 1996, to Amended and
Restated Credit Agreement (Note 7)
(10.21) Lease among PNC Leasing Corp., Blount, Inc., and Washington
Steel Corporation, dated as of October 1, 1986 (Note 14)
(10.22) Lease Amendment No. 1, dated July 22, 1987, among
PNC Leasing Corp., Blount, Inc. and Washington Steel
Corporation (Note 14)
(10.23) Lease Amendment No. 2, Assumption and Consent among
PNC Leasing Corp., Blount, Inc. and Washington Steel
Corporation, dated as of October 18, 1988 (Note 14)
(10.24) Lease Amendment No. 3, Assumption and Consent among
PNC Leasing Corp., Lukens Inc. and Washington Steel
Corporation, dated as of July 21, 1992 (Note 14)
(11) Statement regarding Computation of Per Share Earnings
(21) Subsidiaries of the Registrant
(23) Consent of Arthur Andersen LLP (Note 18)
(27) Financial Data Schedule
(27.1) Restated Financial Data Schedule (SFAS No. 128) for the thirty-nine
weeks ended September 27, 1997.
(27.2) Restated Financial Data Schedule (SFAS No. 128) for the twenty-six
weeks ended June 28, 1997.
(27.3) Restated Financial Data Schedule (SFAS No. 128) for the thirteen weeks
ended March 29, 1997.
(27.4) Restated Financial Data Schedule (SFAS No. 128) for the fifty-two weeks
ended December 28, 1996.
(27.5) Restated Financial Data Schedule (SFAS No. 128) for the thirty-nine
weeks ended September 28, 1996.
(27.6) Restated Financial Data Schedule (SFAS No. 128) for the twenty-six
weeks ended June 29, 1996.
(27.7) Restated Financial Data Schedule (SFAS No. 128) for the thirteen weeks
ended March 30, 1996.
(27.8) Restated Financial Data Schedule (SFAS No. 128) for the fifty-two weeks
ended December 30, 1995.
NOTES TO EXHIBITS
1. Copies of exhibits will be supplied upon request. Exhibits will be provided
at $.25 per page requested. Annual and quarterly filings are electronically
filed with the SEC. Copies of the exhibits are available free of charge through
the SEC site on the Internet (http://www.sec.gov).
2. The certificate of incorporation is incorporated by reference to exhibits
included in the Lukens Inc. Post-Effective Amendment No. 1 to the Registration
Statement on Form S-8, File No. 33- 23405. By-laws, as amended and restated June
26, 1991, are incorporated by reference to exhibits included in the Lukens Inc.
Form 10-Q for the quarter ended June 29, 1991.
3. Incorporated by reference to exhibits included in the Lukens Inc.
Registration Statement on Form S-3, File No. 33-49112.
4. Incorporated by reference to exhibits included in the Lukens Inc. Form 8-K
for the Date of Report, December 15, 1997.
5. Incorporated by reference to exhibits included in the Lukens Inc. Form 8-K
for the Date of Report, January 4, 1998.
6. Incorporated by reference to exhibits included in the Lukens Inc. Form 10-Q
for the quarter ended June 28, 1997.
7. Incorporated by reference to exhibits included in the Lukens Inc. Form 10-K
for the fiscal year ended December 28, 1996.
8. Incorporated by reference to exhibits included in the Lukens Inc. Form 10-Q
for the quarter ended September 28, 1996.
9. Incorporated by reference to exhibits included in the Lukens Inc. Form 10-Q
for the quarter ended March 30, 1996.
10. Incorporated by reference to exhibits included in the Lukens Inc. Form 10-K
for the fiscal year ended December 30, 1995.
11. Incorporated by reference to exhibits included in the Lukens Inc. Form 10-Q
for the quarter ended September 30, 1995.
12. Incorporated by reference to exhibits included in the Lukens Inc. Form 10-K
for the fiscal year ended December 31, 1994.
13. Incorporated by reference to exhibits included in the Lukens Inc. Form 10-K
for the fiscal year ended December 25, 1993.
14. Incorporated by reference to exhibits included in the Lukens Inc. Form 10-K
for the fiscal year ended December 26, 1992.
15. Incorporated by reference to exhibits included in the Lukens Inc. Form 10-K
for the fiscal year ended December 28, 1991.
16. Incorporated by reference to exhibits included in the Lukens Inc. Form 10-K
for the fiscal year ended December 30, 1989.
17. Incorporated by reference to exhibits included in the Lukens Inc.
Registration Statement on Form S-4, File No. 33-10935.
18. Incorporated by reference to the sections entitled "Consent of Independent
Public Accountants" in this Form 10-K.
Dates Referenced Herein and Documents Incorporated by Reference
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