UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/X/Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE FISCAL YEAR ENDED DECEMBER 27, 1997
OR
/ /Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number 1-3258
LUKENS INC.
50 South First Avenue, Coatesville, PA 19320-0911
(610) 383-2000
Incorporated in Delaware
I.R.S. Employer Identification Number 23-2451900
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Exchange on Which Registered
Common Stock, $.01 Par Value New York Stock Exchange
7.625% Notes Due 2004 Not Listed
6.5% Medium-Term Notes,
Series A, Due 2006 Not Listed
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
Based on the closing price of March 2, 1998, the aggregate market value of
common stock held by nonaffiliates of the registrant was $329.6 million.
The number of common shares outstanding of the registrant was 14,977,090 as of
March 2, 1998.
<PAGE>
PART I
ITEM 1. BUSINESS.
General
Headquartered in Coatesville, Pennsylvania, Lukens Inc. is a holding company
incorporated in Delaware. The largest subsidiary of the company, Lukens Steel
Company, manufactures carbon, alloy and clad steel plates, and stainless steel
sheet, strip, plate, hot band and slabs. Production facilities and markets are
located primarily in the United States.
On December 15, 1997, Lukens entered into a merger agreement with Bethlehem
Steel Corporation. The agreement was subsequently amended as of January 4, 1998.
Under the merger agreement, Bethlehem Steel Corporation would acquire Lukens
outstanding common and preferred stock (converted to common) for $30 per share.
Consideration is a combination of cash and Bethlehem stock. At year-end 1997,
the number of common shares outstanding, combined with the conversion of
outstanding preferred stock, would total 16,352,127 shares and result in
proceeds of $490.6 million in cash and Bethlehem stock. The merger is contingent
on shareholder approval. A special meeting of stockholders is expected to be
held during the second quarter of 1998.
Forward-Looking Information
Sections of this Form 10-K include disclosures about future economic conditions
and Lukens' future financial performance, capital structure, goals and
objectives. Except to the extent that these discussions contain historical
facts, these forward-looking statements are subject to risks and uncertainties
that could cause actual events to materially differ from those projected. These
risks and uncertainties include, but are not limited to, materially adverse
changes in general economic conditions, domestic and foreign competition,
weather, raw material price fluctuations, possible labor interruptions and
regulatory or legislative changes.
Business Groups
Lukens has two business groups, the Carbon & Alloy Group and the Stainless
Group. Financial information for these business groups is incorporated herein by
reference to Note 2 to the financial statements included in Part II, Item 8 of
this Form 10-K. The charts below outline the business group composition of
consolidated net sales and shipped tons for each of the last three years.
Composition of Consolidated Net Sales by Business Group
1997 1996 1995
--------- --------- ---------
Carbon & Alloy % 51.9 49.6 41.9
Stainless 48.1 50.4 58.1
--------- --------- ---------
Total % 100.0 100.0 100.0
========= ========= =========
Shipped Tons by Business Group
1997 1996 1995
--------- --------- ---------
Carbon & Alloy 753,900 652,600 589,100
Stainless 257,700 262,100 267,200
<PAGE>
Carbon & Alloy Group
The Carbon & Alloy Group specializes in the production of carbon, alloy and clad
steel plate. Primary production locations are in Coatesville and Conshohocken,
Pennsylvania. Both plants have hot rolling and finishing facilities, and the
Coatesville plant operates a melt shop. Production from these facilities ranks
the group as one of the largest domestic plate steel producers and the largest
domestic producer of alloy plate steel. There are several domestic and foreign
competitors. Major competitors are U.S. Steel Group, a subsidiary of the USX
Corporation, and Bethlehem Steel Corporation.
The group's competitive position is enhanced by a concentration on plate with a
product line that includes a wide range of sizes and grades. Price competition
has been and is expected to remain intense as new capacity enters the market. In
addition to price and quality, customer satisfaction, measured by factors like
shipped-on- time performance and production lead times, has become increasingly
important in the competitive environment. Customer satisfaction is also the
focus of our customer business teams that integrate sales, technical,
manufacturing, financial and purchasing expertise.
The Steckel Mill Advanced Rolling Technology (SMART) system, located at the
Conshohocken plant, expanded the group's production capabilities and products to
include wide, light-gauge plate, including plate coils. During 1997, integration
of the SMART system and the wide anneal and pickle line, discussed in the
Stainless Group section, was initiated.
Products are sold primarily by an in-house sales force. Steel service centers
are the largest market for the group. The market accounted for approximately 48
percent of annual sales in 1997 and averaged approximately 38 percent of annual
sales in 1996 and 1995. The Carbon & Alloy Group supplies a wide range of
markets in the capital goods sector of the economy, including markets for:
o Machinery and Industrial Equipment
o Infrastructure
o Environmental and Energy
o Transportation.
Some sales involve government contracts which may be subject to termination or
renegotiation. Terminations for convenience of the government generally provide
for payments to a contractor for its costs and a portion of its profit. We do
not expect any material portion of our business to be terminated or
renegotiated.
Raw materials used in the production of carbon and alloy steel plate include
carbon scrap, alloy scrap and alloy additives. Generally, these materials are
purchased in the open market and are available from several sources. Prices and
availability are also affected by the operating level of the domestic steel
industry, the quantity of scrap exported, currency exchange rates, and world
political and economic conditions. Scrap remains readily available, but scrap
prices remain at relatively high levels.
<PAGE>
Principal energy sources used in production include electricity and natural gas.
Stainless Group
The Stainless Group specializes in manufacturing and marketing stainless steel
sheet, strip, plate, hot band and slabs. The group's competitive position is
built on the ability to serve niche markets by providing a wide range of quality
products. Manufacturing facilities are located in Washington and Houston,
Pennsylvania, and Massillon, Ohio. Primary competitors include
Allegheny-Teledyne Incorporated, J&L Specialty Steel, Inc., North American
Stainless Corporation and Avesta Sheffield Pipe Inc.
Washington Specialty Metals Corporation is a service and distribution center
that specializes in marketing stainless steel. There are numerous competitors on
both a national and a regional scale. Washington Specialty Metals is a leading
distributor of flat-rolled stainless steel.
Similar to the competitive environment in the Carbon & Alloy Group, customer
satisfaction, measured by factors like shipped-on-time performance and
production lead times, has become increasingly important. Customer satisfaction
is also the focus of our customer business teams. The teams integrate sales,
technical, manufacturing, financial and purchasing expertise to solve our
customers' problems. Price and quality remain significant factors in the
competitive environment.
As evidenced by the Stainless Group results in 1997 and 1996, high levels of
stainless steel imports accentuated pricing pressures. We continue to support
the imposition of trade sanctions on stainless steel imports. Without these
sanctions, we do not expect that prices will rebound significantly from 1997
levels and the introduction of new production capacity by competitors will
continue to exert pressure on selling prices over the next two or three years.
The installation of the wide anneal and pickle line at the Massillon plant was
completed in 1996. Commercialization of products from the line continued during
1997. Although product shipments increased consistently throughout the year,
utilization of the facility was low in 1997 and is expected to remain relatively
low in 1998.
Stainless products processed on the Carbon & Alloy Group's SMART system and
finished on the wide anneal and pickle line are anticipated to create quality,
size and cost advantages in the long term.
Products are sold primarily by the group's own sales organizations. Service
centers are the largest market for the group and they averaged approximately 37
percent of annual sales in the last three years. The Stainless Group ultimately
supplies diverse markets, including:
<PAGE>
o Process Industries
o Food Service Equipment
o Architecture and Construction
o International
o Consumer Durables.
Raw materials used in production include stainless scrap, chrome, nickel and
molybdenum. Generally, these materials are purchased in the open market and are
available from several sources. Some of these raw materials sources are located
in countries subject to potential interruptions of supply that could cause
shortages and affect the availability and price. Prices and availability are
also affected by the operating level of the worldwide stainless steel industry,
the quantity of scrap exported, currency exchange rates, and world political and
economic conditions. Nickel costs remain highly volatile. Forward exchange or
hedge contracts for nickel are used to manage the group's exposure to market
price volatility. Principal energy sources used in production include
electricity and natural gas.
Sales Order Backlog
(Dollars in thousands)
Listed below is the backlog at the end of 1997 and 1996. The backlog at year-end
1997 is anticipated to be shipped in 1998.
12/27/97 12/28/96
-------- --------
Carbon & Alloy $118,553 68,134
Stainless 48,461 59,396
-------- --------
Total $167,014 127,530
======== ========
Environment
Lukens is subject to Federal, state, and local environmental laws and
regulations. An environmental committee meets quarterly to review environmental
and remediation issues. Also, outside consultants are used on certain technical
issues. The trend for tighter environmental standards is expected to result in
higher waste disposal and monitoring costs, and additional capital expenditures
in the long term. The Environmental Protection Agency's air quality standards
for particulate matter were enacted in July 1997. Implementation is dependent on
the results of environmental studies being conducted over the next several
years. Although it is difficult to estimate, the cost of installing new
environmental control systems across our manufacturing facilities could be
significant in the long term.
In 1997, capital expenditures for environmental compliance projects were $4.7
million. In 1998 and 1999, capital expenditures are anticipated to be
approximately $4.3 million and $3.8 million, respectively.
<PAGE>
Lukens has been designated a potentially responsible party under Superfund law
at certain waste disposal sites and continually monitors a range of other
environmental issues. Superfund designations are made regardless of the extent
of the company's direct or indirect involvement. These claims are in various
stages of administrative or judicial proceedings and include demands for
recovery of incurred costs and for future investigation or remedial actions.
Lukens accrues costs associated with environmental matters when they become
probable and can be reasonably estimated. In assessing environmental liability,
the company considers the extent and type of hazardous substances at a site, the
range of technologies that can be used for remediation, evolving laws and
regulations, the allocation of costs among potentially responsible parties, and
the number and financial strength of those parties.
During the second quarter of 1997, a tentative settlement was reached in a
Superfund remediation case where Lukens was designated a potentially responsible
party. The obligation for the Superfund site was previously recognized in the
fourth quarter of 1996.
Based on information currently available, the liability recorded for
environmental remediation costs was approximately $17.0 million at year-end 1997
and $16.8 million at year-end 1996. Due to their uncertain nature, amounts
accrued could differ, perhaps significantly, from the actual costs that will be
incurred. No potential insurance recoveries were taken into account in
determining the company's cost estimates or reserves. Management does not
anticipate that its financial position will be materially affected by additional
environmental remediation costs, although quarterly or annual operating results
could be materially affected by future developments.
Employees
The average number of employees during 1997 was 3,300. The labor contract for
the Coatesville facility of the Carbon & Alloy Group terminates in 2000. Labor
contracts for the manufacturing facilities of the Stainless Group expire in 1999
and 2000.
ITEM 2. PROPERTIES.
Carbon & Alloy Group
Refined molten steel is produced by an electric arc furnace melt shop.
Approximately 66 percent of 1997 production at this facility was continuously
cast into slabs, with the balance used for ingots. The facility also has two
plate mills, plate-finishing lines and heat-treating facilities.
The Conshohocken, Pennsylvania, facility houses the SMART system. The system
includes two reheat furnaces, a roughing mill, a four- high reversing Steckel
mill, accelerated on-line cooling and a cut-
<PAGE>
to-length line. During 1997, production on the SMART system was approximately
400,000 tons. Conshohocken also has an automated quench and temper line and a
batch heat-treating system for lighter gauge carbon and alloy plate products.
Carbon & Alloy Group facilities are also used to produce stainless products.
Stainless steel is melted and refined in Coatesville and subsequently processed
on the SMART system. For business group reporting of results, discussed in Item
1, all stainless product sales and earnings are included in the Stainless Group
results.
A relatively small fabrication facility is located in Newton, North Carolina. It
uses plasma arc cutting technology to produce blanks and shapes from carbon and
alloy plate.
In 1998, steel slabs will continue to be purchased to supplement melting
capacity. Given current market conditions, Carbon & Alloy Group facilities are
essentially operating at capacity.
Stainless Group
The group has manufacturing facilities in Washington and Houston, Pennsylvania,
and in Massillon, Ohio. The Washington facility cold rolls stainless sheet and
strip products on Sendzimir mills and finishes on annealing and pickling lines.
Other capabilities include stainless coil polishing, stretcher leveling,
slitting and processing stainless hot bands on a hot anneal and pickle line.
Stainless steel is melted, cast, and rolled at the Houston location. The plant
has two electric arc furnaces, an argon oxygen decarburization (AOD) refining
unit and a variable width caster with sequence casting capability.
The Massillon, Ohio, facility is the site of the wide anneal and pickle line.
This system enables us to produce stainless plate in coils up to 96 inches wide.
With its integrated cut-to-length capability, the line has the flexibility to
make coiled and discrete stainless plate. Utilization of the wide anneal and
pickle line was low in 1997. In addition to the wide anneal and pickle line, the
Massillon plant operates a hot and cold anneal and pickle line and other
finishing facilities.
