<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K405
/X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
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
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 3, 1995, the aggregate market value of
common stock held by nonaffiliates of the registrant was $299.4 million.
The number of common shares outstanding of the registrant was 14,657,204 as
of March 3, 1995.
DOCUMENTS INCORPORATED BY REFERENCES
(1) Proxy Statement for Stockholder Meeting on April 26, 1995 Part III
<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL
Lukens Inc. is a holding company incorporated in Delaware. Subsidiaries of
Lukens Inc. manufacture carbon, alloy and clad steel plates, and stainless steel
sheet, strip, plate, hot band and slabs. In 1992, Lukens expanded into
stainless steel product lines with the acquisition of Washington Steel
Corporation for $273.7 million. Production facilities and markets are located
primarily in the United States.
As part of a program adopted in 1993 to focus Lukens' resources on its steel
businesses, the subsidiaries previously reported in the Corrosion Protection
Group, Safety Products Group and most subsidiaries in the Diversified Group were
classified as discontinued operations. In 1994, all of these subsidiaries were
sold except for our pipe-coating subsidiary, which is actively being marketed.
BUSINESS GROUPS
Lukens has two business groups, the Lukens Steel Group and the Washington
Stainless Group. Financial information for these business groups is
incorporated herein by reference to Note 3 to the financial statements included
in Part II, Item 8 of this Form 10-K. The chart below outlines the business
group composition of consolidated net sales for each of the last three years.
The Washington Stainless Group 1992 percent represents sales from the
acquisition date on April 24, 1992.
Composition of Consolidated Net Sales by
Business Group
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Lukens Steel % 50.3 51.6 60.0
Washington Stainless 51.1 48.4 40.0
Inter-group eliminations (1.4) - -
------ ----- -----
Total %100.0 100.0 100.0
====== ===== =====
</TABLE>
<PAGE>
LUKENS STEEL GROUP
The Lukens Steel Group specializes in the production of carbon, alloy and clad
steel plate. Lukens Steel Company ranks as one of the three largest domestic
plate steel producers and is the largest domestic producer in the alloy plate
market. There are several domestic and foreign competitors. Major competitors
are United States Steel, a subsidiary of the USX Corporation, and Bethlehem
Steel Corporation.
Lukens Steel's competitive position is enhanced by a concentration on plate with
a product line that includes a wide range of plate sizes and grades. In
addition to price and quality, customer satisfaction, measured by shipped-on-
time performance and production lead times, has become increasingly important in
the competitive environment. Price competition has been and is expected to
remain intense.
Products are sold primarily by an in-house sales force. Steel service centers
are the largest market for the group, accounting for approximately 40 percent of
annual shipments in the last three years. The Lukens Steel Group supplies a
wide range of markets in the capital-goods sector of the economy, including
markets for:
. Machinery and Industrial Equipment
. Infrastructure
. Environmental and Energy
. Transportation
. Military and Defense.
Some sales involve government contracts which, under certain circumstances, are
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. Lukens does not expect any material portion of its
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 affected by the operating level of the domestic steel industry,
the quantity of scrap exported, and world political and economic conditions.
Scrap costs increased significantly in 1993 and remained at relatively high
levels in 1994. Increasing selling prices during 1994 began to offset these
higher scrap costs. Scrap remains readily available.
Principal energy sources used in production include electricity and natural gas.
Propane gas back-up systems are available at the Coatesville, Pennsylvania,
manufacturing facility in the event of natural gas supply restrictions. Forward
exchange or hedge contracts for the purchase of natural gas are used to manage
the group's exposure to price volatility.
<PAGE>
WASHINGTON STAINLESS GROUP
Washington Steel Corporation is the largest subsidiary in the group,
representing 69 percent of the group's sales in 1994. This subsidiary
specializes in the manufacture and marketing of stainless steel sheet, strip,
plate, hot band and slabs. Primary competitors include Allegheny Ludlum
Corporation, J&L Specialty Products Corporation, North American Stainless and
Armco Inc. Washington Steel's competitive position is built on the ability to
serve niche markets by providing a wide range of quality products.
Similar to the competitive environment in the Lukens Steel Group, customer
satisfaction, measured by shipped-on-time performance and production lead times,
has become increasingly important. Price and quality are also significant
factors in the competitive environment. Since 1993, increased competition has
put pressure on selling prices; however, strong demand for stainless steel
products has resulted in recent improvements in price.
Washington Specialty Metals Corporation is a service and distribution center
that specializes in 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.
Products are sold primarily by the group's own sales organizations. The primary
market of the group is service centers, which represented approximately 37
percent of shipments in 1994. The Washington Stainless Group ultimately
supplies diverse markets, including:
. Process Industries
. Food Service Equipment
. Architecture and Construction
. Transportation
. 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. Prices and availability are affected by the
operating level of the domestic steel industry, the quantity of scrap exported,
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. Due to recent significant
increases in costs for nickel and molybdenum, Washington Steel Corporation has
been able to institute price increases. Principal energy sources used in
production include electricity and natural gas.
<PAGE>
SALES ORDER BACKLOG
(Dollars in thousands)
Listed below is the backlog from continuing operations at the end of 1994 and
1993. The backlog at year-end 1994 is anticipated to be shipped in 1995.
<TABLE>
<CAPTION>
12/31/94 12/25/93
-------- --------
<S> <C> <C>
Lukens Steel $ 76,898 58,712
Washington Stainless 95,921 42,883
Inter-group eliminations (4,311) -
-------- -------
Total $168,508 101,595
======== =======
</TABLE>
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 technical issues.
The trend for tighter environmental standards is expected to result in higher
waste disposal costs and additional capital expenditures in the long term.
In 1994, capital expenditures for environmental compliance projects were $3.9
million. In 1995 and 1996, capital expenditures are anticipated to be
approximately $16.3 million and $4.6 million, respectively. Projected 1995
capital expenditures are primarily for expanded pollution control equipment at
the melting facilities of Washington Steel Corporation.
Lukens is a potentially responsible party under Superfund law at certain waste
disposal sites. The company's exposure to remediation costs at these sites
depends upon several factors, including changing laws and regulations and the
allocation of costs among all potentially responsible parties. Our exposure is
expected to be limited based on the volumes of waste which might be attributable
to Lukens and the number and financial strength of other potentially responsible
parties. Based on information currently available, management believes that any
future costs in excess of amounts already accrued will not have a material
adverse effect on the company's financial condition, results of operations or
competitive position.
EMPLOYEES
The average number of employees during 1994 was 4,060.
<PAGE>
ITEM 2. PROPERTIES.
CAPITAL EXPENDITURE PROGRAM
Capital expenditures in 1994 of $120.3 million were part of a five-year, $400
million program that began in 1993. The program is aimed at promoting synergies
between the Lukens Steel Group and the Washington Stainless Group, and expanding
our product lines to take advantage of anticipated long-term growth in stainless
steel markets. The centerpiece of the program is the installation of a plate
and sheet processing system at our facility in Conshohocken, Pennsylvania. The
new system utilizes Steckel rolling technology and is designed to lower
production costs, improve quality and expand the product range of both the
Lukens Steel Group and the Washington Stainless Group. Start-up of this system
is expected to begin at the end of the first quarter of 1995. Benefits from
this system will not begin to be realized until late in 1995. Other
expenditures in the program include an increase in stainless melting capacity
and upgrades to stainless finishing facilities.
LUKENS STEEL GROUP
Raw steel is produced by an electric arc furnace at the Coatesville,
Pennsylvania, plant. Approximately 70 percent of 1994 production was
continuously cast into slabs at this facility. Rolling and fabrication
facilities are located in Coatesville and Conshohocken, Pennsylvania. Other
relatively small properties include a fabrication facility, located in Newton,
North Carolina, and a real estate development and management company in New
Castle, Delaware. The group operated near capacity in 1994. In 1995, steel
slabs are anticipated to be purchased to supplement melting capacity. Capacity
of other facilities is considered adequate to support projected sales.
WASHINGTON STAINLESS GROUP
Washington Steel Corporation has melting, continuous casting and rolling
facilities in Houston, Pennsylvania. Both the Washington, Pennsylvania, and
Massillon, Ohio, facilities have rolling and finishing facilities. Utilization
of these facilities ranged between 85 and 100 percent in 1994. Our stainless
melting facilities operated at full capacity through most of 1994. Capacity of
facilities is considered adequate to support projected sales.
Washington Specialty Metals Corporation has fabrication and distribution
facilities in Wheeling, Illinois, and Lawrenceville, Georgia. Additional
distribution centers are located in:
. Carrollton, Texas
. Youngsville, North Carolina
. Tampa, Florida
. Brampton, Ontario, Canada
. Vaudreuil, Quebec, Canada.
<PAGE>
PLANT AND EQUIPMENT PLEDGED AS COLLATERAL
Plant and equipment with a net depreciated cost of $47.3 million are pledged as
collateral, primarily for industrial revenue bonds.
ITEM 3. LEGAL PROCEEDINGS.
Approximately 350 workers' compensation claims alleging hearing loss have been
asserted against Lukens Steel Company, a wholly-owned subsidiary, by current and
former employees before the Pennsylvania Workers' Compensation Board. A $5.6
million reserve has been established to cover potential awards and defense costs
resulting from these claims. As of year-end 1994, an aggregate of 249 workers'
compensation claimants released their claims and received negotiated payments
which were, in the aggregate, within the amount of the established reserve.
In 1994, approximately 22 workers' compensation claims alleging hearing loss
were asserted against Washington Steel Corporation, a wholly-owned subsidiary.
Management does not have sufficient information at this time to assess the
impact, if any, of these claims on the financial condition or results of
operations of Lukens Inc.
Lukens is involved in litigation and administrative proceedings which seek the
recovery of response costs with respect to certain waste disposal 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. In the opinion of management, any liabilities arising from
these sites in excess of amounts already accrued will not have a materially
adverse effect on the company's financial position.
The company is party to various claims, disputes, legal actions and other
proceedings involving product liability, 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 1994.
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The following executive officers were elected by the Board of Directors until
their respective successors are elected:
Executive Officer
Executive Officer/Title Age Since
- ----------------------- --- -----------------
R. W. Van Sant 56 October 1991
Chairman and Chief Executive Officer
John H. Bucher 55 April 1993
Vice President-Technology
Robert E. Heaton 65 April 1992
Senior Vice President-
Vice Chairman-Stainless Group
C. B. Houghton, Jr. 54 November 1994
Vice President and Controller
T. Grant John 56 February 1993
Vice President-President and Chief Operating
Officer-Washington Steel
Richard D. Luzzi 43 February 1993
Vice President-Human Resources
James J. Norton 38 April 1992
Vice President-President and Chief Operating
Officer-Washington Specialty Metals
Dennis M. Oates 42 February 1987
Senior Vice President-President and
Chief Operating Officer-Carbon and Alloy Group
Frederick J. Smith 51 April 1993
Vice President-Manufacturing Services
William D. Sprague 53 October 1988
Vice President, General Counsel and Secretary
John C. van Roden, Jr. 46 February 1987
Vice President and Treasurer
<PAGE>
Listed below are executive officers that have not been employed by Lukens in an
executive or managerial capacity during the last five years.
R. W. VAN SANT was previously the president and chief executive officer and
a director of Blount, Inc. Prior to his association with Blount in 1987,
he served as president and chief operating officer and a director of the
Cessna Aircraft Company. He had earlier served as vice president of
manufacturing and engineering at Deere and Company where he was employed
for 26 years.
ROBERT E. HEATON, prior to the acquisition of Washington Steel Corporation
by Lukens in 1992, was president and chief operating officer of Washington
Steel since 1989, and served as president and chief executive officer from
1981.
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. Since
1985, Mr. John was 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.
JAMES J. NORTON, prior to the acquisition of Washington Steel Corporation
by Lukens in 1992, was president of the service center group. Previously,
he was the chief financial officer of Mercury Stainless Corporation,
including Washington Steel, from 1986 to 1991.
<PAGE>
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 in 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.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
<PAGE>
Lukens Inc. -- Financial Information
SELECTED FINANCIAL HIGHLIGHTS FOR ELEVEN YEARS
<TABLE>
<CAPTION>
1994/a/ 1993/a/ 1992/a/ 1991
-------- ------- ------- -------
<S> <C> <C> <C> <C>
For The Year
Net sales $947,013 862,072 695,772 423,154
-------- ------- ------- -------
Operating earnings (loss) 49,570 36,602 51,820 22,006
Net non-operating (expense) income (13,213) (16,319) (12,737) 225
Income tax expense (benefit) 14,179 7,161 15,289 8,432
-------- ------- ------- -------
Earnings (loss) from continuing operations 22,178 13,122 23,794 13,799
Discontinued operations, net of tax - 2,780 9,261 9,197
-------- ------- ------- -------
Net earnings (loss) before cumulative
effect of accounting changes 22,178 15,902 33,055 22,996
Per common share -- primary
Continuing operations 1.37 .76 1.63 .96
Discontinued operations - .19 .68 .72
-------- ------- ------- -------
Net earnings (loss) 1.37 .95 2.31 1.68
Percent of stockholders' investment --
start of year % 8.3 4.8 13.3 9.7
Shares and equivalents outstanding --
weighted average 14,743 14,781 13,603 12,699
-------- ------- ------- -------
Cash dividends -- common 14,583 14,508 13,374 12,397
Per share 1.00 1.00 1.00 1.00
-------- ------- ------- -------
Cash flow from operations 79,180 72,290 59,184 66,344
Depreciation and amortization 43,962 45,488 39,232 25,833
Capital expenditures 120,342 67,424 36,002 34,696
Average number of employees 4,060 4,769 4,240 3,884
-------- ------- ------- -------
At Year-End
Inventories $134,928 160,060 150,187 74,600
Current assets 281,036 307,739 294,388 203,930
Working capital 106,480 146,034 142,466 104,752
Current ratio 1.6 1.9 1.9 2.1
Plant and equipment, net of depreciation 478,129 431,853 410,206 210,578
Total assets 826,434 817,178 760,045 432,360
-------- ------- ------- -------
Long-term debt 201,351 220,768 218,903 46,637
Total debt 208,485 226,589 223,275 53,262
-------- ------- ------- -------
Stockholders' investment 277,057 266,754 329,073 248,323
Per common share 18.91 18.36 22.77 19.69
Common shares outstanding 14,652 14,529 14,455 12,610
Stockholders of record 6,000 5,600 4,700 4,400
-------- ------- ------- -------
</TABLE>
a. Includes results from the Washington Steel Corporation acquisition on
April 24, 1992.