Washington Specialty Metals Corporation has fabrication and
distribution facilities in Wheeling and Carol Stream, Illinois, and
Lawrenceville, Georgia. Additional distribution centers are listed
below.
o Carrollton, Texas o Youngsville, North Carolina
o Tampa, Florida o Brampton, Ontario, Canada
o Vaudreuil, Quebec, Canada
Capacity of facilities is considered adequate to support projected sales.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
On December 23, 1997, a purported stockholder of Lukens, Carrie Anne Polonetsky,
filed a purported class action (the "Polonetsky Action") in the Court of
Chancery of the State of Delaware (the "Court of Chancery") against the Lukens
Board alleging, among other things, that the Lukens Board had breached its
fiduciary duties by failing to obtain the highest value reasonably available in
a sale of Lukens. Two other purported stockholders of Lukens, Wretha Evelyn
Walker and Michael Abramsky, filed purported class actions (collectively with
the Polonetsky Action, the "Delaware Actions") in the Court of Chancery on
December 29, 1997 and January 6, 1998, respectively, making substantially
similar allegations. The Delaware Actions have been consolidated by order of the
Court of Chancery dated March 11, 1998. On March 27, 1998, the plaintiffs in the
Delaware Actions filed a consolidated amended complaint against the Lukens Board
alleging, among other things, that the Lukens Board had breached its fiduciary
duties by failing to obtain the highest value reasonably available in a sale of
Lukens. The defendants intend to defend the Delaware Actions vigorously.
Lukens is involved in litigation and administrative proceedings which seek the
recovery of response costs with respect to certain waste disposal sites and is a
potentially responsible party under Superfund law at some of these sites.
Lukens' potential exposure in these actions will vary according to the amount of
responsibility attributed to Lukens, the allocation of responsibility among, and
financial viability of, other responsible parties, and the method and duration
of remedial action. Management does not anticipate that its long-term financial
position will be materially affected by additional environmental remediation
costs, although quarterly or annual operating results could be materially
affected by future developments.
The company is party to various claims, disputes, legal actions and other
proceedings involving negligence, contracts, equal employment opportunity,
occupational safety and various other matters. In the opinion of management, the
outcome of these matters should not have a material adverse effect on the
consolidated financial condition or results of operations of the company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were voted upon during the fourth quarter of 1998.
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The following executive officers were elected by the Board of Directors until
their respective successors are elected:
<TABLE>
<CAPTION>
Executive Officer
Executive Officer/Title Age Since
<S> <C> <C>
R. W. Van Sant 59 October 1991
Chairman and Chief Executive Officer
William W. Beible 45 November 1996
Chief Information Officer
John H. Bucher 58 April 1993
Vice President-Technology
P. Blaine Clemens 60 January 1997
Vice President and Controller
C. B. Houghton, Jr. 57 November 1994
Vice President-Business Development
T. Grant John 59 February 1993
Senior Vice President-Strategic Planning
Richard D. Luzzi 46 February 1993
Vice President-Human Resources
James J. Norton 41 April 1992
Senior Vice President-President and
Chief Operating Officer-
Washington Specialty Metals
Frederick J. Smith 54 April 1993
Senior Vice President-Operations
William D. Sprague 56 October 1988
Vice President,
General Counsel and Secretary
John C. van Roden, Jr. 49 February 1987
Senior Vice President
and Chief Financial Officer
</TABLE>
<PAGE>
Listed below are executive officers that have been employed by Lukens in an
executive or managerial capacity for less than five years.
T. Grant John was previously with the Axel Johnson Group, a privately-owned
Swedish company with extensive holdings of stainless steel businesses. During
his 14 years with Axel Johnson, Mr. John held operating and management positions
in the corporation's United States operations. In 1985, Mr. John was appointed a
corporate vice president of Axel Johnson, Inc.
Richard D. Luzzi joined Rockwell International Corporation in 1980 and became
vice president-human resources at Rockwell Graphic Systems, Inc. in 1988. In
1991, he assumed the additional responsibility of vice president-international
human resources for Rockwell International.
<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 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.
Selected Financial Highlights
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
For The Year
<S> <C> <C> <C> <C> <C>
Net sales $ 994,380 970,320 1,049,158 947,013 862,072
---------- ------- --------- ------- -------
Operating earnings (loss) 13,404 (26,053) 67,980 49,570 36,602
Net non-operating (expense) income (19,073) (16,735) (13,471) (13,213) (16,319)
Income tax expense (benefit) (1,049) (14,377) 20,495 14,179 7,161
---------- ------- --------- ------- -------
Earnings (loss) from continuing operations (4,620) (28,411) 34,014 22,178 13,122
Discontinued operations, net of tax -- -- -- -- 2,780
---------- ------- --------- ------- -------
Net earnings (loss) before cumulative
effect of accounting changes (4,620) (28,411) 34,014 22,178 15,902
Per common share-- basic
Continuing operations (.45) (2.06) 2.18 1.38 .77
Discontinued operations -- -- -- -- .19
---------- ------- --------- ------- -------
Net earnings (loss) (.45) (2.06) 2.18 1.38 .96
Percent of stockholders' investment
-- start of year %(1.9) (9.5) 12.3 8.3 4.8
Shares outstanding--
weighted average 14,806 14,784 14,696 14,582 14,508
---------- ------- --------- ------- -------
Cash dividends-- common 14,805 14,781 14,696 14,583 14,508
Per share 1.00 1.00 1.00 1.00 1.00
---------- ------- --------- ------- -------
Cash flow from operations 29,396 43,667 85,491 79,180 72,290
Depreciation and amortization 51,831 48,949 41,304 43,962 45,488
Capital expenditures 19,369 57,092 104,120 120,342 67,424
Average number of employees 3,300 3,450 3,660 4,060 4,769
---------- ------- --------- ------- -------
At Year-End
Inventories $ 145,587 148,925 163,125 134,928 160,060
Current assets 285,700 266,656 314,891 281,036 307,739
Working capital 114,509 99,158 106,221 106,480 146,034
Current ratio 1.7 1.6 1.5 1.6 1.9
Plant and equipment, net of depreciation 497,559 533,326 529,432 478,129 431,853
Total assets 877,430 888,751 919,663 826,434 817,178
---------- ------- --------- ------- -------
Long-term debt 244,671 248,695 217,339 201,351 220,768
Total debt 250,947 253,573 228,189 208,485 226,589
Redeemable stock -- 13,427 -- -- --
---------- ------- --------- ------- -------
Stockholders' investment 241,750 244,642 298,719 277,057 266,754
Per common share 16.18 16.53 20.27 18.91 18.36
Common shares outstanding 14,941 14,802 14,736 14,652 14,529
Stockholders of record 4,800 4,900 5,700 6,000 5,600
---------- ------- --------- ------- -------
</TABLE>
Dollars and shares in thousands except per share amounts
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
On December 15, 1997, Lukens entered into a merger agreement with Bethlehem
Steel Corporation. The agreement was subsequently amended as of January 4, 1998.
Under the merger agreement, Bethlehem Steel Corporation would acquire Lukens
outstanding common and preferred stock (converted to common) for $30 per share.
Consideration is a combination of cash and Bethlehem stock. At year-end 1997,
the number of common shares outstanding combined with the conversion of
outstanding preferred stock, would total 16,352,127 shares and result in
proceeds of $490,564 in cash and Bethlehem stock. The merger is contingent on
shareholder approval. A special meeting of stockholders to vote on the merger is
expected to be held during the second quarter of 1998.
The Consolidated Financial Statements, Notes to Consolidated Financial
Statements and the discussion below were prepared assuming a going-concern basis
and did not recognize the impact of the merger. For a discussion of the
contingent liabilities associated with the merger, see Note 10.
The following discussion focuses on the results of operations and on the
financial condition of Lukens Inc. In addition to the consolidated results
analysis, the results of Lukens' two business groups are discussed.
This section should be read in conjunction with the consolidated financial
statements and notes.
Consolidated Results of Operations
Net Sales.
A graph of net sales appears in this section.
1995 $1,049,158
1996 $ 970,320
1997 $ 994,380
Sales were up 2 percent in 1997. The increase was attributable to strong
Carbon & Alloy Group sales that were largely offset by depressed market
conditions in the Stainless Group.
1996 sales were down 8 percent compared to 1995. During the second half of
1996, stainless steel market conditions began to deteriorate and contributed to
lower Stainless Group sales. The decrease was partially offset by higher
shipments in the Carbon & Alloy Group.
Operating Earnings (Loss).
A graph of operating earnings (loss) appears in this section.
1995 $ 67,980
1996 $(26,053)
1997 $ 13,404
Operating earnings in 1997 were attributable to the Carbon & Alloy Group,
which benefited from market conditions, cost reduction initiatives and increased
utilization of new facilities. Depressed selling prices experienced by the
Stainless Group resulted in a loss for the group in 1997.
Included in 1996 results were unusual charges totaling $26,115. A second
quarter provision of $10,782 was recognized for a work force reduction. In the
fourth quarter, $9,400 was recognized for environmental remediation and $5,933
for fixed asset write-downs. Excluding the 1996 unusual items for comparison
purposes, operating earnings were up $13,342 in 1997.
The 1996 loss represented a dramatic reversal from strong 1995 earnings.
Excluding the unusual items discussed above for comparison purposes, operating
earnings were $62 in 1996. The reversal in results tracks the change in
stainless steel market conditions that resulted in significant selling price
declines. Results in 1996 were also limited by higher utility costs caused by
severe winter weather and by signing bonuses associated with a new labor
contract.
Summary of Results 1997 1996 1995
Net sales $ 994,380 970,320 1,049,158
Operating earnings (loss) $ 13,404 (26,053) 67,980
Interest expense $ 19,073 16,735 13,471
Income tax expense (benefit) $ (1,049) (14,377) 20,495
Effective income tax rate % (18.5) (33.6) 37.6
Net earnings (loss) $ (4,620) (28,411) 34,014
Dollars in thousands except per share amounts
<PAGE>
Interest Expense.
A graph of interest expense appears in this section.
1995 $ 13,471
1996 $ 16,735
1997 $ 19,073
Interest expense in 1997 was up 14 percent with the increase primarily
related to higher amounts of capitalized interest recorded in 1996. Interest
expense in 1996 was up 24 percent compared to 1995. Higher debt levels in 1996
were the primary reason for the increase.
Income Tax Expense (Benefit).
A graph of effective income tax rate appears in this section.
1995 37.6%
1996 (33.6%)
1997 (18.5%)
The effective tax rate applied against losses was 18.5 percent in 1997 and
33.6 percent in 1996. The difference between the 1997 and 1996 rates reflected
the impact of non-deductible expenses, state taxes and other items that have a
greater percentage impact on the effective rate at lower results levels. The tax
benefits recognized in the past two years primarily resulted in a build in
deferred tax assets that reflected the availability of tax credit carryforwards.
In 1995, the effective tax rate applied to earnings was 37.6 percent.
Deferred tax assets recognized represent future tax benefits. Recog-nition
of deferred tax assets is based on the combination of the historical earnings
trend, future reversals of existing taxable temporary differences, carryback and
carryforward availability, tax planning strategies and future taxable income.
Net Earnings (Loss).
A graph of net earnings (loss) appears in this section.
1995 $ 34,014
1996 $(28,411)
1997 $ 4,620
A net loss was recorded both in 1997 and 1996. On an after-tax basis, the
unusual items recorded in 1996 reduced results by $16,673. Excluding the unusual
items for comparison purposes, the 1996 net loss was $11,738. Net earnings in
1995 reflected strong Stainless Group results.
Business Groups
Carbon & Alloy.
Business group graphs appear in this section.
Carbon & Alloy net sales:
1995 $439,330
1996 $481,237
1997 $516,499
Carbon & Alloy operating earnings (loss):
1995 $ 11,946
1996 $ (2,554)
1997 $ 50,410
Net sales were up 7 percent in 1997. Shipped tons were 753,900 compared to
652,600 tons in 1996. The 16 percent increase reflected higher utilization of
the Steckel Mill Advanced Rolling Technology (SMART(R)) system, evidenced by a
more than 80,000 ton increase in carbon shipments. With the growth in carbon
shipments in 1997, sales reflected a lower-value shipment mix.
The 10 percent sales increase in 1996 compared to 1995 was largely
attributable to an increase in shipments, particularly in carbon products.
Shipments in 1996 were up 11 percent compared to 589,100 tons in 1995.
The group recorded strong operating earnings in 1997. Earnings benefited
from a continued focus on cost reduction initiatives and increased utilization
of the SMART system. The operating loss in 1996 was due to unusual charges of
$15,578. A work force reduction charge reduced results by $6,178 and an
environmental remediation provision was $9,400. Excluding the provisions for
comparison purposes, 1997 operating earnings were up $37,386 from 1996. Also
impacting 1996 results was a $3,756 charge for signing bonuses associated with
the new labor agreement at the Coatesville, Pennsylvania, facility, severe
winter weather and disruptions associated with the commissioning of the SMART
system.
The operating loss in 1996 compared to operating earnings in 1995. The 1996
loss was the result of the charges discussed previously. Excluding the charges,
operating earnings of $13,024 were up 9 percent from 1995. Although to a lesser
extent than 1995, results in 1996 continued to be impacted by production
disruptions and expenses associated with the commissioning of the SMART system.
Dollars in thousands except per share amounts
<PAGE>
Stainless.
Business group graphs appear in this section.
Stainless net sales:
1995 $609,828
1996 $489,083
1997 $477,881
Stainless operating earnings (loss):
1995 $ 75,148
1996 $ (7,058)
1997 $(20,488)
Selling price erosion that began in 1996 continued in 1997. Higher levels
of low-priced imports continued to exert pressure on selling prices across
product lines. Shipments for 1997 were 257,700 tons, down 2 percent compared to
262,100 tons in 1996.
Weak stainless steel market conditions in 1996 led to a 20 percent decrease
in sales compared to 1995. The sales decline reflected customer inventory
corrections during the first half of the year that reduced cold rolled
shipments. For the balance of 1996, the selling prices fell across all product
lines. A lower-value shipment mix also contributed to the decrease. Shipments
for 1996 were down slightly from 1995 shipments of 267,200 tons. Excluding
lower-value conversion tonnage, shipments were down 12 percent from 1995,
primarily due to decreases in hot rolled and hot band stainless product
shipments.
The operating loss recorded in 1997 was significantly larger than the 1996
loss. Results in 1996 included unusual charges totaling $9,628. The charges
consisted of $3,695 for a work force reduction and $5,933 to write down idle
assets and other equipment replaced as a result of capital improvements.
Excluding the unusual charges for comparison purposes, operating results fell by
$23,058 in 1997, largely due to depressed selling prices discussed previously.
Excluding the 1996 unusual charges for comparison purposes, operating
earnings of $2,570 were down 97 percent from 1995. The decline primarily
reflected a significant deterioration in stainless steel market conditions as
previously discussed. In addition, 1996 earnings from the service center
operations did not match their excellent 1995 results.
Business Outlook
Similar to 1997, strong market conditions should translate to solid
earnings for the Carbon & Alloy Group. Selling prices will be the key to
Stain-less Group profitability. A continued focus on cost reduction initiatives
and increased utilization of facilities aimed at the stainless plate market
should also contribute to earnings.
We continue to support the imposition of trade sanctions on stainless steel
imports. Without these sanctions, we do not expect that prices will rebound
significantly from 1997 levels. The introduction of new production capacity by
competitors will continue to exert pressure on selling prices over the next two
or three years.
Stainless Group results should benefit from increased stainless plate sales
fueled by the continued integration of the SMART system with the wide anneal and
pickle line (WAPL). However, utilization of the WAPL facility is still expected
to be relatively low in 1998. Weak results are expected to continue if there is
no improvement in the current market conditions.
Financial Condition
Capital Structure.
A graph of current assets and working capital appears in this section.
Current assets:
1995 $314,891
1996 $266,656
1997 $285,700
Working capital:
1995 $106,221
1996 $ 99,158
1997 $114,509
At the end of 1997, cash and cash equivalents totaled $6,629, a decrease of
$3,653 from the end of 1996. Working capital of $114,509 was up $15,351 from
year-end 1996. The increase primarily reflected a higher accounts receivable
balance. At year-end 1997, the current ratio was 1.7 compared to 1.6 at year-end
1996.
Included in other accrued expenses at the end of 1997 was an environmental
reserve that was reclassified during the second quarter of 1997 from other
liabilities in the long-term section of the Consolidated Balance Sheets. The
reclassification reflected a tentative settlement agreement negotiated for a
Superfund site where we were designated a potentially responsible party.
Debt at the end of 1997 was $250,947, a slight decrease of $2,626 from
year-end 1996. Included in year-end debt was $10,619 of ESOP debt, which is
guaranteed by Lukens.
The ratio of long-term debt to total capital was 50.3 percent at the end of
1997 and 51.7 percent at year-end 1996. The 1996 ratio included 2.6 percent from
the reclassification
Dollars in thousands except per share amounts
<PAGE>
of preferred stock and deferred ESOP compensation as redeemable stock, discussed
below. Based on conditions at the end of 1997, additional borrowings of
approximately $65,400 were available under the committed line of credit
covenant.
During the second quarter of 1997, Standard & Poor's lowered their rating
on Lukens notes from BBB+ to BBB. During the third quarter of 1997, Moody's
lowered their rating from Baa2 to Baa3.
In 1997, the Board of Directors approved the issuance of performance vested
restricted stock to certain officers and other executives as part of an
incentive compensation program. During the first quarter of 1997, 134,000
restricted shares were awarded. The shares carry voting and dividend rights and
were recorded at fair market value on the grant date. A corresponding charge to
deferred compensation was recorded in the stockholders' investment section of
the Consolidated Balance Sheets. The deferred compensation balance was
subsequently adjusted for changes in the market price of Lukens common stock and
for compensation expense recognized. The awards vest at the end of three years,
contingent on continued employment and the achievement of performance goals that
are tied to Lukens' total shareholder return relative to other steel companies.
Lukens Series B Convertible Preferred Stock is redeemable in common stock,
cash or a combination at the option of Lukens when the price of Lukens common
stock is $20 per share or greater. If the price is below $20 per share,
participants in a company-sponsored 401(k) employee savings plan have the option
to redeem preferred stock in the combination above. At year-end 1996, preferred
stock and the related ESOP deferred compensation were classified as redeemable
stock because the price of Lukens common stock was below $20 per share on
December 28, 1996, the fiscal year-end. The reclassification from stockholders'
investment reflected the ability of 401(k) participants to elect a cash payout
option at redemption. The classification was not made in 1997 or years prior to
1996 because the company had the ability and intention to redeem preferred stock
with Lukens common stock.
Lukens enters into forward exchange contracts (derivatives) with the
objective to manage or hedge exposure to market price changes of certain
commodities used in manufacturing. The company does not speculate or trade in
these agreements for profit. These contracts generally provide for the exchange
of a market price for a fixed price based on a notional quantity. Contracts are
executed under the guidelines of a corporate policy. The policy specifies
members of management with the authority to execute agreements and establishes
limits on the amount of contracts outstanding. As of year-end 1997, Lukens was
party to several agreements maturing in 1998, which are discussed in Note 8.
Liquidity -- Short Term.
Graphs of cash flow from operations and capital expenditures appear in this
section.
Cash flow from operations:
1995 $85,491
1996 $43,667
1997 $29,396
Capital expenditures:
1995 $104,120
1996 $ 57,092
1997 $ 19,369
Cash flow from operating activity was relatively low at $29,396 in 1997
compared to $43,667 in 1996. The decrease was primarily due to higher working
capital requirements.
Financing activity required $15,066 with net borrowings of $2,018 partially
offset by dividend payments of $17,084. Investing activity required $17,983,
primarily for capital expenditures of $19,369.
Improving cash flows from operating activity in 1998 is dependent on
reduced working capital requirements coupled with the earnings factors
identified in the Business Outlook section. Capital expenditures for 1998 are
expected to be relatively low at approximately $36,000. The anticipated cash
flow from operating activity and low capital expenditure requirements should
result in an improved capital structure compared to year-end 1997.
Dollars in thousands except per share amounts
<PAGE>
Consolidated backlog at year-end 1997 was $167,000, up 31 percent from the
beginning of the year. The increase was primarily attributable to the Carbon &
Alloy Group.
Liquidity -- Long Term. In the long term, Lukens relies on the ability to
generate sufficient cash flows from operating activity to fund investing and
financing requirements. Our target long-term debt-to-capital ratio is 35
percent. A key to reach our target will be the ability to increase utilization
of facilities added during our recent capital improvement program. Lukens has
generated cash from operations totaling $158,554 over the past three years.
Environmental Compliance. Capital expenditures for environmental compliance are
projected to be approximately $4,279 in 1998 and $3,838 in 1999. The trend for
tighter environmental standards is expected to result in higher waste disposal
and monitoring costs and additional capital expenditures in the long term.
Lukens has been designated a potentially responsible party under Superfund
law at certain waste disposal sites and continually monitors a range of other
environmental issues. As discussed in Note 3, a $9,400 environmental remediation
provision was recorded in 1996. During the second quarter of 1997, a tentative
settlement was reached in a Superfund remediation case. The timing of the
estimated payments will not be determined until final resolution of the related
administrative and judicial proceedings. The company's exposure to remediation
costs at these sites depends on several factors discussed in Note 10.
Based on information currently available, management does not anticipate
that its financial position will be materially affected by additional
environmental remediation costs, although quarterly or annual operating results
could be materially affected by future developments.
Debt Financing. Lukens' notes outstanding of $150,000 are due in 2004. The
Medium-Term Notes, Series A, outstanding of $75,000 are due in 2006. Supporting
both short- and long-term liquidity needs are agreements for a committed line of
credit.
Other Commitments. A contract for the supply of oxygen and related products to a
Carbon & Alloy Group manufacturing facility runs until 2007 and includes
take-or-pay provisions totaling $24,087 over the remaining term.
A software modification program is in process to address programming
requirements related to the year 2000.
Inflation. On average, inflation rates for the domestic economy have been
relatively low over the past few years. Although long-term inflation rates are
difficult to predict, Lukens believes it has the flexibility in operations and
capital structure to maintain a competitive position.
Dividends.
A graph of net earnings per common share and dividends per common share appears
in this section.
Net earnings (loss) per common share:
1995 $ 2.18
1996 $(2.06)
1997 $( .45)
Dividends per common share:
1995 $1.00
1996 $1.00
1997 $1.00
Lukens paid $1.00 per share in common stock dividends in 1997. A quarterly
common dividend of $.25 per share was paid on February 20, 1998. It is the
company's objective to pay common dividends approximating 35 percent of net
earnings over the long term. The merger agreement with Bethlehem Steel
Corporation discussed in Note 1, limits the quarterly dividend to $.25 per
share. As of February 6, 1998, there were approximately 4,600 common
stockholders of record.
The Series B Convertible Preferred Stock held by the ESOP carries a
cumulative annual dividend of $4.80 per share.
Lukens common stock is listed and traded on the New York Stock Exchange,
symbol LUC. Dividends and stock market price ranges for the last two years are
included in the table on page 21.
Dollars in thousands except per share amounts
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Consolidated Statements of Earnings
for the 52 weeks ended December 27, 1997, December 28, 1996, and December 30,
1995
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Net Sales $ 994,380 970,320 1,049,158
Operating Costs and Expenses (Notes 1, 4, 6, 8 and 10)
Cost of products sold 925,984 915,113 922,667
Selling and administrative expenses 54,992 55,145 58,511
Unusual items (Note 3)
Work force reduction provision -- 10,782 --
Environmental remediation provision -- 9,400 --
Fixed asset write-downs -- 5,933 --
---------- ------- ---------
Total operating costs and expenses 980,976 996,373 981,178
Operating Earnings (Loss) 13,404 (26,053) 67,980
Interest expense (Note 8) 19,073 16,735 13,471
---------- ------- ---------
Earnings (Loss) Before Income Taxes (5,669) (42,788) 54,509
Income tax expense (benefit) (Note 5) (1,049) (14,377) 20,495
---------- ------- ---------
Net Earnings (Loss) $ (4,620) (28,411) 34,014
---------- ------- ---------
Dividend requirements for preferred stock (Note 9) (2,015) (1,994) (1,962)
Net Earnings (Loss) Applicable to Common Stock $ (6,635) (30,405) 32,052
---------- ------- ---------
Earnings (Loss) Per Common Share (Note 1)
Basic $ (.45) (2.06) 2.18
Diluted $ (.45) (2.06) 2.05
Common Shares and Equivalents Outstanding (Note 1)
Basic 14,806 14,784 14,696
Diluted 16,244 16,278 16,334
Cash Dividends on Common Stock-- Per Share $ 1.00 1.00 1.00
---------- ------- ---------
</TABLE>
The notes are an integral part of these statements.