<PAGE>
Dollars and shares
in thousands except
per share amounts
<TABLE>
<CAPTION>
1990 1989 1988 1987 1986 1985 1984
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
488,217 476,838 450,779 363,614 276,027 293,134 300,324
------- ------- ------- ------- ------- ------- -------
59,376 60,025 51,732 37,358 14,190 3,247 8,952
(686) (2,758) (4,739) (5,725) (5,772) (5,550) (5,565)
21,829 21,275 17,205 14,188 4,772 (1,864) 1,335
------- ------- ------- ------- ------- ------- -------
36,861 35,992 29,788 17,445 3,646 (439) 2,052
7,291 5,502 3,600 4,217 5,128 (3,750) 2,649
------- ------- ------- ------- ------- ------- -------
44,152 41,494 33,388 21,662 8,774 (4,189) 4,701
2.80 2.72 2.33 1.38 .32 (.03) .17
.58 .43 .28 .34 .45 (.33) .23
------- ------- ------- ------- ------- ------- -------
3.38 3.15 2.61 1.72 .77 (.36) .40
21.8 22.9 22.1 16.7 7.6 (3.3) 3.8
12,572 12,732 12,812 12,585 11,462 11,483 11,615
------- ------- ------- ------- ------- ------- -------
11,796 9,245 5,925 3,802 2,429 2,450 2,066
.94 .74 .46 .30 .21 .21 .18
------- ------- ------- ------- ------- ------- -------
92,112 38,456 49,054 23,555 45,055 14,043 33,942
25,789 23,709 22,623 21,626 21,805 20,743 19,343
35,018 25,471 35,153 25,762 9,831 21,343 17,086
3,960 3,878 3,838 3,552 3,352 3,570 3,590
------- ------- ------- ------- ------- ------- -------
71,854 95,685 90,337 79,954 61,520 52,534 52,896
183,975 169,971 162,608 150,533 121,765 112,310 113,379
96,442 87,629 68,936 65,252 42,483 43,943 40,118
2.1 2.1 1.7 1.8 1.5 1.6 1.5
201,720 185,537 181,503 163,158 176,482 187,935 189,421
411,919 376,660 353,054 326,251 312,469 308,594 313,015
------- ------- ------- ------- ------- ------- -------
54,553 57,359 47,075 55,661 65,671 92,413 74,798
59,034 62,683 51,044 61,304 73,730 98,846 80,894
------- ------- ------- ------- ------- ------- -------
236,239 202,893 181,332 151,222 129,428 115,190 125,845
18.90 16.40 14.06 11.90 10.49 10.42 10.83
12,497 12,371 12,894 12,704 12,344 11,051 11,622
3,900 3,400 3,200 2,700 3,100 3,500 3,900
------- ------- ------- ------- ------- ------- -------
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
<PAGE>
Lukens Inc. -- Management's Discussion and Analysis Dollars in thousands
except per share amounts
THE YEAR IN REVIEW
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 our two business groups, Lukens Steel Group and
Washington Stainless Group, are discussed. The Washington Stainless Group
resulted from the acquisition of Washington Steel Corporation in April 1992.
This acquisition had a significant impact on Lukens' results of operations and
financial condition.
This section should be read in conjunction with the consolidated financial
statements and notes.
SUMMARY OF RESULTS
<TABLE>
<CAPTION>
1994 1993 1992
--------- ------- -------
<S> <C> <C> <C>
Continuing operations
Net sales $ 947,013 862,072 695,772
Operating earnings $ 49,570 36,602 51,820
Interest income $ 45 61 826
Interest expense $ 13,258 16,380 13,563
Income tax expense $ 14,179 7,161 15,289
Effective income tax rate % 39.0 35.3 39.1
Net earnings -- continuing operations $ 22,178 13,122 23,794
--------- ------- -------
Discontinued operations
Earnings from operations, net of tax $ - 5,552 9,261
Loss provision, net of tax $ - (2,772) -
--------- ------- -------
Net earnings before cumulative
effect of 1993 accounting changes $ 22,178 15,902 33,055
--------- ------- -------
</TABLE>
CONSOLIDATED RESULTS FROM CONTINUING OPERATIONS
Net Sales. Sales were up 10 percent in 1994 with both business groups
contributing to the increase. The Washington Stainless Group benefited from
higher shipments and strong service center market conditions. Higher selling
prices and shipments resulted in the Lukens Steel Group improvement.
1993 sales were up 24 percent compared to 1992. The increase primarily reflected
the comparison of Washington Stainless Group 1993 sales to 1992, which was for
a partial year from the April 1992 acquisition to year-end. The Lukens Steel
Group recorded a sales increase, primarily from higher shipments.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
1992 1993 1994
------- ------- -------
<S> <C> <C> <C>
Net sales 695,772 862,072 947,013
</TABLE>
<PAGE>
Lukens Inc. -- Management's Discussion and Analysis
Operating Earnings. Operating earnings were up 35 percent in 1994. Included in
1993 earnings was a $14,921 fourth quarter provision recorded in the Lukens
Steel Group that was primarily for a work force reduction program. Excluding the
1993 provision for comparison purposes, 1994 operating earnings were down 4
percent. The decline reflected Lukens Steel Group results that were impacted by
increased scrap costs, costs associated with severe winter weather, and costs
and disruptions related to the capital expenditure program. Sales improvements
at the Washington Stainless Group translated to higher earnings in 1994.
Operating earnings in 1993 were down 29 percent compared to 1992. The decrease
was attributable to the Lukens Steel Group, which experienced a less profitable
shipment mix, higher scrap costs and recorded a fourth quarter provision
discussed previously. Selling and administrative expenses increased 43 percent
in 1993 compared to 1992. The increase reflected the comparison of Washington
Stainless Group 1993 expenses to a partial year in 1992. Higher expenses were
also attributable to increased retiree benefit costs associated with the
adoption of a new accounting standard, discussed in Note 1, and increased
pension expense and consulting fees.
Interest Income. Since the acquisition of Washington Steel in April 1992, short-
term investment levels and related interest income have remained at relatively
low levels.
Interest Expense. Interest expense in 1994 decreased 19 percent with most of
the decline attributable to higher amounts of capitalized interest associated
with capital expenditures. Lower interest rate swap expense also contributed to
the decline.
Acquisition-related interest for a full year in 1993 compared to a partial year
in 1992 resulted in a 21 percent increase. The increase also reflected higher
interest rates on the $150,000 of long-term notes, 7.625 percent coupon rate,
issued in the third quarter of 1992, compared to lower short-term interest rates
incurred prior to the issuance of the notes.
Income Tax Expense. The effective tax rate was 39.0 percent in 1994, 35.3
percent in 1993 and 39.1 percent in 1992. Included in the 1994 rate was .7
percent from the revaluation of net deferred tax assets following changes to
Pennsylvania corporate income tax rates and net operating loss deduction rules.
The 1993 rate included a favorable adjustment of 3.6 percent from the
revaluation of net deferred tax assets following a 1 percent increase in the
Federal corporate tax rate to 35 percent.
The effective tax rate for 1994 and 1993 was based on a new accounting standard
for income taxes discussed in Note 1. The deferred tax assets recognized in the
adoption of the standard were based on the combination of future reversals of
existing taxable temporary differences, carryback availability, tax planning
strategies and future taxable income.
Earnings From Continuing Operations. In 1994, higher operating earnings
combined with lower interest expense generated a 69 percent increase in earnings
from continuing operations compared to 1993.
In 1993, lower operating earnings and higher interest expense translated into a
45 percent drop in earnings from continuing operations compared to 1992.
Earnings From Discontinued Operations. 1993 earnings from discontinued
operations, net of taxes, were down 40 percent compared to 1992 earnings. Lower
activity for large pipe-coating orders at our ENCOAT subsidiary and weaker
market conditions experienced by the other subsidiaries resulted in the decline.
During the fourth quarter of 1993, a $4,500 provision, $2,772 after tax, was
recorded to recognize a change in the estimated realizable value of discontinued
operations. In 1994, results and divestiture gains and losses were charged
against this reserve.
Earnings Before Cumulative Effect of 1993 Accounting Changes. As a result of the
factors discussed above, 1994 earnings were up 39 percent over 1993 earnings
before the cumulative effect of accounting changes. 1993 earnings were down 52
percent compared to 1992.
<PAGE>
Dollars in thousands
except per share amounts
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
1992 1993 1994
------ ------ ------
<S> <C> <C> <C>
Net Earnings 33,055 15,902 22,178
before cumulative effect of 1993 accounting
changes
</TABLE>
Net Earnings (Loss). During 1993, Lukens adopted new accounting standards for
retiree medical and life insurance benefits and for income taxes, discussed in
Note 1. The cumulative effect of adopting these accounting standards was a net
expense of $65,901. As a result, a net loss of $49,999 was recorded in 1993.
BUSINESS GROUPS
Lukens Steel. The 7 percent sales increase in 1994 reflected higher selling
prices and increased shipments. Shipped tons of 725,900 in 1994 were up slightly
from 1993 shipments of 711,800 tons. Operating earnings were up 51 percent
compared to 1993. Earnings in 1993 included a $14,921 fourth quarter provision.
The provision included $9,660 for a work force reduction program, and other
charges for environmental remediation and workers' compensation claims.
Excluding the 1993 provision for comparison purposes, operating earnings were
down 19 percent in 1994. The decline reflected higher scrap costs, costs
associated with severe weather conditions during the first quarter, and
production disruptions and related costs from the capital expenditure program.
Strong shipment levels partially offset by a lower-value shipment mix resulted
in a 7 percent increase in 1993 sales from 1992. Shipments for the year were up
10 percent from 1992 shipped tons of 646,100.
Operating earnings in 1993 were down 59 percent compared to 1992, largely the
result of the fourth quarter charge discussed previously. Additionally, the
impact of a less profitable shipment mix and higher scrap costs squeezed profit
margins. Increased employee benefit costs were also incurred from the
recognition of accrual expense for retiree medical and life insurance benefits
resulting from the adoption of a new accounting standard, discussed in Note 1,
and from higher pension expense.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
1992 1993 1994
------- ------- -------
<S> <C> <C> <C>
Lukens Steel
Net Sales 417,528 445,075 475,982
</TABLE>
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
1992 1993 1994
------- ------- -------
<S> <C> <C> <C>
Lukens Steel
Operating Earnings 42,215 17,341 26,099
</TABLE>
<PAGE>
Lukens Inc. -- Management's Discussion and Analysis
Washington Stainless. The 16 percent increase in 1994 sales reflected improved
service center sales and increased shipments of sheet, strip and plate products.
Lower selling prices on certain products, especially during the first half of
the year, partially offset sales gains. Shipped tons of 259,500 in 1994 were 24
percent higher than 1993 shipments of 208,800. Sales improvements translated to
a 7 percent increase in earnings with the increase limited by the impact of
lower selling prices and a less profitable shipment mix.
Sales for 1993 were up 50 percent and operating earnings were up 64 percent
compared to 1992 results. The increases partially reflected the comparison of
1993 to 1992 results that were from the acquisition of the group in late April
1992. 1993 results benefited from production efficiencies, lower nickel costs
and improved earnings from the service center operations. On the negative side,
increased imports put pressure on 1993 selling prices. Shipped tons in 1992 were
147,500.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
1992 1993 1994
------- ------- -------
<S> <C> <C> <C>
Washington Stainless
Net Sales 278,244 416,997 484,178
</TABLE>
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
1992 1993 1994
------- ------- -------
<S> <C> <C> <C>
Washington Stainless
Operating Earnings 22,749 37,395 40,125
</TABLE>
BUSINESS OUTLOOK
1995 will be a pivotal year for Lukens with major capital expenditure projects
scheduled to come on-line. These projects represent key elements of our five-
year, $400,000 capital expenditure program that began in 1993.
By the end of the first quarter, the plate and sheet processing system that
utilizes Steckel rolling technology is scheduled to start up at our
Conshohocken, Pennsylvania, facility. Anticipated benefits from this project
include lower production costs, improved quality and an expanded product range.
The start-up will require several months and the benefits will not begin to be
realized until late in 1995. Also in 1995, projects to increase stainless
melting capacity will be completed.
Earnings in 1995 will be limited by start-up expenses and production disruptions
from these projects, particularly during the first half of the year. The plate
and sheet processing system is a complex project, and our ability to implement
the start-up as planned will be a significant factor in 1995.
<PAGE>
Dollars in thousands
except per share amounts
Business conditions in 1995 are expected to remain strong for both business
groups. In the Lukens Steel Group, higher selling prices are anticipated.
Although scrap prices remain high, continued selling price improvements should
improve margins. The Washington Stainless Group is expected to benefit from
higher selling prices to help offset rising nickel and other raw material costs.
Overall, the successful start-up of our capital expenditure projects combined
with anticipated strong market conditions should result in an earnings
improvement over 1994.
FINANCIAL CONDITION
Capital Structure. At the end of 1994, cash and cash equivalents totaled
$9,806, a decrease of $1,677 from the end of 1993. Working capital of $106,480
was down $39,554. The divestitures of discontinued operations caused a decrease
in working capital of $31,925. The current ratio was 1.6 compared to 1.9 at
year-end 1993.
Debt at the end of 1994 was $208,485, a decrease of $18,104, or 8 percent from
year-end 1993. The decrease was caused primarily by the net repayment of short-
term notes under our revolving credit agreements and by the repayment of a
$3,000 industrial revenue bond. Proceeds from discontinued operations
divestitures contributed to reduced debt levels.
The $150,000 of long-term notes at year-end were rated Baa2 by Moody's and BBB+
by Standard and Poor's. Included in year-end debt was $22,767 of ESOP debt,
which is guaranteed by Lukens. The ratio of long-term debt to total capital
(long-term debt plus stockholders' investment) was 42.1 percent at the end of
1994, which compared to 45.3 percent at year-end 1993.
During June 1994, a shelf registration for $100,000 of Lukens Inc. notes was
completed. Although there are no immediate plans to issue the notes, they are
available as a financing option for our capital expenditure program and other
long-term liquidity needs. The notes are structured to provide Lukens with
flexibility in maturities, from nine months to 30 years, and flexibility in
interest rate structures.
Effective January 15, 1995, our revolving credit agreements were amended. The
amendments increased our committed line of credit by $25,000 to $150,000 and
reduced our rate structures. The term of the agreements was also extended until
January 15, 2000.
Lukens enters forward exchange contracts (derivatives) with the objective to
manage or hedge our exposure to market price changes of certain commodities used
in manufacturing. We do 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 1994, we were party to several agreements
for 1995, which are discussed in Note 9.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
1992 1993 1994
------- ------- -------
<S> <C> <C> <C>
Current Assets 294,388 307,739 281,036
Working Capital 142,466 146,034 106,480
</TABLE>
<PAGE>
Lukens Inc. -- Management's Discussion and Analysis
Liquidity -- Short Term. Cash flow from operating activity was $79,180 in 1994
compared to $72,290 in 1993. Financing activity required $31,397 with dividend
payments of $17,140 and net debt repayments of $14,726. Investing activity
required $49,460 with capital spending of $120,342 partially offset by proceeds
from the sale of assets and subsidiaries of $70,433.
Based on our business outlook, we do not anticipate any significant increases to
our cash flow from operating activity in the short term. As discussed
previously, the key to 1995 results and cash flow will be our ability to
implement the start-up of major capital expenditure projects as planned.
Consolidated backlog at year-end 1994 was $168,500, up 66 percent from the
beginning of the year.
Capital expenditure projections for 1995 are relatively high at approximately
$110,000. We anticipate funding these expenditures primarily through the
combination of cash flow from operations and debt under our existing committed
line of credit.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
1992 1993 1994
------- ------- -------
<S> <C> <C> <C>
Capital Expenditures 36,002 67,424 120,342
</TABLE>
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 and to maintain a target long-term debt-to-capital ratio
of 35 percent. As the chart below indicates, Lukens has consistently generated
cash from operations totaling $210,654 over the past three years. Because of our
five-year, $400,000 capital expenditure program that began in 1993, we continue
to exceed our target long-term debt-to-capital ratio. The projected benefits of
the program should improve cash flow from operations and enable us to reach our
target in the long term.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
1992 1993 1994
------- ------- -------
<S> <C> <C> <C>
Cash Flow From Operations 59,184 72,290 79,180
</TABLE>
Environmental Compliance. We are projecting capital expenditures of
approximately $16,308 in 1995 and $4,577 in 1996 for environmental compliance.
The trend for tighter environmental standards is expected to result in higher
waste disposal costs and additional capital expenditures in the long term.
Lukens is a potentially responsible party under Superfund law at certain waste
disposal sites. As discussed in Note 11, our exposure to remediation costs at
these sites depends on several factors. Based on information currently
available, we believe that any future costs in excess of amounts already accrued
will not have a material adverse effect on our financial condition, results of
operations or competitive position.
<PAGE>
Dollars in thousands
except per share amounts
Debt Financing. Lukens' long-term notes outstanding of $150,000 are due in
2004. Supporting both our short- and long-term liquidity needs are agreements
for a committed line of credit and a shelf registration for $100,000 of Lukens
Inc. notes, discussed in the Capital Structure section.