Dollars and shares in thousands except per share amounts
<PAGE>
Consolidated Balance Sheets
as of December 27, 1997, and December 28, 1996
<TABLE>
<CAPTION>
Assets 1997 1996
Current Assets
<S> <C> <C>
Cash and cash equivalents (Note 1) $ 6,629 10,282
Receivables, less allowance of $6,716 in 1997 and $7,750 in 1996 118,026 92,356
Inventories (Notes 1 and 7) 145,587 148,925
Deferred income taxes (Note 5) 13,725 13,129
Prepaid expenses and other 1,733 1,964
--------- -------
Total current assets 285,700 266,656
Plant and Equipment (Notes 1, 3 and 10)
Land 12,237 11,880
Buildings 88,918 87,875
Machinery and equipment 850,419 842,334
Construction in progress 9,249 11,664
--------- -------
960,823 953,753
Less accumulated depreciation 463,264 420,427
--------- -------
Net plant and equipment 497,559 533,326
Intangible Assets, net of accumulated amortization
of $11,352 in 1997 and $9,114 in 1996 (Notes 1 and 4) 58,139 57,158
Deferred Income Taxes (Note 5) 34,599 29,937
Other Assets 1,433 1,674
--------- -------
Total Assets $ 877,430 888,751
--------- -------
Liabilities & Stockholders' Investment
Current Liabilities
Accounts payable $ 87,618 92,252
Accrued employment costs (Notes 3, 4 and 6) 43,787 46,603
Other accrued expenses (Note 10) 33,510 23,765
Current maturities of long-term debt (Note 8) 6,276 4,878
--------- -------
Total current liabilities 171,191 167,498
Long-Term Debt (Note 8) 244,671 248,695
Retirement Benefits (Notes 3 and 4)
Pensions 53,690 43,995
Medical and life insurance 151,307 148,479
Other Liabilities (Notes 3 and 10) 14,821 22,015
--------- -------
Total liabilities 635,680 630,682
Commitments and Contingencies (Note 10)
Redeemable Stock (Note 9)
Series preferred stock -- 28,801
Deferred compensation-- ESOP -- (15,374)
--------- -------
Total redeemable stock -- 13,427
Stockholders' Investment
Series preferred stock (Note 9) 28,218 --
Common stock (Note 9) 158 158
Capital in excess of par value 88,444 86,002
Earnings invested 150,140 171,730
Foreign currency translation adjustments (1,739) (1,332)
Deferred compensation-- ESOP (Notes 6 and 9) (10,619) --
Deferred compensation-- restricted stock (Note 6) (2,574) --
Repurchased stock, at cost (10,278) (11,916)
--------- -------
Total stockholders' investment 241,750 244,642
--------- -------
Total Liabilities & Stockholders' Investment $ 877,430 888,751
--------- -------
</TABLE>
The notes are an integral part of these statements.
Dollars in thousands
<PAGE>
Consolidated Statements of Stockholders' Investment
for the 52 weeks ended December 27, 1997, December 28, 1996, and December 30,
1995
<TABLE>
<CAPTION>
1997 1996 1995
Shares Dollars Shares Dollars Shares Dollars
<S> <C> <C> <C> <C> <C> <C>
Series Preferred Stock (Note 9)
(1,000,000 shares authorized)
Series B
Balance at beginning of year -- $ -- 494,413 $ 29,665 510,592 $ 30,635
Reversal of redeemable stock
classification (Note 9) 480,018 28,801 -- -- -- --
Conversion (9,718) (583) (14,395) (864) (16,179) (970)
Redeemable stock classification
(Note 9) -- -- (480,018) (28,801) -- --
- --------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 470,300 28,218 -- -- 494,413 29,665
Common Stock (Note 9)
(40,000,000 shares authorized) 15,813,259 158 15,813,259 158 15,813,259 158
Capital in Excess of Par Value
Balance at beginning of year 86,002 85,204 84,088
Stock option activity (Note 6) 124 565 716
Conversion of Series B
preferred stock 37 233 400
Restricted stock activity (Note 6) 2,281 -- --
- --------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 88,444 86,002 85,204
Earnings Invested
Balance at beginning of year 171,730 216,934 199,586
Net earnings (loss) (4,620) (28,411) 34,014
Dividends declared
Preferred ($4.80 per share) (2,266) (2,339) (2,405)
Common ($1.00 per share) (14,805) (14,781) (14,696)
Restricted stock ($1.00 per share) (134) -- --
Tax benefit on ESOP preferred
stock dividends 235 327 435
- --------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 150,140 171,730 216,934
Foreign Currency Translation
Adjustments
Balance at beginning of year (1,332) (1,141) (1,303)
Effect of rate changes (407) (191) 162
- --------------------------------------------------------------------------------------------------------------------------------
Balance at end of year (1,739) (1,332) (1,141)
Deferred Compensation -- ESOP (Note 6)
Balance at beginning of year -- (19,404) (22,767)
Reversal of redeemable stock
classification (Note 9) (15,374) -- --
Allocations to employees 4,755 4,030 3,363
Redeemable stock classification (Note 9) -- 15,374 --
- --------------------------------------------------------------------------------------------------------------------------------
Balance at end of year (10,619) -- (19,404)
Deferred Compensation --
Restricted Stock (Note 6)
Balance at beginning of year -- -- --
Restricted stock activity (3,861) -- --
Amortization of deferred compensation 1,287 -- --
- --------------------------------------------------------------------------------------------------------------------------------
Balance at end of year (2,574) -- --
Repurchased Stock, at cost
Balance at beginning of year 1,010,988 (11,916) 1,077,305 (12,697) 1,161,460 (13,340)
Stock option activity (Note 6) -- -- (36,750) 433 (35,675) 74
Conversion of Series B
preferred stock (4,956) 59 (29,567) 348 (48,480) 569
Issuance of restricted stock (Note 6) (134,000) 1,579 -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 872,032 (10,278) 1,010,988 (11,916) 1,077,305 (12,697)
Stockholders' Investment $ 241,750 $ 244,642 $ 298,719
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The notes are an integral part of these statements.
Dollars in thousands except per share amounts
<PAGE>
Consolidated Statements of Cash Flows
for the 52 weeks ended December 27, 1997, December 28, 1996, and December 30,
1995
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Operating Activity
Net earnings (loss) $ (4,620) (28,411) 34,014
Adjustments to Reconcile Net Earnings (Loss)
to Cash Flow from Operating Activity
Depreciation and amortization 51,831 48,949 41,304
Income taxes deferred (2,393) (18,323) 9,270
Provision for uncollectible accounts 5,130 11,348 10,044
Retirement benefit funding less than expense 9,208 12,078 4,859
Environmental remediation provision -- 9,400 --
Fixed asset write-downs -- 5,933 --
Changes in working capital affecting operations
Accounts receivable (27,178) 26,897 (25,102)
Inventories 3,338 14,200 (29,746)
Prepaid expenses and other 231 (297) 144
Accounts payable (4,622) (29,654) 36,585
Accrued expenses (3,527) (11,901) 1,894
Other, net 1,998 3,448 2,225
-------- ------ ------
Cash flow from operating activity 29,396 43,667 85,491
Financing Activity
Long-term debt
Proceeds from issuance of notes -- 74,538 --
Other borrowed 27,800 -- 70,350
Other repaid (25,782) (45,230) (47,346)
Dividends paid (17,084) (17,137) (17,121)
Proceeds from stock options exercised -- 802 408
Other, net -- (537) (12)
-------- ------ ------
Net from (for) financing activity (15,066) 12,436 6,279
Investing Activity
Capital expenditures (19,369) (57,092) (104,120)
Proceeds from sale of assets/subsidiaries 987 466 17,106
Other, net 399 (251) (3,506)
-------- ------ ------
Net for investing activity (17,983) (56,877) (90,520)
Cash and Cash Equivalents
Increase (decrease) (3,653) (774) 1,250
Start of year 10,282 11,056 9,806
-------- ------ ------
End of year $ 6,629 10,282 11,056
-------- ------ ------
</TABLE>
The notes are an integral part of these statements.
Dollars in thousands
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Accounting Policies
Merger Agreement and Change in Control. On December 15, 1997, Lukens entered
into a merger agreement with Bethlehem Steel Corporation. The agreement was
subsequently amended as of January 4, 1998. Under the merger agreement,
Bethlehem Steel Corporation would acquire Lukens outstanding common and
preferred stock (converted to common) for $30 per share. Consideration is a
combination of cash and Bethlehem stock. At year-end 1997, the number of common
shares outstanding, combined with the conversion of outstanding preferred stock,
would total 16,352,127 shares and result in proceeds of $490,564 in cash and
Bethlehem stock. The merger is contingent on shareholder approval. A special
meeting of stockholders is expected to be held during the second quarter of
1998.
The Consolidated Financial Statements and the Notes to Consolidated Financial
Statements were prepared assuming a going-concern basis and did not recognize
the impact of the merger. For a discussion of the contingent liabilities
associated with the merger, see Note 10.
Basis of Presentation. The consolidated financial statements include the
accounts of Lukens Inc. and all majority-owned subsidiaries. Our fiscal year is
the 52- or 53-week period that ends on the last Saturday of December. Certain
subsidiaries are consolidated on a calendar year basis. The preparation of
financial statements in conformity with generally accepted accounting principles
requires estimates and assumptions that affect the reported amounts and
contingency disclosures.
Cash and Cash Equivalents. Highly liquid investments with maturities of three
months or less when purchased are recognized as cash equivalents.
Inventories. Inventories are recorded at the lower of cost or market. Cost is
determined by the last-in, first-out (LIFO) method for most product and raw
material inventories. The service center operations of the Stainless Group
determine cost by the first-in, first-out (FIFO) method. Supplies are valued at
the lower of average cost or market. Additional disclosures are included in Note
7.
Plant and Equipment. Plant and equipment are stated at cost and are depreciated
using the straight-line method over the estimated useful life. The useful life
ranges from 30 to 40 years for buildings and from 10 to 18 years for most
production machinery and equipment. The cost of plant and equipment retired in
the normal course of business is generally charged against accumulated
depreciation. Gains and losses on other retirements are reflected in earnings.
Intangible Assets. Intangible assets consist primarily of goodwill resulting
from the Washington Steel Corporation acquisition in 1992. Goodwill from the
acquisition is amortized on a straight-line basis over 25 years. Also included
in intangible assets are pension related assets, discussed in Note 4.
Derivative Financial Instruments. Derivative financial instruments, such as
forward exchange contracts, are used to manage or hedge exposure to changes in
market conditions for certain raw material purchases. Gains or losses on these
contracts are deferred and recognized as a component of the raw material cost
based on the maturities of the contracts. Any gains or losses from the early
termination of these derivative financial instruments are deferred and
recognized over the original term of the contract. Additional disclosures are
included in Note 8.
Environmental Remediation. Environmental liabilities recognized represent our
best estimate of remediation expenditures that are probable and that can be
reasonably estimated. Environmental costs are expensed unless they increase the
value of the related asset and/or prevent or mitigate future contamination. In
November 1996, the American Institute of Certified Public Accountants issued
guidance on accounting for environmental liabilities. The adoption of this
guidance in 1997 did not have a material effect on the company's consolidated
financial condition or results of operations. Additional disclosures are
included in Notes 3 and 10.
Start-Up Costs. Costs incurred in the start-up of a facility, including training
and production testing, are expensed as incurred.
Software Modification Costs for Year 2000 Compliance. Costs incurred to modify
software packages to operate in the year 2000 and beyond are expensed as
incurred.
Dollars in thousands except per share amounts
<PAGE>
Stock-Based Compensation. In 1996, Lukens adopted Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation."
This statement provided for an implementation option, reflecting the controversy
surrounding the measurement of compensation expense for stock options and other
stock-based compensation. One option was to recognize compensation expense in
the consolidated financial statements using a fair-value based method, applied
to virtually all stock-based compensation. The alternative did not change the
current intrinsic-value approach of expense recognition, but required pro forma
disclosure in the notes to consolidated financial statements using the
fair-value method. We elected to continue the intrinsic-value method of expense
recognition and to provide the pro forma disclosures required under SFAS No.
123. Additional disclosures are included in Note 6.
Earnings Per Share. In 1997, Lukens adopted SFAS No. 128, "Earnings per Share."
This statement specified the computation, presentation and disclosure
requirements for earnings per share (EPS). The main objectives of the statement
were to simplify the EPS calculation and to make EPS comparable on an
international basis. Effective in 1997, primary and fully diluted EPS were
replaced by basic and diluted EPS. Prior period results were restated for
comparative purposes. A significant difference compared to the prior method is
that basic EPS does not assume potentially dilutive securities in the
computation.
Basic earnings per common share are calculated by dividing net earnings
applicable to common stock by the average number of common shares outstanding.
On a diluted basis, both net earnings and shares outstanding are adjusted to
reflect the conversion of convertible preferred stock. Shares outstanding in the
diluted calculation also assume common stock equivalents, such as stock options.
Diluted common shares and equivalents outstanding disclosed in the Consolidated
Statements of Earnings reflect the maximum dilution possible. Adjustments that
would be antidilutive or reduce a loss per share are not recognized.
Also in 1997, Lukens adopted SFAS No. 129, "Disclosure of Information about
Capital Structure." This statement was issued in conjunction with the earnings
per share statement discussed above and was intended to centralize capital
structure disclosure requirements and to expand the number of companies subject
to the requirements. Since we were in compliance with the existing capital
structure disclosure requirements, we did not materially change our disclosures
under the new standard.
Future Accounting Changes -- Comprehensive Income. In June 1997, SFAS No. 130,
"Reporting Comprehensive Income," was released. Comprehensive income is a
concept that includes the total of net earnings (loss) reported in the
Consolidated Statements of Earnings, plus revenues, expenses, gains and losses
that are recognized directly in the stockholders' investment section of the
Consolidated Balance Sheets. The purpose of the statement was to more
prominently highlight comprehensive income items and to report a total amount
for a reporting period. Effective in 1998, Lukens will be required to disclose
comprehensive income and its components within our financial statements. Prior
period financial statements will be restated for comparative purposes.
Future Accounting Changes -- Business Segments. SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," was also issued in June of
1997. Beginning in 1998, disclosures will be based on the way management
organizes business segments to make decisions about resource allocation and to
measure performance. Disclosures will include interim reporting requirements.
Previously reported information will be restated for comparative purposes. We do
not expect to materially change our segment disclosures under the new standard.
2. Business Groups
Listed below is a description of our business groups, which operate primarily in
the United States. Sales to foreign countries are not significant.
Carbon & Alloy Group -- specializes in the production of carbon, alloy and clad
plate steels. The group operates in a wide range of markets in the capital goods
sector of the economy. Steel service centers, the largest market for the group,
accounted for approximately 48 percent of annual sales in 1997 and averaged
approximately 38 percent of sales in 1996 and 1995. The primary facilities are
located in Coatesville and Conshohocken, Pennsylvania. The labor contract for
the Coatesville plant expires in 2000.
Stainless Group -- specializes in the production of stainless steel sheet,
strip, plate, hot band and slabs. Manufacturing facilities located in Houston
and Washington, Pennsylvania, and Massillon, Ohio, primarily serve the capital
goods and consumer durables sectors of the economy. Labor contracts for these
facilities expire in 1999 and 2000. The group also operates stainless steel
service centers in the United States and Canada. The primary market for the
group is service centers, which averaged approximately 37 percent of annual
sales in the last three years.
Dollars in thousands except per share amounts
<PAGE>
Summary business group information is included in the following chart.
1997 1996 1995
Net sales
Carbon & Alloy $ 516,499 481,237 439,330
Stainless 477,881 489,083 609,828
--------- ------- ---------
$ 994,380 970,320 1,049,158
Operating earnings (loss)
Carbon & Alloy(a) $ 50,410 (2,554) 11,946
Stainless(b) (20,488) (7,058) 75,148
Corporate(c) (16,518) (16,441) (19,114)
--------- ------- ---------
$ 13,404 (26,053) 67,980
Assets
Carbon & Alloy $ 426,405 421,034 420,665
Stainless 418,830 440,711 468,515
Corporate(d) 32,195 27,006 30,483
--------- ------- ---------
$ 877,430 888,751 919,663
Depreciation and
amortization
Carbon & Alloy $ 24,061 23,453 18,696
Stainless 27,007 24,505 21,994
Corporate 763 991 376
Discontinued Operations -- -- 238
--------- ------- ---------
$ 51,831 48,949 41,304
Capital expenditures
Carbon & Alloy $ 6,213 13,747 36,940
Stainless 6,049 40,298 63,803
Corporate 7,107 3,047 3,236
Discontinued Operations -- -- 141
--------- ------- ---------
$ 19,369 57,092 104,120
--------- ------- ---------
a. Carbon & Alloy Group Operating Results: 1996 -- Results included a $3,756
charge for signing bonuses associated with the bargaining unit contract. Unusual
items discussed in Note 3 included a $6,178 work force reduction charge and a
provision for environmental remediation of $9,400.
b. Stainless Group Operating Results: 1996 -- As discussed in Note 3, results
included provisions of $3,695 for a work force reduction and $5,933 for fixed
asset write-downs.
c. Corporate Expenses: 1997 -- Merger related expenses (Note 1) totaled $2,215.
1996 -- Expenses included a $909 work force reduction charge
(Note 3) and environmental expenses, offset by reduced professional fees and
incentive compensation expense. 1995 -- Results included higher incentive
compensation expense and environmental expenses. Corporate environmental
expenses are associated with properties retained from divested subsidiaries.
d. Corporate Assets: Corporate assets consist primarily of cash and cash
equivalents, properties held for sale, office facilities and deferred income
taxes.
3. Unusual Items
Work Force Reduction. During the second quarter of 1996, Lukens announced a work
force reduction program of approximately 150 salaried positions. The program was
primarily aimed at reducing costs by integrating administrative functions.
Termination benefits accrued and charged to expense in the second quarter
totaled $10,782. On an after-tax basis, the provision reduced results by $6,859,
or $.46 per share.
The charge included severance related benefits of $6,784. Termination benefits
paid and charged against the liability were essentially completed during 1997.
Pension related benefits included $3,998 from the combination of pension plan
benefits that are triggered at termination and from the recognition of a
curtailment loss. Pension benefits were measured at a 7.75 percent discount
rate.
Environmental Remediation. During the fourth quarter of 1996, $9,400 of expenses
for environmental remediation were recognized. The provision represented our
best estimate of costs for a Superfund site and other waste disposal sites. On
an after-tax basis, the charge reduced results by $5,978, or $.40 per share. As
discussed in Note 10, during the second quarter of 1997, a tentative settlement
was reached at a Superfund site where Lukens was designated a potentially
responsible party.
Fixed Asset Write-Downs. Fixed asset write-downs were recorded during the fourth
quarter of 1996 for idle assets and other equipment replaced as a result of
capital improvements. The charge increased the pre-tax loss by $5,933 and the
net loss by $3,836, or $.26 per share.
4. Retiree Benefits
Pensions. Lukens has defined benefit plans that provide pension and survivor
benefits for most employees. Benefits are primarily based on the combination of
years of service and compensation. Plans are funded in accordance with
applicable regulations.
Pension benefits triggered by a change in control (Note 1) are discussed in Note
10.
Dollars in thousands except per share amounts
<PAGE>
The components of pension expense are listed below.
1997 1996 1995
Service cost for
benefits earned(a) $ 8,642 8,246 6,829
Interest cost on projected
benefit obligation 31,674 30,298 29,279
Actual return on assets (64,200) (44,870) (67,841)
Amortization and deferrals
Deferred return on assets 31,092 13,894 41,770
Prior service cost(a) 4,195 4,263 2,900
Other, net 35 100 25
------- ------ ------
Net pension expense(a) $11,438 11,931 12,962
======= ====== ======
a. The increase in service cost and amortization of prior service cost,
beginning in 1996, reflected plan improvements to the bargaining unit plan in
the Carbon & Alloy Group and improvements to the Lukens Inc. salary plan.
The following table reconciles the net funded status of our plans to amounts
recognized in the Consolidated Balance Sheets.
1997 1996
Actuarial present value of
Vested benefit obligation(a) $(403,807) (365,780)
Nonvested benefit obligation(a) (43,968) (33,013)
--------- --------
Accumulated benefit obligation(a) (447,775) (398,793)
Effect of projected future
compensation(a) (33,703) (24,765)
--------- --------
Projected benefit obligation(a) (481,478) (423,558)
Plan assets at fair value(b) 403,802 365,083
--------- --------
Plan assets less than projected
benefit obligation (77,676) (58,475)
--------- --------
Unrecognized net loss (gain) 1,652 (15,735)
Unrecognized prior service cost(a) 37,108 41,642
Unrecognized net obligation
at transition 144 178
Adjustment to recognize
minimum liability(c) (20,421) (14,503)
--------- --------
Net pension liability $ (59,193) (46,893)
--------- --------
a. The increase in the 1997 benefit obligations primarily reflected a lower
discount rate and another actuarial assumption change.
b. Plan assets primarily consist of stocks, bonds and short-term investments.
Contributions to defined benefit plans were $4,029 in 1997 and $7,563 in 1996.
c. The minimum liability was recognized in intangible assets in the Consolidated
Balance Sheets.
The net pension liability was recognized in the following accounts in the
Consolidated Balance Sheets.
1997 1996
Accrued employment costs $ (7,908) (7,753)
Retirement benefits -- pensions (53,690) (43,995)
Intangible assets 2,405 4,855
-------- -------
Net pension liability $(59,193) (46,893)
-------- -------
Significant assumptions used in the calculation of expense and obligations are
listed below.
1997 1996 1995
Discount rate % 6.8 7.5 7.0
Rate of compensation
increase % 3-7 3-7 3-7
Long-term rate of return
on plan assets % 9.5 9.5 9.5
Retiree Medical and Life Insurance Benefits. Lukens provides retiree medical and
life insurance benefits for most employees if they continue to work for the
company until they reach retirement age.
As required under the 1996 contract for bargaining unit employees at
Coatesville, Pennsylvania, a Voluntary Employees' Beneficiary Association (VEBA)
Trust was established to provide funding for retiree medical and life insurance
programs. The trust agreement requires an annual contribution of $2,500 during
the four-year term of the contract. At the end of 1997, two contributions are
remaining.
Benefit payments from the trust are restricted until required funding levels are
achieved. Based on current conditions, benefit payments from the trust are not
anticipated in the short term. In addition to the VEBA requirement, benefits are
funded as claims are submitted.
The components of retiree medical and life insurance expense are listed below.
1997 1996 1995
Service cost for
benefits earned $2,405 2,794 2,074
Interest cost on accu-
mulated postretirement
benefit obligation 10,192 10,939 10,433
Actual return on assets (214) (67) --
Net amortization
and deferrals (339) (49) (500)
------- ------ ------
Net postretirement
benefit expense $12,044 13,617 12,007
------- ------ ------
Dollars in thousands except per share amounts
<PAGE>
The following table reconciles the net funded status of our obligations to the
liability recognized in the Consolidated Balance Sheets.
1997 1996
Accumulated postretirement
benefit obligation
Retirees(a) $ (92,629) (83,179)
Fully eligible active participants(a) (24,035) (21,398)
Other active participants(a) (41,392) (37,888)
--------- --------
Total accumulated postretirement
benefit obligation(a)(b) (158,056) (142,465)
Plan assets at fair value(c) 5,281 2,567
--------- --------
Plan assets less than accumulated
postretirement benefit obligation (152,775) (139,898)
Unrecognized gain (1,032) (11,081)
--------- --------
Net postretirement
benefit liability(d) $(153,807) (150,979)
--------- --------
a. The increase in 1997 benefit obligations primarily reflected a lower discount
rate.
b. Obligations include life insurance benefits of $16,495 in 1997 and $15,109 in
1996.
c. Plan assets consist of short-term investments.
d. At year-end 1997 and 1996, $2,500 was included in current liabilities --
accrued employment costs for the VEBA contribution.
Significant assumptions used in the calculation of expense and obligations are
listed below.
1997 1996 1995
Discount rate % 6.8 7.5 7.0
Health-care cost increase(a) % 6.5-7.6 6.7-8.1 6.9-8.6
Long-term rate of return
on plan assets % 5.0 5.0 --
a. Health-care cost increase assumptions are reduced to a rate of 5% beginning
in 2003.
A one-percentage point increase in the medical cost trend rate for each year
would increase the accumulated postretirement benefit obligation by
approximately $19,265 and would increase net postretirement benefit expense by
approximately $2,087.
5. Income Taxes
The effective tax rate that determined the income tax expense (benefit)
recognized is listed below. Essentially all earnings and losses are from United
States sources.
1997 1996 1995
Federal statutory rate % (35.0) (35.0) 35.0
State income taxes net of
federal tax benefit 8.3 .1 2.4
State income tax changes -- -- .2
Non-deductible expenses 16.0 1.9 1.5
ESOP dividends (9.6) (1.2) (.8)
Other 1.8 .6 (.7)
------- ----- ----
Effective income tax rate % (18.5) (33.6) 37.6
------- ----- ----
The components of the deferred income tax assets (liabilities) are listed below.
1997 1996
Deferred tax assets
Retirement benefits $ 81,926 75,330
Tax credit carryforwards 28,613 17,500
Other deductible temporary
differences 23,965 24,210
Valuation allowance (2,770) (2,705)
------- -------
131,734 114,335
Deferred tax liabilities
Plant and equipment (73,758) (61,612)
Other taxable temporary differences (9,652) (9,657)
------- -------
(83,410) (71,269)
------- -------
Net deferred tax assets $ 48,324 43,066
------- -------
The current and deferred components of the income tax expense (benefit) are
listed below.
1997 1996 1995
Current
U.S. Federal $4,542 3,272 11,439
State and other 551 865 1,609
-------- ------- ------
5,093 4,137 13,048
Deferred to future years
U.S. Federal (7,299) (18,720) 4,870
State and other 1,092 76 2,494
-------- ------- ------
(6,207) (18,644) 7,364
Change in tax rate -- -- 83
Change in valuation
allowance 65 130 --
-------- ------- ------
Income tax expense
(benefit) $ (1,049) (14,377) 20,495
-------- ------- ------
On a cash basis, the following amounts of income taxes were paid.
1997 1996 1995
$5,315 $4,938 $13,018
At year-end 1997, $28,613 of alternative minimum tax credit carryforwards were
available.
During 1997, settlements were reached in the Internal Revenue Service audits of
1993, 1994 and 1995. Management believes that the outcome of the outstanding
audits will not have a material adverse effect on the financial condition,
liquidity or results of operations of the company.
Dollars in thousands except per share amounts
<PAGE>
During the third quarter of 1997, the 1997 Taxpayer Relief Act (1997 TRA) was
enacted. Changes to the Federal tax structure included a restructuring of the
depreciable lives used in the alternative minimum tax calculation. Additionally,
the net operating loss carryback period was reduced to two years and the
carryforward period was increased to 20 years. These changes will become
effective in the coming years and will likely have a favorable impact on the tax
position of Lukens. The enactment of the 1997 TRA did not require any
recognition in the 1997 tax provision for the remeasurement of our deferred tax
balances or for changes to the estimated amount of 1997 Federal taxes payable.