Other Commitments. A contract for the supply of oxygen and related products to
a Lukens Steel Group manufacturing facility runs until 2007 and includes take-
or-pay provisions totaling $30,838 at the end of 1994. Washington Steel
Corporation has contracts for the supply of nickel. The contracts include
minimum quantities and market-based pricing. Based on year-end 1994 market
conditions, the value of these contracts totaled $83,981.
Inflation. On average, inflation rates for the domestic economy have not been
severe 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. Lukens paid $1.00 per share in common stock dividends in 1994. A
quarterly common dividend of $.25 per share was paid on February 17, 1995. It is
our objective to pay common dividends approximating 35 percent of net earnings
over the long term. As of February 13, 1995, there were approximately 5,900
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, ticker
symbol "LUC." Dividends and stock market price ranges for the last two years are
included in the section entitled "Quarterly Financial Data" in Part II, Item 8
of this Form 10-K.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
1992 1993 1994
------- ------- -------
<S> <C> <C> <C>
Net Earnings Per Common Share
before cumulative effect of 1993
accounting changes 2.31 .95 1.37
Dividends Per Common Share 1.00 1.00 1.00
</TABLE>
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
<PAGE>
Lukens Inc. -- Consolidated Financial Statements Dollars and shares in
thousands except per
shares amounts
Consolidated Financial Statements
Consolidated Statements of Earnings (Note 2)
for the 53 weeks ended December 31, 1994, and the 52 weeks ended December 25,
1993, and December 26, 1992
<TABLE>
<CAPTION>
1994 1993 1992
-------- ------- -------
<S> <C> <C> <C>
Net Sales $947,013 862,072 695,772
Operating Costs and Expenses (Notes 4, 5, 7, 8, 9 and 11)
Cost of products sold 841,308 754,899 601,974
Selling and administrative expenses 56,135 59,945 41,978
Unusual item -- work force reduction provision - 10,626 -
-------- ------- -------
Total operating costs and expenses 897,443 825,470 643,952
Operating Earnings 49,570 36,602 51,820
Interest income 45 61 826
Interest expense (Note 9) (13,258) (16,380) (13,563)
-------- ------- -------
Earnings Before Income Taxes 36,357 20,283 39,083
Income tax expense (Note 6) 14,179 7,161 15,289
-------- ------- -------
Earnings from Continuing Operations --
Before Cumulative Effect of 1993 Accounting Changes 22,178 13,122 23,794
Discontinued Operations (Note 2)
Earnings from operations, net of tax - 5,552 9,261
Loss provision, net of tax - (2,772) -
-------- ------- -------
Earnings Before Cumulative Effect of 1993 Accounting Changes 22,178 15,902 33,055
Cumulative Effect of 1993 Accounting Changes, Net of Tax
Postretirement benefits -- SFAS No. 106 (Note 1) - (67,222) -
Income taxes -- SFAS No. 109 (Note 1) - 1,321 -
-------- ------- -------
Net Earnings (Loss) $ 22,178 (49,999) 33,055
-------- ------- -------
Dividend requirements for preferred stock (Note 10) (2,025) (1,905) (1,613)
Net Earnings (Loss) Applicable to Common Stock $ 20,153 (51,904) 31,442
-------- ------- -------
Earnings (Loss) Per Common Share (Notes 1 and 10)
Primary
Earnings before cumulative effect of 1993 accounting changes $ 1.37 .95 2.31
Net earnings (loss) $ 1.37 (3.51) 2.31
Fully diluted
Earnings before cumulative effect of 1993 accounting changes $ 1.32 .93 2.17
Net earnings (loss) $ 1.32 (3.51) 2.17
Common Shares and Equivalents Outstanding (Notes 1 and 10)
Primary 14,743 14,781 13,603
Fully diluted 16,331 16,409 15,261
Cash Dividends on Common Stock -- Per Share $ 1.00 1.00 1.00
-------- ------- -------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
Dollars in thousands
Consolidated Balance Sheets
as of December 31, 1994, and December 25, 1993
<TABLE>
<CAPTION>
1994 1993
-------- -------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents (Note 1) $ 9,806 11,483
Receivables, less allowance of $7,569 in 1994
and $11,444 in 1993 120,592 114,951
Inventories (Notes 1 and 8) 134,928 160,060
Deferred income taxes (Note 6) 13,695 15,070
Prepaid expenses and other 2,015 6,175
-------- -------
Total current assets 281,036 307,739
Plant and Equipment (Notes 1, 9 and 11)
Land 11,919 17,648
Buildings 95,753 101,025
Machinery and equipment 633,160 642,404
Construction in progress 102,573 28,703
-------- -------
843,405 789,780
Less accumulated depreciation 365,276 357,927
-------- -------
Net plant and equipment 478,129 431,853
Intangible Assets, net of accumulated amortization
of $5,038 in 1994 and $9,817 in 1993 (Notes 1 and 5) 45,522 54,594
Deferred Income Taxes (Note 6) 19,990 20,498
Other Assets 1,757 2,494
-------- -------
Total Assets $826,434 817,178
-------- -------
Liabilities & Stockholders' Investment
Current Liabilities
Accounts payable $ 87,463 75,540
Accrued employment costs (Notes 5 and 7) 50,526 52,339
Other accrued expenses 29,433 28,005
Current maturities of long-term debt (Note 9) 7,134 5,821
-------- -------
Total current liabilities 174,556 161,705
Long-Term Debt (Note 9) 201,351 220,768
Retirement Benefits (Note 5)
Pensions 23,336 19,055
Medical and life insurance 140,773 136,056
Other Liabilities 9,361 12,840
-------- -------
Total liabilities 549,377 550,424
Commitments and Contingencies (Note 11)
Stockholders' Investment
Series preferred stock (Note 10) 30,635 32,467
Common stock (Note 10) 158 158
Capital in excess of par value (Note 10) 84,088 82,625
Earnings invested 199,586 193,977
Foreign currency translation adjustments (1,303) (1,641)
Deferred compensation -- ESOP (Note 7) (22,767) (26,209)
Repurchased stock, at cost (13,340) (14,623)
-------- -------
Total stockholders' investment 277,057 266,754
-------- -------
Total Liabilities & Stockholders' Investment $826,434 817,178
-------- -------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
Lukens Inc. -- Consolidated Financial Statements Dollars in thousands
except per share amounts
Consolidated Statements of Stockholders' Investment
for the 53 weeks ended December 31, 1994, and the 52 weeks ended December 25,
1993, and December 26, 1992
<TABLE>
<CAPTION>
1994 1993 1992
--------------------- --------------------- ---------------------
Shares Dollars Shares Dollars Shares Dollars
---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Series Preferred Stock (Note 10)
(1,000,000 shares authorized)
Series B
Balance at beginning of year 541,123 $ 32,467 544,374 $ 32,662 547,584 $ 32,855
Conversion (30,531) (1,832) (3,251) (195) (3,210) (193)
---------- -------- ---------- -------- ---------- --------
Balance at end of year 510,592 30,635 541,123 32,467 544,374 32,662
Common Stock (Note 10)
(40,000,000 shares authorized)
Balance at beginning of year 15,813,259 158 15,813,259 158 9,410,178 94
Issued - - - - 1,132,300 11
Stock split - - - - 5,270,781 53
---------- -------- ---------- -------- ---------- --------
Balance at end of year 15,813,259 158 15,813,259 158 15,813,259 158
Capital in Excess of Par Value
Balance at beginning of year 82,625 81,040 19,814
Stock option activity (Note 7) 685 1,502 2,679
Conversion of Series B
preferred stock 778 83 82
Common stock issued (Note 10) - - 58,518
Common stock split (Note 10) - - (53)
-------- -------- --------
Balance at end of year 84,088 82,625 81,040
Earnings Invested
Balance at beginning of year 193,977 260,366 242,295
Net earnings (loss) 22,178 (49,999) 33,055
Dividends
Preferred ($4.80 per share) (2,522) (2,602) (2,619)
Common ($1.00 per share) (14,583) (14,508) (13,374)
Tax benefit on ESOP preferred
stock dividends 536 720 1,009
-------- -------- --------
Balance at end of year 199,586 193,977 260,366
Foreign Currency Translation
Adjustments
Balance at beginning of year (1,641) (1,088) 112
Effect of rate changes (665) (553) (1,083)
Sale of subsidiaries 1,003 - (117)
-------- -------- --------
Balance at end of year (1,303) (1,641) (1,088)
Deferred Compensation -- ESOP
Balance at beginning of year (26,209) (28,595) (30,452)
Allocations to employees 3,442 2,386 1,857
-------- -------- --------
Balance at end of year (22,767) (26,209) (28,595)
Repurchased Stock, at cost
Balance at beginning of year 1,284,273 (14,623) 1,358,717 (15,470) 1,003,343 (16,395)
Stock option activity (Note 7) (31,366) 233 (64,725) 737 (136,718) 816
Conversion of Series B
preferred stock (91,447) 1,050 (9,719) 110 (9,583) 109
Common stock split (Note 10) - - - - 501,675 -
---------- -------- ---------- -------- ---------- --------
Balance at end of year 1,161,460 (13,340) 1,284,273 (14,623) 1,358,717 (15,470)
Stockholders' Investment $277,057 $266,754 $329,073
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
Dollars in thousands
Consolidated Statements of Cash Flows
for the 53 weeks ended December 31, 1994, and the 52 weeks ended December 25,
1993, and December 26, 1992
<TABLE>
<CAPTION>
1994 1993 1992
--------- ------- --------
<S> <C> <C> <C>
Operating Activity
Net earnings (loss) $ 22,178 (49,999) 33,055
Adjustments to Reconcile Net Earnings (Loss) to Cash
Flow From Operating Activity
Depreciation and amortization 43,962 45,488 39,232
Cumulative effect of 1993 accounting changes - 65,901 -
Income taxes deferred 4,687 (8,549) 6,519
Work force reduction provision - 10,626 -
Loss (gain) on disposition of assets/subsidiaries - 4,500 (471)
Provision for uncollectible accounts 10,467 12,997 9,268
Retirement benefit funding less than expense 14,755 3,238 3,572
Changes in working capital affecting operations
Accounts receivable (34,699) (5,847) (16,766)
Inventories 6,813 (9,873) (4,838)
Prepaid expenses and other 2,469 (1,029) 962
Accounts payable 17,722 68 (6,664)
Accrued expenses (7,023) 4,847 935
Other, net (2,151) (78) (5,620)
--------- ------- --------
Cash flow from operating activity 79,180 72,290 59,184
Financing Activity
Long-term debt
Borrowed 15,100 22,000 439,731
Repaid (29,826) (16,164) (279,797)
Dividends paid (17,140) (17,115) (15,997)
Proceeds from stock options exercised 720 1,598 2,557
Proceeds from common stock issued - - 58,529
Other, net (251) - (3,377)
--------- ------- --------
Net from (for) financing activity (31,397) (9,681) 201,646
Investing Activity
Acquisitions, net of cash acquired of $271 - - (274,441)
Capital expenditures (120,342) (67,424) (36,002)
Proceeds from sale of assets/subsidiaries 70,433 1,013 1,066
Proceeds from sale of equity securities - - 3,604
Purchase of short-term investments - - (338)
Proceeds from sale of short-term investments - - 15,888
Other, net 449 315 (24)
--------- ------- --------
Net for investing activity (49,460) (66,096) (290,247)
Cash and Cash Equivalents
Increase (decrease) (1,677) (3,487) (29,417)
Start of year 11,483 14,970 44,387
--------- ------- --------
End of year $ 9,806 11,483 14,970
--------- ------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
Lukens Inc. -- Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
Consolidation and Fiscal Year. 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.
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 Washington Stainless
Group determine cost by the first-in, first-out (FIFO) method. Supplies are
valued at the lower of average cost or market. Additional inventory disclosures
are included in Note 8.
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 20 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, discussed in Note 2. 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 5.
Derivative Financial Instruments. Derivative financial instruments, such as
forward exchange contracts, are used to manage exposure to changes in market
conditions for certain raw material purchases and debt transactions. Gains or
losses on these contracts are recognized as a component of the related
transaction over the life of the contract. Additional disclosures are included
in Note 9.
Environmental Liabilities. 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.
Additional disclosures are included in Note 11.
Earnings Per Share. Primary earnings per common share are calculated by
dividing net earnings applicable to common stock by the average number of common
shares outstanding and common stock equivalents. On a fully-diluted basis, both
net earnings and shares outstanding are adjusted to assume the conversion of
convertible preferred stock.
During 1992, Lukens issued long-term notes and common stock (Notes 9 and 10) to
refinance the Washington Steel acquisition (Note 2). If the long-term notes and
common stock had been issued on the acquisition date, primary earnings per
common share reported for 1992 would not have been significantly different.
1993 Accounting Changes -- Income Taxes. In the first quarter of 1993, Lukens
adopted Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting
for Income Taxes." The statement requires an asset and liability approach to
determine the tax provision and related deferred tax assets and liabilities. We
elected to record the cumulative effect of this accounting change by the
recognition of a $1,321 gain, or $.09 per common share.
As a result of adopting SFAS No. 109, the tax benefit on the Lukens preferred
stock dividends for the shares allocated to employee stock ownership plan (ESOP)
participants is recognized as a reduction to the income tax provision. In prior
years, this amount was recognized as a direct increase to retained earnings.
Results for years prior to 1993 have not been restated. See Note 6 for
additional income tax disclosures.
<PAGE>
Dollars in thousands
except per share amounts
1993 Accounting Changes -- Retiree Medical & Life Insurance Benefits. In the
first quarter of 1993, Lukens adopted SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." The statement requires the
liability and expense to be actuarially determined in a framework similar to the
one used to measure defined benefit pension plans. We elected to record the
cumulative effect of this accounting change by the recognition of a $108,000
expense, which represented the accumulated postretirement benefit obligation for
current and future retirees at the beginning of 1993. On an after-tax basis, the
expense was $67,222, or $4.55 per common share.
The recognition of retiree medical and life insurance benefits in years prior to
1993 was on a cash basis. Results for these years have not been restated. See
Note 5 for additional disclosures.
2. ACQUISITIONS & DISCONTINUED OPERATIONS
Acquisitions. On April 24, 1992, Washington Steel Corporation was acquired for
$273,718 in cash. Washington Steel is a stainless steel producer with two
production facilities in Pennsylvania and one in Ohio. Also included in the
acquisition were seven stainless service centers in the United States and
Canada. The acquisition was accounted for as a purchase with the results of
Washington Steel included from the acquisition date.
The pro forma consolidated results listed below are unaudited and reflect
purchase accounting adjustments assuming the acquisition occurred at the
beginning of 1992.
<TABLE>
<CAPTION>
1992
--------
<S> <C>
Net sales $823,672
Operating earnings $ 61,838
Net earnings $ 35,986
Earnings per common share
Primary $ 2.53
Fully diluted $ 2.36
</TABLE>
Discontinued Operations. As part of a program adopted in 1993 to focus Lukens'
resources on its steel businesses, the subsidiaries previously reported in the
Corrosion Protection Group, Safety Products Group and most subsidiaries in the
Diversified Group were reported as discontinued operations. In the fourth
quarter of 1993, a $4,500 provision was recognized to revise estimates of the
realizable value of discontinued operations. On an after-tax basis, the
provision was $2,772, or $.19 per common share.
During 1994, net proceeds from the divestiture of discontinued operations
totaled $69,256. One subsidiary remains, our pipe-coating business, that is
actively being marketed. In 1994, results and divestiture gains and losses were
charged against the reserve established in the fourth quarter of 1993. Operating
results for 1994 included net sales of $70,925 and a net loss of $1,067.
Net sales and income tax expense of the discontinued operations and an earnings
per common share reconciliation for 1993 and 1992 are presented below.