6. Compensation Plans
Stock Options. The 1985 Stock Option and Appreciation Plan provides for the
issuance of non-qualified stock options and incentive stock options (ISOs) to
officers and other executives. At the Annual Meeting of Stockholders on April
24, 1996, stockholders approved an amendment to the plan that increased the
number of shares of common stock available for issuance by 900,000 to a total of
2,737,500. These options to purchase Lukens common stock were available for
grant until February 26, 1998, at an exercise price not less than the fair
market value on the grant date. Options were also issued as part of an executive
incentive compensation program. These options vest after three years and expire
in seven years. All other options vest after one year and expire in 10 years.
The Lukens Inc. Stock Option Plan for Non-Employee Directors provides for the
issuance of up to 75,000 non-qualified options to purchase Lukens common stock
at an exercise price based on the fair market value on the grant date. These
options vest after one year and expire in 10 years.
During 1991, 330,000 non-qualified stock options were granted to Mr. Van Sant as
part of his employment agreement. These options become exercisable ratably over
11 years. The options carry an exercise price of $23.38 per share, which was 85
percent of the fair market value on the grant date. Compensation expense from
this discount from fair market value is being recognized on a straight-line
basis over the term of his employment agreement.
During 1996, Lukens adopted a new stock-based compensation accounting standard,
discussed in Note 1. As provided for in the statement, the company elected to
continue the intrinsic-value method of expense recognition. If compensation cost
for these plans had been determined using the fair-value method prescribed by
SFAS No. 123, the company's results would have been reduced to the pro forma
amounts indicated below.
1997 1996 1995
Net earnings (loss) $ (5,717) (29,703) 33,028
Earnings (loss) per
share-- basic $ (.52) (2.14) 2.11
Earnings (loss) per
share-- diluted $ (.52) (2.14) 1.99
The pro forma effect on results may not be representative of the impact in
future years because the fair-value method was not applied to options granted
before 1995.
The fair value of each option was estimated on the grant date using the
Black-Scholes option pricing model. Based on the assumptions presented below,
the weighted average fair value of options granted was $4.33 per option in 1997,
$7.26 per option in 1996 and $8.76 per option in 1995.
1997 1996 1995
Expected life in years 8.0 7.0 7.0
Risk-free interest rate % 6.6 5.6 7.7
Volatility % 30.6 27.4 28.5
Dividend yield % 5.4 3.6 3.6
Dollars in thousands except per share amounts
<PAGE>
A summary of stock option activity is presented below.
Weighted
Average
Shares Exercise Price
1995
Outstanding, beginning of year 767,818 $ 27.99
Granted 246,347 $ 28.19
Exercised (50,525) $ 18.23
Forfeited/canceled (28,445) $ 35.02
--------- -------------
Outstanding, end of year 935,195 $ 28.35
--------- -------------
Exercisable, end of year 487,643 $ 30.58
--------- -------------
Available for grant, end of year 436,873
---------
1996
Outstanding, beginning of year 935,195 $ 28.35
Granted 308,942 $ 27.81
Exercised (36,750) $ 21.82
Forfeited/canceled (33,800) $ 32.26
--------- -------------
Outstanding, end of year 1,173,587 $ 28.30
--------- -------------
Exercisable, end of year 618,893 $ 29.93
--------- -------------
Available for grant, end of year 1,061,731
---------
1997
Outstanding, beginning of year 1,173,587 $ 28.30
Granted 326,110 $ 18.45
Exercised -- $ --
Forfeited/canceled (121,450) $ 29.61
--------- -------------
Outstanding, end of year 1,378,247 $ 25.86
--------- -------------
Exercisable, end of year 746,043 $ 28.88
--------- -------------
Available for grant, end of year 857,071
---------
For options outstanding at the end of 1997, exercise prices ranged from $16.625
to $47.25 and the weighted average remaining life was approximately 6.5 years.
Restricted Stock. In 1997, the Board of Directors approved the issuance of
performance vested restricted stock to officers as part of an incentive
compensation program. During the first quarter of 1997, 134,000 restricted
shares were awarded. The shares carry voting and dividend rights and were
recorded at fair market value on the grant date. A corresponding charge to
deferred compensation was recorded in the stockholders' investment section of
the Consolidated Balance Sheets. The deferred compensation balance was
subsequently adjusted for changes in the market price of Lukens common stock and
for compensation expense recognized. The awards vest at the end of three years,
contingent on continued employment and the achievement of performance goals that
are tied to Lukens' total shareholder return relative to other steel companies.
Compensation expense recognized for these awards totaled $1,287 in 1997.
Incentive Compensation. Most Lukens employees participate in incentive
compensation plans. These plans are based on the consolidated results of Lukens
Inc., and on the results and performance measures of various subsidiaries.
Compensation expense under these plans is listed below.
1997 1996 1995
$12,754 $9,944 $24,875
Employee Stock Ownership Plan (ESOP). The Lukens ESOP was designed to provide
401(k) employer matching benefits to most salaried employees in the form of
convertible preferred stock. The stock was acquired with the proceeds from a
$33,075 term loan (Note 8). The stock is released for allocation to
participants' accounts based on the relationship of debt and interest payments
to the total of all scheduled debt and interest payments. Dividends on allocated
stock are paid, in-kind, with preferred stock. As discussed in Note 8, the
quarterly payments of the ESOP debt were restructured in 1996. The projected
maturities of the ESOP loan over the remaining term are listed below.
1998 1999
$5,828 $4,791
The loan is guaranteed by Lukens, and the outstanding balance is recognized as
debt in the Consolidated Balance Sheets. An offsetting amount, representing
deferred compensation measured by the stated value of convertible preferred
stock, was recognized in the stockholders' investment section in 1997. In 1996,
this account was classified as redeemable stock, discussed in Note 9. Debt
service requirements of the ESOP are met by the combination of Lukens' cash
contributions to the ESOP and dividends on the preferred stock.
Regarding expense recognition, cash contributions to the ESOP are recorded as
compensation expense, and preferred stock dividends reduce retained earnings.
This recognition results in interest expense incurred on the ESOP debt not being
recognized as interest expense on Lukens' financial statements. Cash
contributions are listed below.
1997 1996 1995
$3,563 $3,187 $2,784
Change in Control. Compensation liabilities triggered by a change in control
(Note 1) are discussed in Note 10.
Dollars in thousands except per share amounts
<PAGE>
7. Inventories
The components of inventory are listed below.
1997 1996
Products finished and in process $117,455 116,477
Raw materials 23,326 27,762
Supplies 4,806 4,686
-------- -------
Inventories(a) $145,587 148,925
-------- -------
a. The percent of inventories accounted for under the LIFO inventory valuation
method was approximately 80% in 1997 and 1996.
The estimated cost to replace inventories at year-end was $185,000 in 1997 and
$192,000 in 1996.
8. Financial Instruments
Long-Term Debt. Listed below is a summary of long-term debt outstanding.
Years Due 1997 1996
Notes payable, face amount 2004 $ 150,000 150,000
Unamortized discount (422) (486)
Coupon interest at 7.625%
Effective interest at 7.691%
Medium-term notes,
face amount 2006 75,000 75,000
Unamortized discount (373) (419)
Coupon interest at 6.5%
Effective interest at 6.585%
Short-term notes(a) 2002 9,300 10,700
Industrial revenue bonds 1998-2009 6,823 3,404
ESOP debt guarantee(b) 1998-1999 10,619 15,374
Total debt(c) 250,947 253,573
- --------------------------------------------------------------------------
Less current portion 6,276 4,878
- --------------------------------------------------------------------------
Long-term debt $ 244,671 248,695
- --------------------------------------------------------------------------
a. The weighted-average interest rate was 5.8% at year-end 1997 and 5.7% at
year-end 1996. Short-term notes are classified as long term because they are
supported by the revolving credit agreement discussed below.
b. The ESOP debt, guaranteed by Lukens, carries an 8.26% interest rate on $6,691
as of December 27, 1997. The remaining ESOP debt carries a variable rate of
80.5% of the Prime Rate. For a discussion on ESOP accounting, see Note 6.
During 1996, the quarterly payments of the ESOP debt were restructured to align
anticipated benefits with the release of preferred stock (Note 9). The terms of
the variable-interest rate portion of the ESOP debt were not changed.
c. Annual maturities of long-term debt, excluding the ESOP debt guarantee, over
the next five years are listed below.
1998 1999 2000 2001 2002
$448 $418 $350 $361 $9,672
Notes Payable. There are $150,000 of notes due in 2004 and $75,000 of
Medium-Term Notes, Series A, due in 2006. Interest is payable semi-annually.
During the second quarter of 1997, Standard & Poor's lowered their rating from
BBB+ to BBB on these notes and during the third quarter of 1997, Moody's lowered
their rating from Baa2 to Baa3.
Lukens also has $25,000 of notes available for issuance under a shelf
registration. The notes were structured to provide Lukens with flexibility in
maturities, from nine months to 30 years, and flexibility in interest rate
structures.
Revolving Credit Agreement. Lukens' revolving credit agreement provides for a
$150,000 committed line of credit. Interest is based on one of the following
rates:
* the higher of the Prime Rate or the Federal Funds Rate plus .5%
* London Inter-Bank Offered Rate (LIBOR) adjusted for applicable reserves
plus .225% to .5% depending on the Standard & Poor's or Moody's rating of
the long-term notes of Lukens
* competitively bid rates from lenders.
A facility fee is required on the total line of credit and ranges from .125% to
.3% based on the lower of Standard & Poor's or Moody's rating of Lukens
long-term notes.
The agreement includes covenants that require a maximum leverage ratio (defined
in the agreement) of 55% and restrictions on additional debt and asset
dispositions. At year-end 1997, additional borrowings of approximately $65,400
were available under these covenants.
Interest Expense. Interest costs include interest on obligations and
amortization of debt set-up costs. For a discussion of ESOP debt accounting, see
Note 6. Interest components are listed below.
1997 1996 1995
Costs incurred $19,073 19,005 16,395
Interest capitalized -- (2,270) (2,924)
------- ------ ------
Interest expense $19,073 16,735 13,471
------- ------ ------
Interest paid $18,796 17,436 16,107
------- ------ ------
Derivative Financial Instruments --
Commodity Hedges. As of year-end 1997, Lukens was party to several commodity
hedge agreements maturing in 1998. Based on year-end market conditions, the
value of Lukens' contractual obligations for these commodity hedges was $15,020
and the obligation of the counterparties to the agreements was $12,645. Gains
and losses on these contracts are recognized as a component of cost of products
sold. Lukens is exposed to credit risk from nonperformance by the counterparties
to these agreements.
Dollars in thousands except per share amounts
<PAGE>
Fair Value of Financial Instruments. The following table presents the fair value
of certain financial instruments as of year-end 1997 and 1996.
Asset (Liability)
Book Value Fair Value
1997
Debt(a) $(250,947) (257,376)
Commodity hedges(b) $ -- (2,168)
1996
Debt(a) $(253,573) (254,201)
Commodity hedges(b) $ -- (1,956)
a. Fair value was determined by discounting cash flows using comparable year-end
market interest rates.
b. Fair value was estimated by using quotes from brokers.
9. Stockholders' Investment
and Redeemable Stock
Common Stock. There are 40,000,000 common shares authorized with a par value of
$.01 per share. Under the stock option plans discussed in Note 6, 3,142,500
shares of common stock have been reserved.
Preferred Stock. There are 1,000,000 shares of series preferred stock, par value
$.01 per share, authorized. An ESOP was established in 1989 with the issuance of
551,250 shares of Series B Convertible Preferred Stock. The preferred stock is
stated at its liquidation preference of $60 per share and carries an annual
cumulative dividend of $4.80 per share. Each share may be converted into three
shares of common stock within the guidelines of an employee 401(k) savings plan
(Note 6). Holders of the Series B preferred stock are entitled to vote upon all
matters submitted to the holders of common stock for a vote. The number of votes
is equal to the number of common shares into which the preferred shares are
convertible. Lukens' redemption price of $61.80 per share declines gradually
each year to $60 per share on or after July 2, 2000.
Under the terms of the 401(k) plan, when the price of Lukens common stock is $20
per share or greater, the preferred stock is redeemable in common stock, cash or
a combination at the option of Lukens. If the price is below $20 per share, the
401(k) participants have the option to redeem preferred stock in the combination
above.
Redeemable Stock. At year-end 1996, Series B Convertible Preferred Stock and the
related ESOP deferred compensation (Note 6) were classified as redeemable stock
because the price of Lukens common stock was below $20 per share at the fiscal
year-end, December 28, 1996. The reclassification from stockholders' investment
reflected the ability of 401(k) participants to elect a cash payout option at
redemption. The classification was not made in 1997 or in years prior to 1996
because the company had the ability and intention to redeem preferred stock with
Lukens common stock.