<TABLE>
<CAPTION>
1993 1992
-------- -------
<S> <C> <C>
Net sales $171,267 184,869
-------- -------
Income tax expense (benefit)
Earnings from operations $ 3,461 5,580
Loss provision $ (1,728) -
-------- -------
Earnings per common share -- primary
Continuing operations $ .76 1.63
Discontinued operations .19 .68
-------- -------
$ .95 2.31
Earnings per common share -- fully diluted
Continuing operations $ .76 1.56
Discontinued operations .17 .61
-------- -------
$ .93 2.17
-------- -------
</TABLE>
<PAGE>
Lukens Inc. -- Notes to Consolidated Financial Statements
3. 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.
Lukens Steel Group -- specializes in the production of carbon, alloy and clad
plate steels.
Washington Stainless Group -- specializes in the production of stainless steel
sheet, strip, plate, hot band and slabs. The group also operates stainless
service centers.
Summary business group information is included in the following chart.
<TABLE>
<CAPTION>
1994 1993 1992
-------- ------- -------
<S> <C> <C> <C>
Net sales
Lukens Steel $475,982 445,075 417,528
Washington Stainless/b/ 484,178 416,997 278,244
Inter-group eliminations (13,147) - -
-------- ------- -------
$947,013 862,072 695,772
Operating earnings (loss)
Lukens Steel/a/ $ 26,099 17,341 42,215
Washington Stainless/b/ 40,125 37,395 22,749
Corporate/c/ (16,654) (18,134) (13,144)
-------- ------- -------
$ 49,570 36,602 51,820
Assets
Lukens Steel $392,267 299,638 259,335
Washington Stainless 395,034 398,204 369,232
Corporate/d/ 12,598 17,370 19,573
Discontinued Operations 26,535 101,966 111,905
-------- ------- -------
$826,434 817,178 760,045
Depreciation and amortization
Lukens Steel $ 18,864 18,408 17,698
Washington Stainless/b/ 20,834 18,597 12,313
Corporate 743 725 1,634
Discontinued Operations 3,521 7,758 7,587
-------- ------- -------
$ 43,962 45,488 39,232
Capital expenditures
Lukens Steel $ 98,611 38,206 25,015
Washington Stainless/b/ 19,624 25,554 6,557
Corporate 373 362 209
Discontinued Operations 1,734 3,302 4,221
-------- ------- -------
$120,342 67,424 36,002
</TABLE>
a. Lukens Steel Group Operating Earnings: 1994 -- In the first quarter, the
group recorded a loss of $1,339 caused primarily by production disruptions
and maintenance costs associated with severe weather conditions. 1993 -- In
the fourth quarter, charges of $14,921 were recognized that included $9,660
of expense for a work force reduction program (Note 4). The remaining charges
included provisions for environmental remediation and workers' compensation
claims. The adoption of an accounting standard for retiree medical and life
insurance benefits (Note 1) resulted in additional expense of $4,610 over the
cash claims. 1992 -- In the fourth quarter, a provision for workers'
compensation claims alleging hearing loss reduced results by $3,500. Also in
the fourth quarter of 1992, a favorable LIFO inventory accounting adjustment
increased earnings by $2,719.
b. Washington Stainless Group Results: 1994 -- In the fourth quarter, charges of
$1,069 were recognized, primarily for an early retirement program. 1992 --
Results are for a partial year, from the acquisition date on April 24, 1992,
to year-end.
c. Corporate Expenses: 1993 -- Results included higher consulting fees and
expenses from a work force reduction program.
d. Corporate Assets: Corporate assets consist primarily of cash and cash
equivalents, refundable income taxes, office facilities and deferred income
taxes.
<PAGE>
Dollars in thousands
except per share amounts
4. UNUSUAL ITEM
During the fourth quarter of 1993, $10,626 of expenses for a work force
reduction program were recognized. The expenses were primarily for pension and
medical benefits associated with an early retirement program. On an after-tax
basis, the provision reduced net earnings before the cumulative effect of
accounting changes by $6,247, or $.43 per common share.
5. RETIREE BENEFITS
Pensions. Lukens has several 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.
The components of pension expense are listed below.
<TABLE>
<CAPTION>
1994 1993 1992
-------- ------- -------
<S> <C> <C> <C>
Service cost for benefits earned $ 8,259 7,460 6,184
Interest cost on projected benefit obligation 26,560 26,672 23,322
Actual return on assets (5,207) (33,384) (22,742)
Amortization and deferrals
Deferred return on assets (22,105) 5,679 (3,055)
Prior service cost 2,894 2,880 2,069
Other, net 250 (138) (609)
-------- ------- -------
Net pension expense/a/ $ 10,651 9,169 5,169
-------- ------- -------
</TABLE>
a. The increase in 1993 pension expense resulted primarily from plan
improvements for Lukens Steel Group salary employees. The increase was also
attributable to a full year of Washington Stainless Group expense compared to
1992, which was from the acquisition on April 24.
The following table reconciles the net funded status of our plans to amounts
recognized in the Consolidated Balance Sheets.
<TABLE>
<CAPTION>
1994 1993
--------- --------
<S> <C> <C>
Actuarial present value of
Vested benefit obligation/a/ $(273,275) (304,388)
Nonvested benefit obligation/a/ (30,023) (33,089)
--------- --------
Accumulated benefit obligation/a/ (303,298) (337,477)
Effect of projected future compensation/a/ (25,998) (36,927)
--------- --------
Projected benefit obligation/a/ (329,296) (374,404)
Plan assets at fair value/b/ 284,066 303,538
--------- --------
Plan assets less than projected benefit obligation (45,230) (70,866)
--------- --------
Unrecognized net loss (gain) (11,240) 21,496
Unrecognized prior service cost 31,564 33,651
Unrecognized net obligation at transition 235 436
Adjustment to recognize minimum liability (2,695) (4,641)
--------- --------
Net pension liability recognized in the
consolidated balance sheets $ (27,366) (19,924)
--------- --------
</TABLE>
a. The decrease in the 1994 benefit obligations primarily reflected a higher
discount rate.
b. Plan assets primarily consist of stocks, bonds and short-term investments.
Included in plan assets is Lukens' common stock totaling $734 in 1994 and
$10,585 in 1993.
<PAGE>
Lukens Inc. -- Notes to Consolidated Financial Statements
The net pension liability was recognized in the following accounts in the
Consolidated Balance Sheets.
<TABLE>
<CAPTION>
1994 1993
-------- -------
<S> <C> <C>
Accrued employment costs $ (5,016) (2,720)
Other liabilities (23,336) (19,055)
Intangible assets 986 1,851
-------- -------
Net pension liability $(27,366) (19,924)
</TABLE>
Significant assumptions used in the calculation of pension expense and
obligations are listed below.
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Discount rate % 8.7 7.2 8.3
Rate of compensation increase % 3-7 3-7 3-7
Long-term rate of return on plan assets % 9.5 9.5 9.5
</TABLE>
Retiree Health & Life Insurance Benefits. Lukens provides retiree health and
life insurance benefits for most employees if they continue to work for the
company until they reach retirement age. These benefits are funded as the claims
are submitted.
During 1993, Lukens adopted a new accounting standard, SFAS No. 106, for these
retiree benefits. As discussed in Note 1, we elected to recognize the cumulative
effect of adopting the standard in 1993. Accrual expense under the new standard
is significantly higher than the expense recognized under the previous cash-
basis method. Cash payments in 1992 were $6,514.
Components of retiree health and life insurance expense in 1994 and 1993 are
listed below.
<TABLE>
<CAPTION>
1994 1993
--------- -------
<S> <C> <C>
Service cost for benefits earned $ 3,293 2,752
Interest cost on accumulated postretirement
benefit obligation 10,524 10,453
--------- -------
Net postretirement benefit expense $ 13,817 13,205
--------- -------
</TABLE>
The table below reconciles the actuarial present value of our obligations to the
liability recognized in the Consolidated Balance Sheets.
<TABLE>
<CAPTION>
1994 1993
--------- -------
<S> <C> <C>
Accumulated postretirement benefit obligation
Retirees/a/ $ (78,007) (82,099)
Fully eligible active participants/a/ (15,183) (44,843)
Other active participants/a/ (30,384) (31,458)
--------- -------
Total accumulated postretirement benefit
obligation/a,b/ (123,574) (158,400)
Unrecognized (gain) loss (17,199) 22,344
--------- -------
Accrued postretirement benefit liability $(140,773) (136,056)
--------- -------
</TABLE>
a. The decrease in the 1994 benefit obligations primarily reflected a higher
discount rate.
b. Obligations include life insurance benefits of $16,246 in 1994 and $14,430 in
1993.
Significant assumptions used in the calculation of expense and obligations are
listed below.
<TABLE>
<CAPTION>
1994 1993
--------- -------
<S> <C> <C>
Discount rate % 8.7 7.4
Health-care cost increase/a/ % 7.2-9 9.5-12
</TABLE>
a. Health-care cost increase assumptions are reduced to a rate of 5 percent
beginning in 2003.
<PAGE>
Dollars in thousands
except per share amounts
A one-percentage point increase in the medical cost trend rate for each year
would increase the accumulated postretirement benefit obligation by
approximately $17,819 and would increase net postretirement benefit expense by
approximately $2,544.
6. Income Taxes
During 1993, Lukens adopted a new income tax accounting standard, discussed in
Note 1. Because we elected to recognize the cumulative effect of adopting the
standard in 1993, prior years accounted for under the deferral method have not
been restated.
The reconciliation between the federal statutory rate applicable to Lukens'
earnings from continuing operations and our effective rate is listed below.
Essentially all earnings are from United States sources.
<TABLE>
<CAPTION>
1994 1993 1992/a/
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate %35.0 35.0 34.0
Federal statutory rate change - (3.6) -
State income taxes net of federal tax
benefit 2.2 1.6 3.8
State income tax changes .7 - -
Non-deductible expenses 1.6 2.0 1.2
Other (.5) .3 .1
---- ---- ----
Effective income tax rate %39.0 35.3 39.1
---- ---- ----
</TABLE>
a. Deferral method.
The components of the deferred income tax assets and liabilities are listed
below.
<TABLE>
<CAPTION>
1994 1993
-------- -------
<S> <C> <C>
Deferred tax assets
Retirement benefits $ 64,902 64,724
Other deductible temporary differences 18,482 20,955
Valuation allowance (2,575) (3,062)
-------- -------
80,809 82,617
Deferred tax liabilities
Plant and equipment (39,450) (36,718)
Other taxable temporary differences (7,674) (10,331)
-------- -------
(47,124) (47,049)
-------- -------
Net deferred tax asset $ 33,685 35,568
-------- -------
</TABLE>
The current and deferred components of the income tax provision are listed
below.
<TABLE>
<CAPTION>
1994 1993 1992/a/
------- ------ ------
<S> <C> <C> <C>
Current
U.S. Federal $ 5,470 11,868 9,599
State and other 971 491 1,513
------- ------ ------
6,441 12,359 11,112
Deferred to future years
U.S. Federal 7,033 (4,901) 3,120
State and other 435 159 1,057
------- ------ ------
7,468 (4,742) 4,177
Change in tax rate 757 (727) -
Change in valuation allowance (487) 271 -
------- ------ ------
Income tax expense $14,179 7,161 15,289
------- ------ ------
</TABLE>
a. Deferral method.
<PAGE>
Lukens Inc. - Notes to Consolidated Financial Statements
Deferred income taxes recognized under the deferral method were the result of
the timing differences between financial reporting and taxable earnings listed
below.
<TABLE>
<CAPTION>
1992
-------
<S> <C>
Depreciation $ 5,917
Pensions (1,534)
Vacations 319
Other (525)
-------
Deferred income tax expense $ 4,177
-------
</TABLE>
On a cash basis, Lukens paid the following amounts of income taxes, including
payments for discontinued operations.
1994 1993 1992
$4,040 $18,938 $10,960
7. Compensation Plans
Stock Options. The 1985 Stock Option and Appreciation Plan provides for the
issuance of non-qualified stock options and incentive stock options (ISO's) to
officers and other executives. A maximum of 1,837,500 options to purchase
Lukens' common stock can be granted until February 26, 1998, at an exercise
price not less than the fair market value on the grant date. Options granted
vest after one year and expire in ten 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 Inc. common
stock at an exercise price based on the fair market value on the grant date.
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 his expected service period.
A summary of stock option activity is presented below.
<TABLE>
<CAPTION>
Exercise Price
Options Per Option
------- ------------
1993
<S> <C> <C>
Options outstanding, beginning of year 668,643 $ 6.72-31.00
Granted 80,600 $46.56-47.25
Exercised (64,725) $16.63-31.00
Terminated (600) $16.63
------- ------------
Options outstanding, end of year 683,918 $ 6.72-47.25
(333,318 exercisable and 774,625 available
for grant)
1994
Granted 127,650 $30.63-36.38
Exercised (35,950) $16.63-31.00
Terminated (7,800) $31.00-47.25
------- ------------
Options outstanding, end of year 767,818 $ 6.72-47.25
(401,868 exercisable and 654,775 available
for grant)
</TABLE>
<PAGE>
Dollars in thousands
except per share amounts
Incentive Compensation. Most Lukens' employees participate in incentive
compensation plans that are based on the consolidated results of Lukens Inc. and
on the results of various subsidiaries. Compensation expense under these plans
is listed below.
1994 1993 1992
$17,444 $19,419 $13,016
Employee Stock Ownership Plan (ESOP). In 1989, an ESOP within an existing 401(k)
employee savings plan for most salaried employees was established. The ESOP was
designed to provide 401(k) employer matching benefits in the form of convertible
preferred stock that was acquired with the proceeds from a $33,075 term loan
(Note 9). 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. The projected maturities of the ESOP loan over the remaining
term are listed below.
1995 1996 1997 1998
$4,085 $6,232 $7,630 $4,820
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, is recognized in the stockholders' investment section. 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.
1994 1993 1992
$2,551 $2,222 $1,597
8. Inventories
<TABLE>
<CAPTION>
The components of inventory are listed below.
1994 1993
-------- -------
<S> <C> <C>
Products finished and in process $ 99,120 121,437
Raw materials 31,064 32,596
Supplies 4,744 6,027
-------- -------
Inventories/a/ $134,928 160,060
-------- -------
</TABLE>
a. Approximately 75 percent of inventories were accounted for under the LIFO
inventory valuation method.
The estimated cost to replace inventories at year-end is listed below.
1994 1993 1992
$178,000 $197,000 $180,000
In 1992, reductions in inventory quantities resulted in a liquidation of LIFO
inventory carried at lower costs from prior years. The effect of this
liquidation reduced cost of products sold by $3,234. The effects of LIFO
liquidations in 1994 and 1993 were not significant.
<PAGE>
Lukens Inc. - Notes to Consolidated Financial Statements
9. Financial Instruments
Long-term Debt. Listed below is a summary of long-term debt outstanding.
<TABLE>
<CAPTION>
Years Due 1994 1993
--------- -------- -------
<S> <C> <C> <C>
Notes payable, face amount 2004 $150,000 150,000
Unamortized discount (614) (679)
Coupon interest at 7.625%
Effective interest at 7.691%
Short-term notes/a/ 2000 21,850 32,000
Industrial revenue bonds/b/ 1995-2009 6,557 10,884
Term loans at 7% to 9.85% 1995-2007 7,925 8,175
ESOP debt guarantee/c/ 1995-1998 22,767 26,209
--------- -------- -------
Total debt/d/ 208,485 226,589
Less current portion 7,134 5,821
-------- -------
Long-term debt/e/ $201,351 220,768
-------- -------
</TABLE>
- ------------
a. The weighted-average interest rate was 6.3% at year-end 1994 and 3.7% at
year-end 1993. Short-term notes are classified as long term because they are
supported by the revolving credit agreements discussed below.
b. The weighted-average interest rate was 5.4% at year-end 1994 and 4.8% at
year-end 1993.
c. The ESOP debt, guaranteed by Lukens, carries an 8.26% interest rate on
$18,582 as of December 31, 1994. The remaining ESOP debt carries a variable
rate of 80.5% of prime. For a discussion on ESOP accounting, see Note 7.
d. Annual maturities of long-term debt, excluding the ESOP debt guarantee, over
the next five years are listed below.
1995 1996 1997 1998 1999
$3,049 $5,600 $ 316 $ 318 $ 321
e. Plant and equipment with a net depreciated cost of $47,300 are pledged as
collateral, primarily for industrial revenue bonds.
Notes Payable. Lukens has notes outstanding of $150,000 which are due in 2004.
Interest is payable semi-annually. The notes are currently rated Baa2 by Moody's
and BBB+ by Standard and Poor's.
During June 1994, a shelf registration for an additional $100,000 of Lukens Inc.
notes was completed. Although there are no immediate plans to issue the notes,
they are available as a financing option for our capital expenditure program
discussed in Note 11 and other long-term liquidity needs. The notes are
structured to provide Lukens with flexibility in maturities, from nine months to
30 years, and flexibility in interest rate structures.
Revolving Credit Agreements. Subsequent to year-end, Lukens amended its
revolving credit agreements to provide for a $150,000 committed line of credit,
an increase of $25,000. The amended agreements expire on January 15, 2000.
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 and 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 and Poor's or Moody's rating of Lukens' long-
term notes.
The agreements include covenants that require a maximum leverage ratio (defined
in the agreement) of 55 percent and restrictions on additional debt and asset
dispositions. At year-end, we were in compliance with these covenants.
Additional borrowings of $128,150 were available under the amended agreements.
<PAGE>
Dollars in thousands
except per share amounts
Interest Expense. Interest costs include interest on obligations, amortization
of debt set-up costs and interest rate swap expense. For a discussion of ESOP
debt accounting, see Note 7. Interest components are listed below.
<TABLE>
<CAPTION>
1994 1993 1992
------- ------ ------
<S> <C> <C> <C>
Costs incurred $15,794 16,463 13,563
Interest capitalized (2,536) (83) -
------- ------ ------
Interest expense $13,258 16,380 13,563
------- ------ ------
Interest paid $16,253 15,702 10,449
</TABLE>
Derivative Financial Instruments - Commodity Hedges. As of year-end 1994,
Lukens was party to several commodity hedge agreements for 1995. Based on year-
end market conditions, the value of Lukens' contractual obligations for these
commodity hedges is $45,891, and the obligation of the counterparties to the
agreements is $59,536. 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.
Fair Value of Financial Instruments. The following table presents the fair value
of certain financial instruments as of year-end 1994 and 1993.
<TABLE>
<CAPTION>
Asset (Liability)
Book Value Fair Value
---------- ----------
<S> <C> <C>
1994
Debt/a/ $(208,485) (197,964)
Commodity hedges/b/ $ - 14,003
--------- -------
1993
Debt/a/ $(226,589) (239,137)
Commodity hedges/b/ $ - (3,325)
Interest rate swaps/c/ $ - (1,500)
--------- -------
</TABLE>
- ------------
a. Fair value was estimated by discounting cash flows using year-end interest
rates.
b. Fair value was estimated by using quotes from brokers.
c. Interest exchange agreements with a notional principal amount of $81,250 were
outstanding at year-end 1993.
10. Stockholders' Investment
Common Stock. At the Annual Meeting of Stockholders on April 28, 1993, a
20,000,000 increase in the number of authorized common shares was approved. The
increase, which was designed to provide greater flexibility in future capital
structure requirements, brought the total number of shares authorized to
40,000,000. The par value remained at $.01 per share.
On July 28, 1992, Lukens issued 1,132,300 shares of common stock. The net
proceeds of $58,529 were used to reduce the debt incurred to finance the
Washington Steel acquisition. On September 28, 1992, a three-for-two common
stock split was completed in the form of a 50 percent stock dividend. As a
result of the split, $53, representing the par value of the additional shares,
was transferred from capital in excess of par value to common stock. Common
shares and equivalents outstanding and per share amounts in this Annual Report
have been restated to reflect the stock split.
Under the stock option plans discussed in Note 7, 2,242,500 shares of common
stock have been reserved.
<PAGE>
Lukens Inc. - Notes to Consolidated Financial Statements
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.
The stock is currently redeemable in common stock, cash or a combination at the
option of Lukens at a price of $63.60 per share. The redemption price declines
gradually each year to $60 per share on or after July 2, 2000.
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.
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 four-ninths (reflects adjustment for 1988
and 1992 common stock splits) of a 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 $110. The rights become exercisable if a person or
group acquires or makes a tender or exchange offer for 20 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 $.05 per right at any
time until the tenth day following public announcement that a 20 percent
position has been acquired. The purchase rights will expire on August 10, 1997.
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 31,
1994, there were 6,511,911 rights outstanding.
11. Commitments & Contingencies
Leases. Lukens has various operating leases primarily for real estate and
production equipment. At year-end 1994, minimum rental payments under
noncancelable leases totaled $24,440. Listed below are the scheduled payments
over the next five years for these leases.
1995 1996 1997 1998 1999
$4,874 $4,530 $ 3,814 $ 2,948 $2,443
Rent expense for all operating leases is listed below.
1994 1993 1992
$7,459 $12,245 $10,100
Environmental Protection. Lukens is a potentially responsible party under
Superfund law at certain waste disposal sites. The company's exposure to
remediation costs at these sites depends upon several factors, including
changing laws and regulations and the allocation of costs among all potentially
responsible parties. Our exposure is expected to be limited based on the volumes
of waste which might be attributable to Lukens and the number and financial
strength of other potentially responsible parties. Based on information
currently available, management believes that any future costs in excess of
amounts already accrued will not have a material adverse effect on our
consolidated financial condition, results of operations or competitive position.
<PAGE>
Dollars in thousands
except per share amounts
Litigation. During 1992, approximately 300 workers' compensation claims alleging
hearing loss were filed against Lukens Steel Company, a wholly-owned subsidiary.
A $3,500 reserve was established in the fourth quarter of 1992 to cover
potential awards and defense costs resulting from these claims. In 1993,
additional claims were filed bringing the total number of claims to
approximately 350. Additional reserves totaling $2,100 were established in 1993.
As of year-end 1994, 249 of the workers' compensation claimants had released
their claims and received negotiated payments.
The company is party to various claims, disputes, legal actions and other
proceedings involving product liability, 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 1994, purchase commitments for capital expenditures
were $33,773. Capital expenditures projected for 1995 are historically high at
approximately $110,000. These expenditures are part of a five-year, $400,000
program that began in 1993.
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 $30,838 for the remaining
term. Annual minimum commitments are $2,517, which can be adjusted for
inflation. Washington Steel Corporation has contracts for the supply of nickel.
The contracts include minimum quantities and market-based pricing. Based on
year-end 1994 market conditions, the value of these contracts totaled $83,981.
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 31, 1994 and December 25,
1993 and the related consolidated statements of earnings, cash flows and
stockholders' investment for each of the three fiscal years in the period ended
December 31, 1994. 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 consolidated financial position of Lukens Inc. and
subsidiaries as of December 31, 1994 and December 25, 1993, and the consolidated
results of their operations and their cash flows for each of the three fiscal
years in the period ended December 31, 1994 in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, effective
December 27, 1992, the Company changed its methods of accounting for
postretirement benefits other than pensions and income taxes.
/s/ Arthur Andersen LLP
Arthur Andersen LLP, Philadelphia, Pennsylvania
January 23, 1995
<PAGE>
Lukens Inc. - Financial Information Dollars in thousands except
per share amounts and market
prices of common stock
Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth Fiscal
Quarter Quarter Quarter Quarter Year
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Results of Operations
1994
Net sales $220,914 242,212 231,463 252,424 947,013
Cost of products sold $207,750 213,595 202,959 217,004 841,308
Net earnings (loss) $ (2,498)/b/ 6,594 7,368 10,714 22,178
-------- ------- ------- ------- -------
1993
Net sales $221,116 226,871 211,405 202,680 862,072
Cost of products sold $194,041 196,407 183,776 180,675 754,899
Earnings before cumulative
effect of accounting changes $ 6,178 9,529 7,949 (7,754)/c/ 15,902
Net earnings (loss) $(59,723) 9,529 7,949 (7,754)/c/ (49,999)
-------- ------- ------- ------- -------
Per Common Share
1994
Primary earnings/a/ $ (.21) .41 .47 .69 1.37
Fully diluted earnings/a/ $ (.21) .39 .44 .65 1.32
Dividends $ .25 .25 .25 .25 1.00
-------- ------- ------- ------- -------
1993
Primary earnings/a/
Earnings before cumulative
effect of accounting changes $ .39 .61 .51 (.57) .95
Net earnings (loss) $ (4.07) .61 .51 (.57) (3.51)
Fully diluted earnings/a/
Earnings before cumulative
effect of accounting changes $ .37 .57 .48 (.57) .93
Net earnings (loss) $ (4.07) .57 .48 (.57) (3.51)
Dividends $ .25 .25 .25 .25 1.00
-------- ------- ------- ------- -------
Market Prices of Common Stock
1994
High $ 39 3/4 33 1/4 36 1/8 35 39 3/4
Low $ 33 1/8 28 3/4 30 26 1/8 26 1/8
Close $ 33 1/8 30 7/8 34 3/8 29 1/8
-------- ------- ------- ------- -------
1993
High $ 49 5/8 52 7/8 47 7/8 40 52 7/8
Low $ 40 7/8 40 36 1/2 31 1/4 31 1/4
Close $ 44 47 38 1/2 34 1/8
-------- ------- ------- ------- -------
</TABLE>
- -------------
a. Earnings per share calculations were based on the weighted-average shares and
equivalents 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.
b. In the first quarter of 1994, production disruptions and maintenance costs
associated with severe weather conditions resulted in a net loss.
c. During the fourth quarter of 1993, $10,626 of expenses from a work force
reduction program were recognized. On an after-tax basis, the provision was
$6,247, or $.43 per common share. Also during the fourth quarter, a $4,500
provision was recognized to revise estimates of the realizable value of
discontinued operations. On an after-tax basis, the provision was $2,772, or
$.19 per common share.
<PAGE>
Lukens Inc. - Financial Information
Responsibilities for Financial Reporting
To Our Stockholders:
Lukens has prepared and is responsible for the following financial statements.
The financial statements were prepared in conformity with generally accepted
accounting principles in the United States. Other financial information in this
Annual Report is consistent with the financial statements.
Management maintains a system of internal accounting control that is designed to
provide reasonable, but not absolute, assurance that we are meeting our
responsibility for the integrity and objectivity of the financial statements.
This control system includes:
. subsidiary reporting, including budget analysis, that provides reasonable
assurance that errors or irregularities that could be material to the
consolidated financial statements would be detected promptly
. a statement of Corporate Integrity Guidelines monitored regularly
. an Internal Audit Department
. continuing review and evaluation of the control environment.
The audit report of Arthur Andersen LLP, independent public accountants, is
included in Part II, Item 8 of this Form 10-K.
The Board of Directors pursues its oversight role for these financial statements
through its Audit Committee, composed solely of directors who are neither
officers nor employees of Lukens. The Audit Committee meets periodically with
the independent public accountants and internal auditors, with and without the
presence of management, to review their activities and to discuss internal
accounting control, auditing, and financial reporting matters.
/s/ R. W. Van Sant
R. W. Van Sant
Chairman and Chief Executive Officer
/s/ C. B. Houghton, Jr.
C. B. Houghton, Jr.
Vice President and Controller
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
a. Directors
The information contained in the section entitled "Election of Directors"
in the Lukens Inc. 1995 Proxy Statement is incorporated herein by reference
in response to this item.
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)
Information contained in the section entitled "Section 16 Compliance" in
the Lukens Inc. 1995 Proxy Statement is incorporated herein by reference in
response to this item.
ITEM 11. EXECUTIVE COMPENSATION.
The information contained in the sections entitled "Management" and "Report of
Executive Development and Compensation Committee" in the Lukens Inc. 1995 Proxy
Statement is incorporated herein by reference in response to this item.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information contained in the sections entitled "Principal Holders of Stock"
and "Management" in the Lukens Inc. 1995 Proxy Statement is incorporated herein
by reference in response to this item.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
<PAGE>
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.
No reports on Form 8-K were filed during the fourth quarter of 1994 that
ended on December 31, 1994.
<PAGE>
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: March 2, 1995 By /s/ R. W. Van Sant
-----------------------
R. W. Van Sant
Chairman and
Chief Executive Officer
<PAGE>
SIGNATURES (continued)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below, as of March 2, 1995, by the following persons on behalf
of the registrant and in the capacities indicated.
Signature and Title
/s/ Michael O. Alexander /s/ Stuart J. Northrop
------------------------ ----------------------
Michael O. Alexander Stuart J. Northrop
Director Director
/s/ T. Kevin Dunnigan /s/ Robert L. Seaman
--------------------- --------------------
T. Kevin Dunnigan Robert L. Seaman
Director Director
/s/ Ronald M. Gross /s/ Joab L. Thomas
------------------- ------------------
Ronald M. Gross Joab L. Thomas
Director Director
/s/ Nancy Huston Hansen /s/ W. Paul Tippett
----------------------- -------------------
Nancy Huston Hansen W. Paul Tippett
Director Director
/s/ Sandra L. Helton /s/ R. W. Van Sant
-------------------- ------------------
Sandra L. Helton R. W. Van Sant
Director Chairman and
Chief Executive Officer
/s/ William H. Nelson, III /s/ C. B. Houghton, Jr.
-------------------------- -----------------------
William H. Nelson, III C. B. Houghton, Jr.
Director Vice President and
Controller
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements included in the Lukens Inc. 1994 Annual Report
to stockholders, included or incorporated by reference in this Form 10-K, and
have issued our report thereon dated January 23, 1995. Our report on the
financial statements includes an explanatory paragraph with respect to the
change in the method of accounting for income taxes in 1993 as discussed in Note
1 to the financial statements. 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 23, 1995
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports dated January 23, 1995 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 and 33-69780, and Form S-3 Registration Statements File Numbers
33-6792 and 33-53681.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Philadelphia, Pennsylvania
March 24, 1995
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Dollars in Thousands)
Allowance for Doubtful Receivables and Customer Claims
<TABLE>
<CAPTION>
Additions Charged to
Balance at ------------------------ Balance at
Beginning Costs and End of
Fiscal Year Ended of Period Expenses Other Deductions (b) Period
- ----------------- ------------ ----------- ----------- -------------- ----------
<S> <C> <C> <C> <C> <C>
December 31, 1994 $ 11,444 10,467 - 14,342 7,569
December 25, 1993 $ 9,836 12,997 - 11,389 11,444
December 26, 1992 $ 4,352 9,268 5,701 (a) 9,485 9,836
</TABLE>
(a) Balance assumed in the Washington Steel Corporation acquisition.
(b) Amounts determined not to be collectible, net of recoveries. In 1994, amount
also includes a reduction in the reserve of $1,159 from the divestiture of
subsidiaries.
Deferred Income Tax Asset Valuation Allowance
<TABLE>
<CAPTION>
Additions Charged to
Balance at ------------------------ Balance at
Beginning Costs and End of
Fiscal Year Ended of Period Expenses Other Deductions Period
- ----------------- ------------ ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
December 31, 1994 $ 3,062 - - 487 2,575
December 25, 1993 $ 2,791 (a) 271 - - 3,062
</TABLE>
(a) Included in cumulative effect of accounting changes from the adoption of
SFAS No. 109.