Shareholder Rights Plan. Lukens has a Shareholder Rights Plan designed to deter
coercive or unfair takeover tactics and to prevent a buyer from gaining control
of Lukens without offering a fair price to stockholders. The plan entitles each
outstanding share of common stock to one right. Each right entitles stockholders
to buy one one-hundredth of a share of Series A Junior Participating Preferred
Stock at an exercise price of $80. The rights become exercisable if a person or
group acquires or makes a tender or exchange offer for 15 percent or more of
common stock outstanding. The rights can also become exercisable if the Board of
Directors determines, with the concurrence of outside directors, that a person
has certain interests adverse to Lukens and has acquired at least 10 percent of
common stock outstanding.
If the company is then acquired in a merger or other business combination
transaction, each right will entitle the holder to receive, upon exercise,
common stock of either Lukens or the acquiring company having a value equal to
two times the exercise price of a right.
Lukens will generally be entitled to redeem the rights at $.01 per right at any
time until the tenth day following public announcement that a 15 percent
position has been acquired. The purchase rights will expire on September 25,
2006. Of the 1,000,000 shares of series preferred stock authorized, 75,000 have
been reserved for the Series A preferred stock discussed above. As of December
27, 1997, there were 6,580,990 rights outstanding.
In connection with the Bethlehem merger agreement discussed in Note 1, the
Shareholder Rights Plan was amended to make the provisions of the plan not
applicable to the proposed merger.
10. Commitments and Contingencies
Change in Control. As discussed in Note 1, Lukens entered into a merger
agreement with Bethlehem Steel Corporation. In the event that the merger is
approved by stockholders, a change in control liability totaling approximately
$42,000 would be triggered. Components of the liability include obligations for
severance, pension, stock options and performance vested restricted stock.
Dollars in thousands except per share amounts
<PAGE>
Leases. Lukens has various operating leases primarily for real estate and
production equipment. At year-end 1997, minimum rental payments under
noncancelable leases totaled $21,292. Listed below are the scheduled payments
over the next five years for these leases.
1998 1999 2000 2001 2002
$5,576 $5,074 $2,755 $1,905 $1,715
Rent expense for all operating leases is listed below.
1997 1996 1995
$7,961 $8,091 $7,177
Environmental Remediation. Lukens has been designated a potentially responsible
party under Superfund law at certain waste disposal sites and continually
monitors a range of other environmental issues. Superfund designations are made
regardless of the extent of the company's direct or indirect involvement. These
claims are in various stages of administrative or judicial proceedings, and
include demands for recovery of incurred costs and for future investigation or
remedial actions. The company accrues costs associated with environmental
matters when they become probable and can be reasonably estimated. In assessing
environmental liability, the company considers the extent and type of hazardous
substances at a site, the range of technologies that can be used for
remediation, evolving laws and regulations, the allocation of costs among
potentially responsible parties, and the number and financial strength of those
parties.
During the second quarter of 1997, a tentative settlement was reached in a
Superfund remediation contingency where Lukens was designated a potentially
responsible party. The obligation for the Superfund site was previously
recognized in the fourth quarter of 1996. The tentative settlement resulted in a
reclassification from other long-term liabilities to other accrued expenses in
the Consolidated Balance Sheets.
Based on information currently available, the liability recorded for
environmental remediation costs was approximately $16,950 at year-end 1997 and
$16,800 at year-end 1996 (Note 3). Due to their uncertain nature, amounts
accrued could differ, perhaps significantly, from the actual costs that will be
incurred. No potential insurance recoveries were taken into account in
determining the company's cost estimates or reserves. Management does not
anticipate that its financial position will be materially affected by additional
environmental remediation costs, although quarterly or annual operating results
could be materially affected by future developments.
Litigation. The company is party to various claims, disputes, legal actions and
other proceedings involving negligence, contracts, equal employment opportunity,
occupational safety and various other matters. In the opinion of management, the
outcome of these matters should not have a material adverse effect on the
consolidated financial condition or results of operations of the company.
Commitments. At year-end 1997, purchase commitments for capital expenditures
were approximately $5,000. Capital expenditures projected for 1998 are
approximately $36,000.
Lukens Steel Company has a long-term contract for the supply of oxygen and
related products to its facility in Coatesville, Pennsylvania. The contract runs
until 2007 and has take-or-pay provisions totaling $24,087 for the remaining
term. Annual minimum commitments of $2,604 can be adjusted for inflation and are
representative of amounts expensed in the prior three years.
Report of Independent Public Accountants
To the Stockholders and Board of Directors, Lukens Inc.:
We have audited the accompanying consolidated balance sheets of Lukens Inc. (a
Delaware Corporation) and subsidiaries as of December 27, 1997 and December 28,
1996 and the related consolidated statements of earnings, stockholders'
investment and cash flows for each of the three fiscal years in the period ended
December 27, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Lukens Inc. and subsidiaries as
of December 27, 1997 and December 28, 1996, and the results of their operations
and their cash flows for each of the three fiscal years in the period ended
December 27, 1997 in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Philadelphia, Pennsylvania
January 19, 1998
Dollars in thousands except per share amounts
<PAGE>
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
1997
Net sales $ 248,118 258,247 243,371 244,644 994,380
Cost of products sold $ 233,837 238,253 225,583 228,311 925,984
Net earnings (loss) $ (1,978) 1,181 133 (3,956) (4,620)
---------- ------- ------- ------- -------
1996
Net sales $ 264,172 255,955 234,421 215,772 970,320
Cost of products sold $ 252,464 236,343 223,192 203,114 915,113
Net earnings (loss) $ (4,375) (5,733)c (4,087) (14,216)d (28,411)
---------- ------- ------- ------- -------
Per Common Share
1997
Basic earnings (loss)(a) $ (.17) .05 (.03) (.30) (.45)
Diluted earnings (loss)(a) $ (.17) .05 (.03) (.30) (.45)
Dividends $ .25 .25 .50 b -- 1.00
---------- ------- ------- ------- -------
1996
Basic earnings (loss)(a) $ (.33) (.42)c (.31) (.99)d (2.06)
Diluted earnings (loss)(a) $ (.33) (.42)c (.31) (.99)d (2.06)
Dividends $ .25 .25 .50 b -- 1.00
---------- ------- ------- ------- -------
Market Prices of Common Stock
1997
High $ 21 7/8 20 3/8 21 13/16 29 29
Low $ 17 3/8 16 7/8 18 15 15
Close $ 17 3/8 19 1/8 19 9/16 28 13/16
---------- ------- ------- ------- -------
1996
High $ 30 1/4 27 3/8 24 1/8 19 1/4 30 1/4
Low $ 24 1/4 23 3/4 18 1/8 13 1/2 13 1/2
Close $ 24 7/8 23 7/8 18 1/8 19 1/8
---------- ------- ------- ------- -------
</TABLE>
a. Earnings (loss) per share calculations were based on the weighted-average
shares and equivalents (diluted) outstanding during the period reported. No
adjustments were made that would be antidilutive or reduce the loss per share.
Consequently, the sum of the quarterly earnings per share amounts may not equal
the annual per share amounts. See Note 1 for a discussion regarding the impact
of a new accounting statement issued that addressed the earnings per share
calculations. Quarterly amounts have been restated under the new standard.
b. Due to the timing of the Board of Directors meetings, two quarterly common
stock dividends were declared in the third quarter, totaling $.50 per share.
c. A $10,782 work force reduction charge reduced results by $6,859, or $.46 per
share (Note 3).
d. Results include unusual charges of $15,333 for an environmental remediation
provision (Note 3) and fixed asset write-downs (Note 3). On an after-tax basis,
the provisions reduced results by $9,814, or $.66 per share.
Dollars in thousands except per share amounts and market prices of common stock
<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 directors of the Company, together with their ages and business
backgrounds, are as follows:
R. W. Van Sant, 59, has been Chairman of the Board, President and Chief
Executive Officer of the Company since December 1991. He held the offices of
President and Chief Operating Officer from October 1991 to December 1991. Mr.
Van Sant served as President and Chief Executive Officer of Blount, Inc., a
company engaged in construction and manufacturing operations, from December 1990
to October 1991. Mr. Van Sant has been a Director of the Company since 1988, is
Chairman of the Executive Committee and is a member of the Committee on the
Board and the Finance Committee. He is also a director of Amcast Industrial
Corporation.
Michael O. Alexander, 57, has been the President of The International
Forum Inc. since June 1993 and the Director of the International Forum at the
Wharton School, University of Pennsylvania, since 1988. The International Forum
Inc. is a business training and education concern. Mr. Alexander has been a
Director of the Company since 1993 and is a member of the Audit Committee, the
Executive Committee and the Finance Committee.
Rod Dammeyer, 57, is the managing director of Equity Group Investments,
Inc. ("EGI"), which has major investments in approximately 30 public and private
companies. He is also Chief Executive Officer and a director of Anixter
International Inc., where he has been employed since 1985. Mr. Dammeyer was
elected to the Board of Directors of the Company in 1995. He is a member of the
Audit Committee, the Committee on the Board and the Executive Development and
Compensation Committee. Mr. Dammeyer also serves as a director of Antec
Corporation, Capsure Holdings Corp., Falcon Building Products, Inc., IMC Global
Inc., Jacor Communications, Inc., Revco D.S., Inc., Sealy Corporation and
TeleTech Holdings, Inc., companies in which EGI has a major investment interest,
and is a trustee of Van Kampen American Capital, Inc. closed end funds.
T. Kevin Dunnigan, 60, has been the Chairman of Thomas & Betts
Corporation, a manufacturer of electrical equipment, since 1992. He was also the
Chief Executive Officer of that corporation since 1985 to May 1997 and has been
a member of its board of directors since 1975. Mr. Dunnigan has been a Director
of the Company since 1994. He is Chairman of the Committee on the Board and a
member of the Executive Committee and the Executive Development and Compensation
Committee. He is also a director of Elsag Bailey N.V. and C.R. Bard Inc.
Ronald M. Gross, 64, is currently Chairman and Chief Executive Officer
and a director of Rayonier Inc. (formerly known as ITT
<PAGE>
Rayonier Inc.), a forest products company. After joining Rayonier, Inc. in March
1978 as President, Chief Operating Officer and a director, Mr. Gross was elected
Chief Executive Officer in 1981 and Chairman in 1984. Mr. Gross also serves as a
director of The Pittston Company and as President and a director of Rayonier
Forest Resources Company, the managing general partner of Rayonier Timberlands,
L.P., a publicly traded master limited partnership. Mr. Gross has been a
Director of the Company since 1991 and is Chairman of the Executive Development
and Compensation Committee and a member of the Committee on the Board and the
Executive Committee.
Sandra L. Helton, 48, has been Vice President and Corporate Controller
of Compaq Computer Corporation since May 1997. Compaq is a manufacturer of
personal computers and related equipment. From July 1994 until May 1997 Mrs.
Helton was Senior Vice President and Treasurer of Corning Incorporated since
July 1994. Corning Incorporated is an international corporation focused in three
business segments: Specialty Materials, Communications and Consumer Products.
From 1991 to July 1994 she served as Vice President and Treasurer of that
corporation. She has been a Director of the Company since 1995. Ms. Helton is a
member of the Audit Committee, the Committee on the Board and the Finance
Committee.
William H. Nelson, III, 69, retired from Scott Paper Company in 1986.
From 1981 to 1986, he served as Executive Vice President and President of the
Natural Resources Division of this company, primarily a manufacturer of pulp,
paper and forest-related products. He has been a Director of the Company since
1972. He is Chairman of the Audit Committee and a member of the Executive
Committee and the Executive Development and Compensation Committee.
David B. Price, Jr., 52, has been the Executive Vice President of B.F.
Goodrich Company and President and Chief Operating Officer of its Specialty
Chemicals segment since July 1997. B.F. Goodrich is a leading producer of
aerospace systems, products and services and specialty chemicals. Prior to that
time he was the President of the Performance Materials Division of Monsanto
Company since 1995. Monsanto Company is a global producer of chemicals,
agricultural products, food ingredients and pharmaceuticals. Previously at that
company, he was Vice President and General Manager of Commercial Operations, the
Industrial Products Division, from 1993 to 1995 and Vice President and General
Manager of the Performance Products Division from 1991 to 1993. Mr. Price was
elected to the Board of Directors in February 1996 and is a member of the
Finance Committee.
Joab L. Thomas, 65, currently President Emeritus of The Pennsylvania
State University, was President of that university from 1990 to 1995. Mr. Thomas
has been a Director of the Company since 1992 and is a member of the Audit
Committee, the Executive Committee and the Finance Committee. He is also a
director of Mellon Bank Corporation.
W. Paul Tippett, 65, has been a Director of the Company since 1989. He
retired from Springs Industries, Inc. in 1989. From 1985 to 1989, he served as
the President of this company, a manufacturer of finished fabrics, home
furnishings and industrial fabrics. Prior to that time, Mr. Tippett was Chairman
and Chief Executive Officer of American Motors Corporation. Mr. Tippett is
Chairman of the Finance Committee and a member of the Audit Committee and the
Executive Development and Compensation Committee. He is also a director of
Stride Rite Corporation.