<PAGE>
INDEX TO EXHIBITS (Note 1)
( 3) Certificate of incorporation and by-laws (Note 2)
( 4) Lukens Inc. Indenture dated as of July 1, 1992 (Note 3)
(10) Material Contracts
(10.1) Lukens Inc. Supplemental Retirement Plan for Target Incentive
Plan Participants, as amended, effective January 1, 1988 (Note 6)
(10.2) Lukens Inc. Supplemental Retirement Plan, as amended and
restated, effective January 1, 1990 (Note 8)
(10.3) Lukens Inc. Supplemental Retirement Plan for Designated
Executives, effective January 1, 1990 (Note 7)
(10.4) Lukens Inc. 1985 Stock Option and Appreciation Plan, as amended
(Note 4)
(10.5) Lukens Inc. Stock Option Plan for Non-employee Directors (Note 4)
(10.6) Employment Agreement dated October 12, 1991, between R. William
Van Sant and Lukens Inc. (Note 6)
(10.7) Severance Agreement dated October 12, 1991, between R. William
Van Sant and Lukens Inc. (Note 6)
(10.8) Lukens Inc. Severance Plan for Participants in the Lukens Inc.
1983 Target Incentive Plan and the Lukens Inc. 1985 Division
Incentive Compensation Plan (Note 6)
(10.9) Form of Severance Agreement between certain Executive Officers
and Lukens Inc. (Note 7)
(10.10) Form of Indemnification Agreement between certain Executive
Officers and Lukens Inc. (Note 8)
(10.11) Lukens Inc. 1983 Target Incentive Compensation Plan, as amended
through January 1, 1993 (Note 5)
(10.12) Washington Steel Corporation 1994 Target Incentive Compensation
Plan
(10.13) Lukens Inc. Directors' Deferred Payment Plan (Note 9)
(10.14) Guaranty Agreement dated as of June 28, 1989, between Lukens Inc.
and The
<PAGE>
Toronto-Dominion Bank & Trust Company as Agent for the Guaranteed
Parties (Note 8)
(10.15) Retirement Plan for Non-Employee Directors of Lukens Inc., as
amended through November 30, 1994.
(10.16) Form of Indemnification Agreement between Directors and Lukens
Inc. (Note 8)
(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 5)
(10.18) First Amendment, dated as of January 15, 1995, to Amended and
Restated Credit Agreement
(10.19) Allied Corporation - Washington Steel Corporation Equipment
Lease and Maintenance Agreement, dated September 22, 1986 (Note
5)
(10.20) Lease among PNC Leasing Corp., Blount, Inc., and Washington Steel
Corporation, dated as of October 1, 1986 (Note 5)
(10.21) Lease Amendment No. 1, dated July 22, 1987, among PNC Leasing
Corp., Blount, Inc. and Washington Steel Corporation (Note 5)
(10.22) Lease Amendment No. 2, Assumption and Consent among PNC Leasing
Corp., Blount, Inc. and Washington Steel Corporation, dated as of
October 18, 1988 (Note 5)
(10.23) Lease Amendment No. 3, Assumption and Consent among PNC Leasing
Corp., Lukens Inc. and Washington Steel Corporation, dated as of
July 21, 1992 (Note 5)
(10.24) Agreement, dated October 31, 1989, between Robert E. Heaton and
Washington Steel Corp. (Note 5)
(10.25) Washington Steel Division Annual Bonus Plan for Elected Officers
(Note 5)
(10.26) Agreement between James J. Norton and Mercury Stainless Corp.,
Mercury Stainless, Inc., Mercury Stainless Canada Inc.,
Washington Steel Corp. and Kramo Corp., dated October 31, 1989
(Note 5)
(10.27) Amended and Restated Employment Contract between James J. Norton
and Mercury Stainless Corp., Mercury Stainless, Inc., Kramo Corp.
and Washington Steel Corp., dated as of October 9, 1990 (Note 5)
<PAGE>
(10.28) First Amendment to Amended and Restated Employment Contract
between James J. Norton and Mercury Stainless Corp., Mercury
Stainless, Inc., Kramo Corp. and Washington Steel Corp., dated as
of January 3, 1991 (Note 5)
(10.29) Second Amendment to Amended and Restated Employment Contract
between James J. Norton and Mercury Stainless Corp., Mercury
Stainless, Inc., Kramo Corp. and Washington Steel Corp., dated as
of July 3, 1991 (Note 5)
(11) Statement regarding Computation of Per Share Earnings
(21) Subsidiaries of the Registrant
(23) Consent of Arthur Andersen LLP (Note 10)
(27) Financial Data Schedule
<PAGE>
Notes to Exhibits
1. Copies of exhibits will be supplied upon request. There is no charge for a
copy of the Lukens Inc. 1994 Annual Report to stockholders. Other exhibits
will be provided at $.25 per page requested.
2. 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 10-K
for the fiscal year ended December 25, 1993.
5. Incorporated by reference to exhibits included in the Lukens Inc. Form 10-K
for the fiscal year ended December 26, 1992.
6. Incorporated by reference to exhibits included in the Lukens Inc. Form 10-K
for the fiscal year ended December 28, 1991.
7. Incorporated by reference to exhibits included in the Lukens Inc. Form 10-K
for the fiscal year ended December 29, 1990.
8. Incorporated by reference to exhibits included in the Lukens Inc. Form 10-K
for the fiscal year ended December 30, 1989.
9. Incorporated by reference to exhibits included in the Lukens Inc.
Registration Statement on Form S-4, File No. 33-10935.
10. Incorporated by reference to the section entitled "Consent of Independent
Public Accountants" in this Form 10-K.
<PAGE>
LUKENS INC. 1994 FORM 10-K: EXHIBIT 10.12
WASHINGTON STEEL CORPORATION
1994 TARGET INCENTIVE COMPENSATION PLAN
1. Purpose.
-------
The purpose of the Washington Steel Corporation 1994 Target Incentive
Compensation Plan (the "Plan") is to promote the interests of Washington Steel
Corporation (the "Company") by affording key employees an incentive to exert
their maximum efforts on its behalf by providing additional compensation for the
achievement of specific profit and individual performance objectives.
2. Overview.
--------
The Plan provides that the Chairman and Chief Executive Officer of Lukens
Inc. will establish a target incentive compensation amount ("Target Amount")
early in each fiscal year for each eligible employee who is participating in the
Plan ("Participant"). The Target Amount will be a percentage of the
Participant's base salary. The actual award of incentive compensation payments
("Incentive Awards") under the Plan will depend on Lukens Inc. pre-tax income,
Company operating profit and individual performance. The weight to be given to
each of these components may vary from Participant to Participant and will be
established by the Chairman and Chief Executive Officer of Lukens Inc. at the
same time the Participant's Target Amount is established. The annual pre-tax
and operating profit performance objectives approved by the Executive
Development and Compensation Committee of Lukens Inc. Board of Directors (the
"Committee") will become the objectives of this Plan. The income and operating
profit performance objectives will be based on Lukens Inc. return on equity
goals. When making Incentive Awards after the end of the fiscal year, each
Participant's Target Amount will be adjusted to reflect actual performance above
or below the performance objective as to each component of the Target Amount.
3. Administration.
--------------
(a) The Chairman and Chief Executive Officer of Lukens Inc. shall have full
authority and discretion, consistent with the Plan, to interpret the Plan, to
promulgate such rules and procedures regarding the Plan as he deems desirable
and to make all other determinations necessary or desirable for the
administration of the Plan. All decisions, determinations and interpretations
shall be binding upon all Participants.
(b) For purposes of this Plan, the pre-tax income of Lukens Inc. and the
operating profit of the Company shall be conclusively determined by the
Committee in good faith in accordance with the accounting principles employed by
the Company generally. From time to time, the Committee in its sole discretion
may make adjustments in earnings as reported in the Company's books and records
so that changes in accounting principles; extraordinary or unusual charges or
credits; acquisitions, mergers, consolidations, and other corporate
transactions; and other elements of or factors influencing the
<PAGE>
calculation of earnings do not distort or affect the operation of the Plan in a
manner inconsistent with the achievement of its purposes.
(c) No member of the Committee shall be personally liable by reason of any
contract or other instrument executed by him or on his behalf in his capacity as
a member of the Committee nor for any mistake of judgment made in good faith,
and the Company shall indemnify and hold harmless each member of the Committee
and each other officer, employee, or director of Lukens Inc., the Company or any
of its subsidiary or other affiliated corporations to whom any duty or power
relating to the administration or interpretation of the Plan may be allocated or
delegated, against any cost or expense (including counsel fees) or liability
(including any sum paid in settlement of a claim with the approval of the Board)
arising out of any act or omission to act in connection with the Plan unless
arising out of such person's own fraud or bad faith.
4. Participants.
------------
The President and Chief Operating Officer of the Company and the Chairman
and Chief Executive Officer of Lukens Inc. shall annually select the
Participants from among the key employees who are in a position to contribute
substantially to the attainment of annual profit goals. Incentive Awards to
Participants shall be made after the close of the year in accordance with the
standards contained in Paragraphs 5, 6 and 7 of this Plan. In the discretion of
the Chairman and Chief Executive Officer of Lukens Inc., and the President and
Chief Operating Officer of the Company, a Participant who has terminated
employment during the year and who is not employed by the Company on the last
day of the Company's fiscal year may be eligible for an Incentive Award,
provided that the Incentive Award of a Participant who transfers employment from
the Company to another affiliate of Lukens Inc. shall be pro-rated to reflect
the Participant's period of service with the Company. The base salary on which
the Target Amount and Incentive Award, if any, for a terminated Participant are
based shall be the Participant's base salary accruing prior to termination of
employment.
5. Size of Incentive Awards.
------------------------
Prior to January 31 of each year, the Chairman and Chief Executive Officer
of Lukens Inc. shall establish for each Participant a Target Amount which shall
be a percentage of the Participant's base salary. The President and Chief
Operating Officer of the Company and the Chairman and Chief Executive of Lukens
Inc. shall have discretion to select additional Participants and establish for
such Participants a Target Amount after January 31 of the fiscal year, provided,
however, for such additional Participants, their base salary on which the Target
Amount is based shall be their base salary accruing after their Target Amount is
established. Attainment of performance objectives as to Lukens Inc. pre-tax
income, Company operating profit and individual performance goals established
pursuant to Paragraph 6 ("Performance Objectives") will produce an Incentive
Award equal to the Target Amount. Actual performance above or below the
Performance Objective for each component of the Target Award will produce a
greater or smaller Incentive Award or no
<PAGE>
Incentive Award. The maximum Incentive Award is 170% of the Participant's
Target Amount.
6. Profit and Performance Targets.
------------------------------
(a) The Performance Objectives on which the Target Amounts are based are
(i) Lukens Inc. pre-tax income; (ii) individual performance goals; and (iii)
Company operating profit. Prior to January 31 of each fiscal year, the
Committee shall adopt Company operating profit targets based on Lukens Inc.
return on equity ("Profit Targets"). Individual performance goals for purposes
of the Plan are the individual performance goals established by the Company for
its employees in the ordinary course of business.
(b) As to each Participant, the President and Chief Operating Officer of
the Company and the Chairman and Chief Executive Officer of Lukens Inc. shall
establish annually the weight to be given to each Performance Objective -- the
individual performance goals, the Lukens Inc. Profit Target and the Company
Profit Target -- in calculating each Participant's Incentive Award.
7. Performance Range for Awards.
----------------------------
Subject to the limitations of Paragraphs 5 and 8, for each Participant, for
each year, the weighted percentage of the Target Amount attributable to each
Performance Objective shall be adjusted according to the performance level of
such Performance Objective. The adjustment (Column 3) to the weighted
percentage of the Target Amount for each Performance Objective shall correspond
to the performance level (Column 2) as follows:
<TABLE>
<CAPTION>
PERFORMANCE RANGE
(1) (2) (3)
Percentage of Profit Adjustment to Portion of
Performance Target or Individual Target Award Related to
Level Performance Level Performance Objective
- ------------ ---------------------- ------------------------
<S> <C> <C>
Below Threshold Under 73.3% 0.00%
Threshold 73.3% 30.00%
80.0% 47.57%
To
90.0% 73.79%
Target 100.0% 100.00%
110.0% 121.20%
To 120.0% 142.04%
130.0% 163.06%
Maximum 133% or more 170.00%
</TABLE>
The adjustments to Target Awards will be interpolated to reflect performance
percentages between the percentages listed on the
<PAGE>
foregoing schedule with 0.5% being rounded to the next higher percentage.
8. Threshold Individual Performance Level.
--------------------------------------
No Incentive Award shall be paid with respect to a fiscal year to a
Participant who is rated below the threshold level on his or her individual
performance goals. If none of the threshold profit targets which relate to the
Participant's Target Award are met, the maximum Incentive Award attributable to
individual performance is 100% of the portion of the Target Award related to
individual performance.
9. Payment.
-------
The Incentive Awards to be paid to Participants with respect to a fiscal
year pursuant to this Plan shall be paid in such manner and at such times after
the end of the fiscal year as the Committee shall determine.
10. No Employment Rights.
--------------------
Nothing in the Plan shall confer upon any employee of the Company or a
subsidiary any right to continued employment, or interfere with the right of the
Company or a subsidiary to terminate his or her employment at any time.
11. Binding Upon Successors.
-----------------------
The obligations of Lukens Inc. under the Plan shall be binding upon any
successor corporation or organization which shall succeed to substantially all
of the assets and business of the Company and the term "Company," whenever used
in the Plan, shall mean and include any such corporation or organization after
such succession. If the business conducted by the Company shall be
discontinued, any unpaid incentives under the Plan shall become payable in a
lump sum to the person or persons then entitled thereto.
12. Termination.
-----------
The Chairman and Chief Executive Officer of Lukens Inc. reserves the right
at any time to amend, suspend, or terminate the Plan in whole or in part and for
any reason and without the consent of any Participant or beneficiary; provided,
that no such amendment shall adversely affect rights to receive any amount to
which Participants or beneficiaries have become entitled prior to such
amendment.
13. Effective Date.
--------------
The Plan shall become effective commencing in 1994.
APPROVED:
__________________________ __________________________
L.E. Taylor, Manager R.D. Luzzi, Vice President
Human Resources Human Resources
<PAGE>
Lukens Inc. Lukens Inc.
__________________________ __________________________
T.G. John R.W. Van Sant
President & Chief Chairman & Chief Executive
Operating Officer Officer
Washington Steel Corporation Lukens Inc.
<PAGE>
LUKENS INC. 1994 FORM 10-K: EXHIBIT 10.15
As amended on
November 30, 1994
RETIREMENT PLAN FOR NON-EMPLOYEE DIRECTORS
OF LUKENS INC.
ARTICLE I. PURPOSE
1.1 The purpose of the Retirement Plan for Non-Employee
Directors of Lukens Inc. is to provide retirement benefits to Directors of
Lukens Inc. (the "Company") who meet the eligibility requirements of the Plan.
ARTICLE II. DEFINITIONS
2.1 As used in this Plan, the following definitions apply to the
terms indicated below:
(a) "Base Retainer" means the regular active service annual
retainer in effect on a Director's effective retirement
date.
(b) "Board" means the Board of Directors of the Company.
(c) "Committee" means the Committee on the Board.
(d) "Director" means a duly elected member of the Board.
(e) "Eligible Director" means a Director with at least five (5)
years of continuous Service, who is not an Employee and who
does not qualify to receive a retirement benefit under any
pension plan of the Company or its Subsidiaries.
(f) "Employee" means a person employed by the Company or its
Subsidiaries in any capacity.
(g) "Non-Employee Director" means any Director who is not a
person employed by the Company or its Subsidiaries in any
capacity.
(h) "Normal Retirement" means retirement from the Board at age
70.
(i) "Plan" means this Retirement Plan for Non-Employee Directors
of Lukens Inc. as amended and restated from time to time.
(j) "Service" means Service as a Non-Employee Director.
(k) "Subsidiary" means any corporation organized and existing
under the laws of the United States, or any state thereof,
of which the
<PAGE>
Company shall own all of the stock (except Directors'
qualifying shares) entitled to vote for the election of
Directors, or any successor thereto.
ARTICLE III. EFFECTIVE DATE
3.1 This Plan shall be effective as of January 28, 1987.
ARTICLE IV PARTICIPATION
4.1 Any Director serving on the Board on or after the
Effective Date who is not also an Employee shall participate in the Plan upon
completion of five years of continuous Service.
ARTICLE V. RETIREMENT BENEFITS
5.1 Normal Retirement Benefit: An Eligible Director's
-------------------------
annual Normal Retirement benefit under this Plan shall be computed as follows:
(a) An amount equal to fifty percent (50%) of the Eligible
Director's Base Retainer at the time of retirement for the
first five years of Service; plus
(b) An amount equal to ten percent (10%) of the Eligible
Director's Base Retainer at the time of retirement for each
full year of Service beyond five years up to a maximum of
ten years.
5.2 An Eligible Director who elects to retire prior to his Normal
Retirement date shall receive a benefit computed in accordance with Section 5.1
with no reductions, which will commence on the first day of the month next
following the calendar quarter in which the effective date of an Eligible
Director's retirement occurs.
5.3 An Eligible Director who elects to retire after his Normal
Retirement date may so retire at any time on or before the date that he reaches
age 71. In such case, the Eligible Director's benefit shall be computed in
accordance with Section 5.1 and will commence on the first day of the month next
following the calendar quarter in which the effective date of the Eligible
Director's retirement occurs. (As amended on March 27, 1991)
ARTICLE VI. PAYMENT AND DURATION OF RETIREMENT BENEFITS
6.1 All retirement benefits shall be payable in monthly installments
on the first day of each month. An Eligible Director's retirement benefit shall
be payable for a number of years equal to such Director's full years of Service
on the Board, but for no more than ten years. Such payments shall commence on
the first day of the month next following the calendar quarter in which the
effective date of an Eligible Director's retirement occurs. In the event of the
death of an Eligible Director, the benefits which would have been payable
hereunder to such Eligible Director shall be paid to the Eligible Director's
designated beneficiary, if any, for the remainder of the term that such benefits
would have been paid to the Eligible Director. (As amended on November 30, 1994)
<PAGE>
ARTICLE VII. NO FUNDING
7.1 This Plan shall not be deemed to create any trust, escrow or
other funding arrangement. No retirement benefit payable hereunder shall be
considered segregated funds and all such amounts shall, at all times prior to
the payment of same, be and continue to be the property of the Company
commingled with its other assets. The right of any Eligible Director to benefits
under this Plan shall be an unsecured claim against the general assets of the
Company.
ARTICLE VIII. PLAN ADMINISTRATION
8.1 The general administration of this Plan and the responsibility
for carrying out its provisions shall be vested in the Committee. The Committee
may adopt such rules and regulations as it may deem necessary for the proper
administration of this Plan, and its decision in all matters shall be final,
conclusive, and binding. If one or more members of the Committee are
disqualified by personal interest from taking part in a particular decision, the
remaining member or members of the Committee (although less than a quorum) shall
have full power to act on the matter. The Committee may delegate to the benefits
department of the Company the responsibility for day to day administration of
this Plan .
ARTICLE IX. TERMINATION OF THE PLAN
9.1 The Board reserves the right to terminate this Plan at any time
without the consent of any current or former Director. Upon termination of this
Plan, all Eligible Directors shall continue to have the right to receive
benefits earned and accrued hereunder prior to such termination.
ARTICLE X. AMENDMENT OF THE PLAN
10.1 The Board has the right to amend this Plan at any time and from
time to time without the consent of any current or former Director, provided,
however, that no amendment shall divest any Eligible Director of rights to which
he would have been entitled under Section 9.1 if the Plan had been terminated on
the effective date of such amendment.
ARTICLE XI. CHANGE IN CONTROL
11.1 Within sixty days of a Change in Control as defined in Section
11.2, any Eligible Director shall receive a lump sum payment under this Plan.
This lump sum payment will be the present value of the annuity that would have
been payable under Articles V and VI of the Plan as if the Eligible Director had
retired as of the date of a Change in Control. For this purpose, present value
will be calculated using the Pension Benefit Guaranty Corporation interest rate
that would be used on that date for purposes of determining lump sum
distributions upon plan termination.
11.2 For purposes of the Plan, the term "Change in Control" shall mean
any of the following events:
(1) (a) any "person" or "group" (as such terms are used in
Section 3(a)(9), 13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934,
as amended), considered together with its or
<PAGE>
their "affiliates" and "associates" (as such terms are defined in Rule 12b-2 of
the General Rules and Regulations under the Securities Exchange Act of 1934, as
amended), is or becomes the beneficial owner (as defined in Rule 13d-3 of the
General Rules and Regulations under the Securities Exchange Act of 1934, as
amended), or acquires or holds voting control, directly or indirectly, of
securities of the Company which, when considered together with any other
securities held by such person or group or their affiliates or associates which
by their terms are convertible, even if not then convertible, represent twenty
percent (20%) or more of the voting power of the then outstanding securities of
the Company, and (b) the Board as it existed immediately prior to any such
acquisition of or change in ownership or control, after having been advised
thereof, does not, within ten (10) days after being so advised, adopt a
resolution specifically determining that such acquisition of or
change in ownership or control does not constitute a change of control event
within the meaning of this paragraph: or
(2) A change in the composition of a majority of the Board
within twenty-four (24) months after any "person" or "group" (as such terms are
used in Sections 3 (a)(9), 13 (d)(3) and 14(d)(2) of the Securities Exchange Act
of 1934, as amended), considered together with its or their "affiliates" or
"associates" (as such terms are defined in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended), is or
becomes the beneficial owner (as defined in Rule 13d-3 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended) or acquires
or holds voting control, directly or indirectly of securities of the Company
which, when considered together with any other securities held by such person or
group or their affiliates or associates which by their terms are convertible,
even if not then convertible, represent twenty percent (20%) of the voting power
of the then outstanding securities of the Company; or
(3) (a) Any "person" or "group" (as such terms are used in
Section 3(a)(9), 13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934,
as amended) commences a tender offer or exchange offer for securities of the
Company if, upon consummation thereof, the offeror, considered together with its
"affiliates" and "associates" (as such terms are defined in Rule 12b-2 of the
General Rules and Regulations under the Securities Exchange Act of 1934, as
amended), would own or control, directly or indirectly, securities of the
Company which, when considered together with any other securities held by such
person or group or their affiliates or associates which by their terms are
convertible, even if not then convertible, represent thirty percent (30%) or
more of the voting power of the then outstanding securities of the Company, and
(b) the Board as it existed immediately prior to any such offer, after having
been advised thereof, does not, within ten (10) business days after being so
advised, adopt a resolution specifically determining that such offer does not
constitute a change of control event within the meaning of this paragraph.
11.3 The terms "person" and "group," as used in this Article 11, shall
not include (i) the Company; (ii) any corporation in which the Company owns,
directly or indirectly, voting securities sufficient to elect at least a
majority of the directors of such
<PAGE>
corporation; (iii) any employee benefit plan of the Company or of any
corporation described in clause (ii) above; (iv) any individual or entity
organized, appointed or established by the Company for, or pursuant to, the
terms of any employee benefit plan described in clause (iii) above .
11.4 Payment of the lump sum payment described in Section 11.1 shall
constitute full payment of all obligations of the Company under this Plan.
ARTICLE XII. MISCELLANEOUS PROVISIONS
12.1 Gender and Number: The masculine pronoun wherever used herein
-----------------
shall include the feminine gender; and the feminine, the masculine, and the
singular number as used herein shall include the plural unless the context
clearly indicates otherwise.
12.2 No Agreement to Retain Directors: This Plan does not in any way
--------------------------------
obligate the shareholders of the Company to continue to retain a Director on the
Board, nor does this Plan limit the right of such shareholders to terminate a
Director's Service on the Board.
12.3 Rights Non-Assignable: No retirement benefit payable hereunder
---------------------
may be assigned, pledged, mortgaged or hypothecated and, to the extent permitted
by law, no such retirement benefit shall be subject to legal process or
attachment for the payment of any claims against and person entitled to receive
the same.
12.4 Payment to Incompetents: If an Eligible Director entitled to
-----------------------
receive any retirement benefit payments hereunder is adjudged by a court of
competent jurisdiction to be legally incapable of giving valid receipt and
discharge for such retirement benefit, such payments shall be paid to the duly
appointed guardian of the Eligible Director. Such payments shall, to the extent
paid, be deemed complete discharge for liabilities of the Company under this
Plan.
12.5 Loss of Benefits: At the sole discretion of the Committee, and
----------------
after written notice to the Eligible Director, rights to receive any retirement
benefit under the Plan may be forfeited, suspended, reduced or terminated in
cases of gross misconduct by the Eligible Director, as determined by the
Committee, or of any conduct, activity or competitive occupation which is
reasonably deemed to be prejudicial to the interests of the Company or a
Subsidiary.
12.6 Withholding: Payments made by the Company under this Plan to any
-----------
Eligible Director shall be subject to withholding as shall, at the time of such
payment, be required under any income tax or other laws, whether of the United
States or any other jurisdiction.
12.7 Successorship: It is the intent that the obligations of the
-------------
Company to pay benefits accrued or payable hereunder shall be binding upon any
successor corporation or organization which shall succeed to substantially all
of the assets and business of the Company and the term "Company" wherever used
herein shall mean and include any such corporation or organization after such
succession
<PAGE>
and such obligations shall be deemed to have been expressly assured by any such
corporation or other organization.
12.8 Expenses: All expense and costs incurred in the
--------
operation of this Plan shall be paid by the Company.
12.9 Titles and Headings: The titles to articles and
-------------------
headings of sections of this Plan are for convenience or reference only; and in
case of any conflict, the text of the Plan, rather than such titles and
headings, shall control.
12.10 Acceptance: The acceptance of payments under this
----------
Plan by any Eligible Director constitutes his acceptance of the terms of the
Plan and his agreement to be bound thereby.
12.11 Governing Law & Severability: This Plan shall be construed in
----------------------------
accordance with the laws of the Commonwealth of Pennsylvania to the extent not
superseded by any federal law. In the event any provision hereof shall be held
illegal or invalid for any reason, the remaining provisions shall be construed
and enforced as if such illegal or invalid provisions had never been contained
herein.
As adopted by the Board of Directors on March 30, 1988 and amended by the Board
of Directors on June 27, 1990, March 27, 1991 and November 30, 1994.
Dated: __________________ ________________________________
William D. Sprague, Secretary
<PAGE>
LUKENS INC. 1994 FORM 10-K: EXHIBIT 10.18
FIRST AMENDMENT TO LOAN DOCUMENTS
---------------------------------
This FIRST AMENDMENT TO LOAN DOCUMENTS ("Agreement") dated as of January
15, 1995 is made by and among LUKENS INC., a Delaware corporation ("Lukens") and
LUKENS STEEL COMPANY, a Pennsylvania corporation ("LSC"), THE TORONTO-DOMINION
BANK ("Toronto Dominion") and NBD BANK ("NBD"), PNC BANK, NATIONAL ASSOCIATION,
successor by merger to Provident National Bank ("PNC") as Administrative Agent
(in such capacity, the "Administrative Agent") for the Lenders and the various
financial institutions party to this Agreement (collectively, the "Lenders").
Lukens and LSC are each individually referred to as a "Borrower" and
collectively referred to as the "Borrowers"; Toronto Dominion and NBD are each
individually referred to as a "Co-Agent" and collectively referred to as the
"Co-Agents".
Reference is made to the Amended and Restated Credit Agreement dated as of
April 22, 1992 and amended and restated as of September 30, 1992 by and among
the Borrowers, the Lenders party thereto, the Co-Agents and the Administrative
Agent (the "Credit Agreement"), pursuant to which the Lenders made available to
the Borrowers Revolving Loan Commitments not exceeding in the aggregate
$125,000,000 which Revolving Loans were evidenced by the Borrowers' Revolving
Notes, each payable to a Lender. (Capitalized terms used herein not otherwise
defined shall have the meanings provided for in the Credit Agreement.)
The Borrowers have requested and, subject to the terms and conditions set
forth herein, the Lenders and the Agents have agreed that, the Revolving Loan
Commitment Amount be increased from $125,000,000 to $150,000,000, the Revolving
Loan Commitment Termination Date be extended, and the definitions of Applicable
Commitment Fee Rate, Applicable LIBO Rate Margin and Applicable Letter of Credit
Fee be amended.
NOW, THEREFORE, in consideration of the foregoing and for other
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto, intending to be legally bound, hereby agree as follows:
1. NEW LENDER
----------
Effective as of January 15, 1995, (i) each Person listed on the signature
pages hereof which has not theretofore been a party to the Credit Agreement (a
"New Lender") shall become a Lender which is party to the Credit Agreement and
(ii) the Revolving Loan Commitment of each Lender shall be the percentage
portion of the Revolving Loan Commitment Amount set forth opposite the name of
such Lender on the signature pages hereof. Any Lender whose Revolving Loan
Commitment is changed to zero (0%) shall upon such effectiveness cease to be a
Lender which is party to the Credit Agreement, and all accrued fees and other
amounts payable under the Credit Agreement for the account of such Lender shall
be due and payable on such date;
<PAGE>
provided that the provisions of Sections 11.4 and 11.5 of the Credit Agreement
- --------
shall thereafter continue to be effective with respect to each such Lender.
Without limiting the foregoing, the Revolving Loan Commitment of Marine Midland
Bank, N.A. is, as of January 15, 1995, being reduced to zero ($0) and thereafter
it shall not be a Lender and Wachovia Bank of Georgia, N.A., as the New Lender,
is providing, as of January 15, 1995, a Revolving Loan Commitment equal to
$12,500,000.
The New Lender acknowledges and confirms that it has received a copy of the
Credit Agreement and the exhibits related thereto. Except as otherwise provided
in the Credit Agreement, effective as of the date hereof the New Lender (i)
shall be deemed automatically to have become a party to the credit Agreement and
to have all the rights and obligations of a "Lender" under the Credit Agreement
and the other Loan Documents as if it were an original signatory thereto and
(ii) agrees to be bound by the terms and conditions set forth in the Credit
Agreement and the other Loan Documents as if it were an original signatory
thereto.
2. AMENDMENT TO CREDIT AGREEMENT AND LOAN DOCUMENTS.
------------------------------------------------
(a) The Credit Agreement is hereby amended as follows:
(i) The definition of "Applicable Commitment Fee Rate" is hereby
amended by substituting for the table set forth therein, the
following table:
Senior Unsecured Applicable Facility
Long-Term Debt Rating Fee Rate
--------------------- -------------------
A-/A3 or higher 12.5 basis points
BBB-/Baa3 to
BBB+/Baa1 15.0 basis points
below BBB-/Baa3 30.0 basis points
(ii) The definition of "Applicable Letter of Credit Fee" is hereby
amended by substituting for the table set forth therein, the
following table:
Senior Unsecured Applicable Letter
Long-Term Debt Rating of Credit Fee
--------------------- -----------------
[C] [C]
A-/A3 or higher 22.5 basis points
BBB-/Baa3 to
BBB+/Baa1 35.0 basis points
below BBB-/Baa3 50.0 basis points
<PAGE>
(iii) The definition of "Applicable LIBO Rate Margin" is hereby amended
by substituting for the table set forth therein, the following
table:
Senior Unsecured Applicable LIBO
Long-Term Debt Rating Rate Margin
--------------------- -----------------
A-/A3 or higher 22.5 basis points
BBB-/Baa3 to
BBB+/Baa1 35.0 basis points
below BBB-/Baa3 50.0 basis points
(iv) The definition of "Revolving Loan Commitment Amount" is hereby
amended and restated to read in its entirety as follows:
"Revolving Loan Commitment Amount" means, on any date,
--------------------------------
$150,000,000 (of which no more than $25,000,000 may be utilized
in connection with the issuance of Letters of Credit), as such
amount may be reduced from time to time pursuant to Section 2.2
-----------
and Section 3.2.
-----------
(v) The definition of "Revolving Loan Commitment Termination Date" is
hereby amended and restated to read in its entirety as follows:
"Revolving Loan Commitment Termination Date" means the earliest of
------------------------------------------
(a) January 15, 2000 (as such date may be extended pursuant to
Section 2.7);
-----------
(b) the date on which the Revolving Loan Commitment Amount is
terminated in full or reduced to zero pursuant to Section
-------
2.2 or clause (b) of Section 3.2; and
--- ---------- -----------
(c) the date on which any Commitment Termination Event occurs.
Upon the occurence of any event described in clause (b) or (c), the
Revolving Loan Commitment shall terminate automatically and without
any further action.
(vi) The definition of "Stated Maturity Date" is hereby amended and
restated to read in its entirety as follow:
"Stated Maturity Date" means January 15, 2000, as such date may be
----------------------
extended pursuant to Section 2.7.
<PAGE>
(vii) Section 3.4.1 of the Credit Agreement is hereby amended and
restated to read in its entirety as follows:
SECTION 3.4.1. Facility Fee. The Borrowers jointly and
---------------------------
severally agree to pay to the Administrative Agent for the
pro rata account of each Lender, for the period (including
--- ----
any portion thereof when any of the Revolving Loan
Commitment is suspended by reason of either Borrower's
inability to satisfy any condition of Article VI) commencing
----------
on January 15, 1995 and continuing through the final
Revolving Loan Commitment Termination Date, a facility fee
at the Applicable Commitment Fee Rate per annum multiplied
by such Lender's Revolving Loan Commitment. Such facility
fee shall be payable jointly and severally by the Borrowers
in arrears on each Quarterly Payment Date, and on the final
Revolving Loan Commitment Termination Date.
(b) Contemporaneously herewith, the Borrowers are delivering to each of
the Lenders other than the New Lender, an amended and restated Revolving Note
dated the date hereof reflecting the increase in each such Lender's Revolving
Loan Commitment by a dollar amount equal to $2,500,000 and are delivering to the
New Lender a Revolving Note dated the date hereof with a principal amount of
$12,500,000. Upon receipt of an Amended and Restated Revolving Note payable to
it, each of the Lenders (other than the New Lender) shall mark such Lender's
predecessor Revolving Note "exchanged" and return it to the Borrowers. All such
amended and restated Revolving Notes are given in exchange for and not as
payment for the existing Revolving Notes.
(c) Contemporaneously herewith, the Borrowers are delivering to each of
the Lenders other than the New Lender, an amended and restated Competitive Bid
Loan Note and the Borrowers are delivering to the New Lender a Competitive Bid
Loan Note, all dated the date hereof, each in the original maximum principal
amount of $150,000,000 to reflect the increased Revolving Loan Commitment
Amount. Upon receipt of an Amended and Restated Competitive Bid Loan Note
payable to it, each of the Lenders (other than the New Lender) shall mark such
Lender's predecessor Competitive Bid Loan Note "exchanged" and return it to the
Borrowers. All such amended and restated Competitive Bid Loan Notes are given in
exchange for and not as payment for the existing Competitive Bid Loan Notes.
(d) The Credit Agreement and each of the Loan Documents are each hereby
amended by
(i) substituting for the term "Provident," wherever it appears, the
term "PNC" and
<PAGE>
(ii) substituting for the term "commitment fee", wherever it appears
(including in the definition of Applicable Commitment Fee Rate),
the term "facility fee."
3. Miscellaneous.
-------------
(a) The Borrowers ratify and confirm the continuing effectiveness and
enforceability of the provisions of Section 11.4 of the Credit Agreement which
------------
are incorporated herein by reference as if set forth herein.
(b) All of the terms, conditions, provisions and covenants in the Notes,
the Credit Agreement, the Loan Documents, and all other documents delivered to
the Lenders or the Agents in connection with any of the foregoing documents and
obligations secured thereby shall remain unaltered and in full force and effect
except as modified by this Agreement.
(c) The Borrower agrees to pay all of the Administrative Agent's expenses
incurred in connection with the preparation of this Agreement and the
transactions contemplated by this Agreement, including without limitation, the
reasonable fees and expenses of the Administrative Agent's counsel.
(d) This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
(e) Each and every one of the terms and provisions of this Agreement shall
be binding upon and shall inure to the benefit of the Borrowers, the Lenders,
the Agents and their respective successors and assigns.
(f) This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original as against any party whose signature
appears thereon, and all of which shall constitute but one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
LUKENS INC.
By:________________________________
Title: Vice President and Treasurer
Address: 50 South First Avenue
Coatesville, PA 19320
Facsimile No.: 610-383-3093
Attention: Treasurer
<PAGE>
LUKENS STEEL COMPANY
By:________________________________
Title: Treasurer
Address: 50 South First Avenue
Coatesville, PA 19320
Facsimile No.: 610-383-3093
Attention: Treasurer
THE AGENTS
----------
THE TORONTO-DOMINION BANK,
in its capacity as a Co-Agent
By:________________________________
L. Winfield Ogden
Title: Managing Director
Address: 31 West 52nd Street
New York, NY 10019
Facsimile No.: 212-262-1926
Attention: L. Winfield Ogden
NBD BANK,
in its capacities as a Co-Agent
and as a Swing Line Lender
By:________________________________
Thomas W. Doddridge
Title: Vice President
Address: 611 Woodward Avenue
Detroit, MI 48226
Facsimile No.: 313-225-1586
Attention: Thomas W. Doddridge
PNC BANK, NATIONAL ASSOCIATION
(successor by merger to Provident
National Bank,) in its capacity as
Administrative Agent
<PAGE>
By:________________________________
Amy T. Petersen
Title: Vice President
Address: Broad & Chestnut Streets
P. O. Box 7648
Philadelphia, PA 19101
Facsimile No.: 215-585-5972
Attention: Amy T. Petersen
PERCENTAGE THE LENDERS
-----------
13.33333333% THE TORONTO-DOMINION BANK
By:________________________________
L. Winfield Ogden
Title: Managing Director
Domestic
Office: Suite 1700
909 Fannin
Houston, TX 77010
Facsimile No.: 713-951-9921
Attention: Jorge Garcia
Manager, Credit
Administration
LIBOR
Office: Suite 1700
909 Fannin
Houston, TX 77010
Facsimile No.: 713-951-9921
Attention: Jorge Garcia
Manager, Credit
Administration
13.33333333% NBD BANK
By:________________________________
Thomas W. Doddridge
Title: Vice President
Domestic
Office: 611 Woodward Avenue
<PAGE>
Detroit, Michigan 48226
Facsimile No.: 313-225-1586
Attention: Thomas W. Doddridge
LIBOR
Office: 611 Woodward Avenue
Detroit, Michigan 48226
Facsimile No.: 313-225-2649
Attention: Thomas W. Doddridge
11.66666667% PNC BANK, NATIONAL ASSOCIATION
(successor by merger to Provident
National Bank)
By:________________________________
Amy T. Petersen
Title: Vice President
Domestic
Office: Broad & Chestnut Streets
P. O. Box 7648
Philadelphia, PA 19101
Attention: Amy T. Petersen
LIBOR
Office: Multi-Bank Loan
Administration One PNC
Plaza - 19th Floor
Pittsburgh, PA 15265
Facsimile No.: 412-702-8672/7568
Attention: Lisa Pierce
11.66666667% CORESTATES BANK, N.A.
By:________________________________
Matthew T. Panarese
Title: Vice President
Domestic
Office: Broad & Chestnut Streets
F.C.1-1-5-14
P.O. Box 7618
<PAGE>
Philadelphia, PA 19101
Facsimile No.: 215-786-7962
Attention: Sharon Burgess
LIBOR
Office: Broad & Chestnut Streets
F.C.1-1-5-14
P.O. Box 7618
Philadelphia, PA 19101
Facsimile No.: 215-786-7962
Attention: Sharon Burgess
8.33333333% BANK OF AMERICA ILLINOIS
By:_______________________________
Brock T. Harris
Title: Vice President
Domestic
Office: 231 South Lasalle Street
Chicago, IL 60697
Facsimile No.: (312) 828-5140
Attention: Jennifer M. Kerwin
-- with a copy to --
335 Madison Avenue
New York, NY 10017
Facsimile No.: (212) 503-7771
Attention: Brock T. Harris
LIBOR
Office: 231 South Lasalle Street
Chicago, IL 60697
Facsimile No.: (312) 828-5170
Attention: Jennifer M. Kerwin
-- with a copy to --
<PAGE>
335 Madison Avenue
New York, NY 10017
Facsimile No.: (212) 503-7771
Attention: Brock T. Harris
8.33333333% FIRST FIDELITY BANK, N.A.
By:________________________________
Carl Goelz
Title: Vice President
Domestic
Office: 123 South Broad Street
Philadelphia, PA 19109
Attention: Elizabeth Trusky
LIBOR
Office: 123 South Broad Street
Philadelphia, PA 19109
Facsimile No.: 215-985-8793
Attention: Elizabeth Trusky
8.33333333% MELLON BANK, N.A.
By:________________________________
Martin T. Hanning
Title: Vice President
Domestic
Office: Three Mellon Bank Center
Room 2332
Pittsburgh, PA 15259
Facsimile No.: 412-236-2028
Attention: Loan Administration
Division
LIBOR
Office: Three Mellon Bank Center
Room 2332
Pittsburgh, PA 15259
Facsimile No.: 412-236-2028
<PAGE>
Attention: Loan Administration
Division
8.33333333% MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By:________________________________
Laura Reim
Title: Vice President
Domestic
Office: 500 Stanton Christiana
Road
Newark, DE 19713-2107
Attention: Barbara McCarnan
Telecopy: 302-634-1091
Telex: 177615 MGT UT
OR
620106 MGT UW
LIBOR
Office: Nassau, Bahamas Office
c/o J.P. Morgan Services,
Inc.
Euro-Loan Servicing Unit
500 Stanton Christiana
Road
Newark, DE 19713-2107
Attention: Barbara McCarnan
Telecopy: 302-634-1091
Telex: 177615 MGT UT
OR
620106 MGT UW
8.33333333% WACHOVIA BANK OF GEORGIA, N.A.
By:________________________________
Title:
Domestic
Office:
Facsimile No.:
Attention:
<PAGE>
LIBOR
Office:
Facsimile No.:
Attention:
8.33333333% TRUST COMPANY BANK
By:________________________________
Title:
- and -
By:________________________________
Title:
Domestic
Office: 25 Park Place
23rd Floor, Center 118
Atlanta, GA 30303
Facsimile No.: 404-588-8833
Attention: Sharon Judge
LIBOR
Office: 25 Park Place
23rd Floor, Center 118
Atlanta, GA 30303
Facsimile No.: 404-588-8833
Attention: Sharon Judge
<PAGE>
Exhibit 11
Lukens Inc.
Computation of Primary Earnings Per Common Share
for the 53 weeks ended December 31, 1994, and the 52 weeks ended
December 25, 1993 and December 26, 1992
(Dollars and shares in thousands except per share amounts)
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Net earnings (loss) applicable to common stock
Earnings before cumulative effect of 1993
accounting changes $ 22,178 15,902 33,055
ESOP dividend requirements
Preferred stock dividends declared (2,569) (2,602) (2,619)
Tax benefit on dividends 544 697 1,006
-------- -------- --------
Earnings before cumulative effect of 1993
accounting changes applicable to common stock 20,153 13,997 31,442
Cumulative effect of 1993 accounting changes - (65,901) -
-------- -------- --------
Net earnings (loss) applicable to common stock $ 20,153 (51,904) 31,442
======== ======== ========
Weighted average number of common
shares and equivalents outstanding
Weighted average number of common shares outstanding 14,582 14,508 13,364
Common stock equivalents:
Stock options, assuming exercised at
average market price 161 273 239
-------- -------- --------
Weighted average number of common shares
and equivalents outstanding 14,743 14,781 13,603
======== ======== ========
Primary earnings per common share
Earnings before cumulative effect of 1993
accounting changes $ 1.37 0.95 2.31
Cumulative effect of 1993 accounting changes - (4.46) -
-------- -------- --------
Net earnings (loss) $ 1.37 (3.51) 2.31
======== ======== ========
</TABLE>
Computation of Fully Diluted Earnings Per Common Share
for the 53 weeks ended December 31, 1994, and the 52 weeks ended
December 25, 1993 and December 26, 1992
(Dollars and shares in thousands except per share amounts)
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Net earnings (loss) applicable to common stock
Earnings before cumulative effect of 1993
accounting changes $ 22,178 15,902 33,055
Incremental cash contribution to the ESOP assuming
conversion of preferred stock to common (964) (976) (999)
Tax benefit on the incremental cash contribution 337 365 384
Tax benefit on common dividends - - 622
-------- -------- --------
Earnings before cumulative effect of 1993
accounting changes applicable to common stock 21,551 15,291 33,062
Cumulative effect of 1993 accounting changes - (65,901) -
-------- -------- --------
Net earnings (loss) applicable to common stock $ 21,551 (50,610) 33,062
======== ======== ========
Weighted average number of common
shares and equivalents outstanding
Weighted average number of common shares outstanding 14,582 14,508 13,364
Common stock equivalents:
Stock options, assuming exercised at greater
of ending or average market price 161 274 258
Series B ESOP preferred stock 1,588 1,627 1,639
-------- -------- --------
Weighted average number of common
shares and equivalents outstanding 16,331 16,409 15,261
======== ======== ========
Fully diluted earnings per common share
Earnings before cumulative effect of 1993
accounting changes $ 1.32 0.93 2.17
======== ======== ========
Net earnings (loss) $ 1.32 (3.51)* 2.17
======== ======== ========
</TABLE>
* Calculation results in an improvement over primary earnings per share.
As a result, fully diluted earnings per share equals primary earnings
per share.
<PAGE>
LUKENS INC. 1994 FORM 10-K: EXHIBIT 21
LUKENS INC.
SUBSIDIARIES
DECEMBER 31, 1994
Lukens Inc. has 13 direct or indirect wholly-owned subsidiaries:
STATE OR OTHER
JURISDICTION OF
INCORPORATION
---------------
Brandywine Valley Railroad Co. Delaware
Encoat North Arlington, Inc. Delaware
Energy Coatings Company Delaware
LI Acquisition Corporation Delaware
LI Service Company Pennsylvania
Lukens Development Corporation Delaware
Lukens Management Corporation Pennsylvania
Lukens Steel Company Pennsylvania
Pennock Corporation Delaware
Sponsor's Plan Asset Management, Inc. Delaware
Washington Specialty Metals Corporation Illinois
Washington Specialty Metals Inc. Canada
Washington Steel Corporation Delaware
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM LUKENS INC.
FINANCIAL STATEMENTS FOR THE FIFTY-THREE WEEKS ENDED DECEMBER 31, 1994 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> DEC-26-1993
<PERIOD-END> DEC-31-1994
<CASH> 9,806
<SECURITIES> 0
<RECEIVABLES> 128,161
<ALLOWANCES> 7,569
<INVENTORY> 134,928
<CURRENT-ASSETS> 281,036
<PP&E> 843,405
<DEPRECIATION> 365,276
<TOTAL-ASSETS> 826,434
<CURRENT-LIABILITIES> 174,556
<BONDS> 201,351
<COMMON> 158
0
30,635
<OTHER-SE> 246,264
<TOTAL-LIABILITY-AND-EQUITY> 826,434
<SALES> 947,013
<TOTAL-REVENUES> 947,013
<CGS> 841,308
<TOTAL-COSTS> 841,308
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 10,467
<INTEREST-EXPENSE> 13,258
<INCOME-PRETAX> 36,357
<INCOME-TAX> 14,179
<INCOME-CONTINUING> 22,178
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,178
<EPS-PRIMARY> 1.37
<EPS-DILUTED> 1.32
</TABLE>