<PAGE>
b. Executive Officers of the Registrant
Information required by this item is contained in Part I of this Form 10-K in
the section entitled "Executive Officers of the Registrant."
c. Compliance With Section 16(a)
Section 16(a) of the Securities and Exchange Act of 1934 generally
requires the Company's Directors and Executive Officers and persons who own more
than 10% of a registered class of the Company's equity securities ("10% owners")
to file with the Securities and Exchange Commission and the New York Stock
Exchange initial reports of ownership and reports of changes in ownership of
common stock and other equity securities of the Company. Directors, Executive
Officers and 10% owners are required by Securities and Exchange Commission
regulation to furnish the Company with copies of all Section 16(a) forms they
file. To the Company's knowledge, based solely on review of copies of such
reports furnished to the Company and written representations that no other
reports were required to be filed during the 1997 fiscal year, all Section 16(a)
filing requirements applicable to its Directors, Executive Officers and 10%
owners were met.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
The following information for the fiscal years ended December 30, 1995,
December 28, 1996 and December 27, 1997 is given as to the Chief Executive
Officer and each of the four other most highly compensated Executive Officers of
the Company who were serving as Executive Officers at the end of the 1997 fiscal
year and whose base salary and bonus exceeded $100,000 during the 1997 fiscal
year.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
Other Awards
Annual Securities All Other
Name and Compen- Restricted Underlying Compen-
Principal sation Stock Options/ sation
Position(s) Year Salary($)(1) Bonus($)(1) ($)(1) Awards SARs(#) ($)(1)
<S> <C> <C> <C> <C> <C> <C> <C>
R. W. Van Sant 1997 $600,000 $ -0- $ 69,032(2) 50,000(3) 75,000(4) $ 14,517(5)
Chairman, 1996 $603,056 $ -0- $ 65,657 -0- 59,412 $ 15,592
President and 1995 $565,563 $214,529 $ 51,043 -0- 27,735 $321,143
Chief Executive Officer
T. G. John 1997 $232,800 $ -0- $219,412(6) 14,000(3) 15,000(4) $ 11,637(7)
Senior Vice President, 1996 $232,800 $ -0- $141,545 -0- 22,510 $ 10,494
Strategic Planning 1995 $204,959 $ 63,365 $ 34,914 -0- 21,305 $ 9,986
J. J. Norton 1997 $205,572 $ -0- (8) 14,000(3) 15,000(4) $ 6,750(9)
Senior Vice President 1996 $205,572 $ -0- (8) -0- 21,398 $ 6,750
President and COO-WSM 1995 $193,210 $ 58,199 (8) -0- 17,882 $ 6,750
J. C. van Roden, Jr. 1997 $186,326 $ -0- $ 20,288(10) 14,000(3) 15,000(4) $ 8,107(11)
Senior Vice President and 1996 $176,556 $ -0- $ 21,428 -0- 20,212 $ 7,926
Chief Financial Officer 1995 $145,718 $ 43,420 $ 18,567 -0- 11,215 $ 7,535
R. D. Luzzi 1997 $184,920 $ -0- $ 21,557(10) 7,000(3) 10,000(4) $ 8,226(12)
Vice President, 1996 $184,920 $ -0- $ 21,098 -0- 14,298 $ 8,038
Human Resources 1995 $174,899 $ 51,808 (8) -0- 13,882 $ 7,466
<FN>
(1) Rounded to the nearest dollar.
(2) Includes $44,692 imputed to Mr. Van Sant for use of the Company airplane.
(3) The Board of Directors approved the issuance of performance vested
restricted stock to officers as part of an incentive compensation
program. During the first quarter of 1997, 134,000 restricted shares
were awarded. The shares carry voting and dividend rights and were
recorded at fair market value on the grant date. The awards vest at the
end of three years, contingent on continued employment and the
achievement of performance goals that are tied to Lukens' total
shareholder return relative to other steel companies.
(4) Options granted as part of such Executive Officer's regular annual
option grant.
(5) Represents $6,750 of Company contributions to the Lukens Inc. Employees
Capital Accumulation Plan adopted pursuant to Section 401(k) of the
Internal Revenue Code of 1986, as amended; $5,850 of Company-paid
premiums for life insurance coverage above $50,000; and $1,917 of
premiums paid by the Company on another term life insurance policy
which covers Mr. Van Sant and is owned by the Company. The Company is
the beneficiary under this second policy but has assigned the right to
proceeds equal to
<PAGE>
2 1/2 times Mr. Van Sant's compensation to his designee.
(6) Includes $200,738 paid by the Company in connection with Mr. John's
relocation from the Company's Washington, Pennsylvania facility to its
Coatesville, Pennsylvania facility.
(7) Represents $6,750 of Company contributions to the Lukens Inc. Employees
Capital Accumulation Plan and $4,887 of Company-paid premiums for life
insurance coverage above $50,000.
(8) Does not exceed the lesser of $50,000 or 10% of the total of such
person's annual salary and bonus.
(9) Represents $6,750 of Company contributions to the Lukens Inc. Employees
Capital Accumulation Plan.
(10) Includes an automobile allowance provided by the Company of $13,512.
(11) Represents $6,750 of Company contributions to the Lukens Inc. Employees
Capital Accumulation Plan and $1,357 of Company-paid premiums for life
insurance coverage above $50,000.
(12) Represents $6,750 of Company contributions to the Lukens Inc. Employees
Capital Accumulation Plan and $1,476 of Company-paid premiums for life
insurance coverage above $50,000.
</FN>
</TABLE>
The following table contains information regarding each type of option
grant to each Executive Officer named in the Summary Compensation Table during
the 1997 fiscal year.
Option Grants in Last Fiscal Year
Individual Grants
<TABLE>
<CAPTION>
% of Total
Number of Options
Securities Granted to
Underlying Employees Exercise or
Options in Fiscal Base Price Expiration Grant Date
Name Granted(#) (1) Year (2) ($/Sh) Date (3) Present Value ($) (4)
-------------- -------- ------ -------- ---------------------
<S> <C> <C> <C> <C> <C>
R. W. Van Sant 75,000 23.7% $18.4375 2/28/07 $326,265
T. G. John 15,000 4.7% $18.4375 2/28/07 $ 65,253
J. J. Norton 15,000 4.7% $18.4375 2/28/07 $ 65,253
J. C. van Roden 15,000 4.7% $18.4375 2/28/07 $ 65,253
R. D. Luzzi 10,000 3.2% $18.4375 2/28/07 $ 43,502
<FN>
(1) Regular option grants under the 1985 Stock Option and Appreciation Plan
include options which qualify as incentive stock options under Section
422 of the Internal Revenue Code of 1986, as amended, and options which
do not so qualify. The options granted in 1997 became exercisable on
February 28, 1998.
(2) Rounded to the nearest one-tenth of one percent.
(3) Outstanding options may expire earlier due to death, disability or
termination of employment. The Company has agreed to cash-out
outstanding options of certain Executive Officers upon a change in
control.
(4) Based on the Black-Scholes option pricing model, using the following
assumptions: (a) 10 year option term; (b) 6.58% risk-free interest
rate; (c) 30.6% volatility; and (d) 5.4% dividend yield.
</FN>
</TABLE>
<PAGE>
The following table presents information about stock options exercised
during the 1997 fiscal year by the Executive Officers named in the Summary
Compensation Table and the amount and value of unexercised options held by such
Executive Officers at fiscal year-end, distinguishing between options that were
vested (i.e., exercisable at year-end) and options that were not vested (i.e.,
becoming exercisable in the future).
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year and
Fiscal Year-End Option Values
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal In-the-Money Options at
Shares Acquired Value Year-End(#) Fiscal Year-End($) (1)
Name on Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
R. W. Van Sant -0- -0- 210,000 282,147 $1,018,125 $1,604,360
T. G. John -0- -0- 41,700 32,815 30,875 158,890
J. J. Norton -0- -0- 23,000 31,280 27,688 158,645
J. C. van Roden -0- -0- 35,500 27,427 50,130 157,830
R. D. Luzzi -0- -0- 22,700 23,180 17,813 106,195
- -----------
<FN>
(1) Rounded to the nearest dollar. Based on the difference between the
closing price of the Company's common stock on the New York Stock
Exchange Composite Tape at the fiscal year-end and the exercise price
of the options.
</FN>
</TABLE>
Retirement Plans
The Lukens Inc. Salaried Employees Retirement Plan provides retirement
benefits to certain salaried employees who retire or otherwise terminate
employment after completing five or more years of service. The Lukens Inc.
Supplemental Retirement Plan for Lukens Performance Incentive Plan Participants
provides supplemental retirement benefits to participating managerial level
employees. Benefits under this Plan are offset by benefits payable under the
Lukens Inc. Salaried Employees Retirement Plan. In addition, the Lukens Inc.
Supplemental Retirement Plan for Designated Executives provides supplemental
retirement benefits to participating executives. Under this Plan benefits for
participating executives are calculated by crediting the executive with service
in addition to the executive's actual period of service as an employee. Benefits
payable under this Plan are offset by benefits payable under the Lukens Inc.
Salaried Employees Retirement Plan.
Each of the Executive Officers named in the Summary Compensation Table
participates in the Lukens Inc. Salaried Employees Retirement Plan. Messrs.
John, Luzzi and van Roden also participate in the Lukens Inc. Supplemental
Retirement Plan for Lukens Performance Incentive Plan Participants. Mr. Van Sant
also participates in the Lukens Inc. Supplemental Retirement Plan for Designated
Executives. Benefits under these Plans are payable monthly and are based upon
formulas which consider years of service and compensation (as defined in the
Plans) and age at retirement.
The following table shows the approximate annual retirement benefits
that Messrs. Van Sant, John, van Roden and Luzzi would receive under the Plans
described above based on
<PAGE>
credited years of service if they retire at normal retirement age. Mr. Norton,
who participates in the Lukens Inc. Salaried Employees Retirement Plan but not
in any of the Company's supplemental retirement plans, would receive an annual
retirement benefit of $18,438 if he retires at normal retirement age. Lesser
amounts may be payable following a termination of employment before normal
retirement age.
<TABLE>
<CAPTION>
Years of Service
Remuneration (1) 10 Years 15 Years 20 Years 25 Years 30 Years 35 Years 40 Years
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 100,000 $ 13,600 $ 20,300 $ 27,100 $ 33,900 $ 38,900 $ 43,900 $ 48,900
200,000 33,600 50,300 67,100 83,900 93,900 103,900 113,900
300,000 53,600 80,300 107,100 133,900 148,900 163,900 178,900
400,000 73,600 110,300 147,100 183,900 203,900 223,900 243,900
500,000 93,600 140,300 187,100 233,900 258,900 283,900 308,900
600,000 113,600 170,300 227,100 283,900 313,900 343,900 373,900
700,000 133,600 200,300 267,100 333,900 368,900 403,900 438,900
800,000 153,600 230,300 307,100 383,900 423,900 463,900 503,900
900,000 173,600 260,300 347,100 433,900 478,900 523,900 568,900
1,000,000 193,600 290,300 387,100 483,900 533,900 583,900 633,900
<FN>
(1) The estimated benefit calculated is based on salary plus bonus, as
designated in the Summary Compensation Table above.
</FN>
</TABLE>
Benefits payable under the Lukens Inc. Supplemental Retirement Plan for
Lukens Performance Incentive Plan Participants and the Lukens Inc. Supplemental
Retirement Plan for Designated Executives are computed on a straight life
annuity basis and are subject to offset by any Social Security benefits to which
the participant is entitled.
Messrs. John, van Roden and Luzzi have credited service of
approximately five, 16 and five years, respectively, in the Lukens Inc. Salaried
Employees Retirement Plan and in the Lukens Inc. Supplemental Retirement Plan
for Lukens Performance Incentive Plan Participants. Mr. Van Sant has credited
service of approximately six years under the Lukens Inc. Salaried Employees
Retirement Plan and 25 years under the Lukens Inc. Supplemental Retirement Plan
for Designated Executives. Each Plan, with the exception of the Lukens Inc.
Salaried Employees Retirement Plan, contains provisions for a present value
lump-sum payment payable in the event of a change in control.
Compensation of Directors
An annual retainer of $24,000 is paid to Directors who are not
employees of the Company and an attendance fee of $900 is paid to such Directors
for each day or part of a day they attend a regular or special meeting of the
Board. A fee is also payable to such Directors for attendance at Board Committee
meetings. The fee is $800 for all Committees, except that members of the
Executive Committee are paid an attendance fee of $900. Attendance fees are paid
for Committee meetings on Board meeting days except for Committee meetings of an
administrative nature. An annual retainer of $2,500 per Committee is also paid
to Directors who serve as Committee Chairmen. Directors who serve a partial year
are paid a pro rata share of the annual retainer based upon the number of months
served.
Any Director of the Company who is separately compensated for Board
services may elect to defer compensation for distribution at a later date.
Deferred amounts may be invested in mutual funds or interest-bearing accounts
and may be paid in a lump sum or in annual
<PAGE>
installments over a period of five years.
For periods before May 1, 1997, Lukens maintained a pension plan for
non-employee directors which was terminated as of April 30, 1997. Effective as
of May 1, 1997, Lukens adopted the Lukens Inc. Non-Employee Director Equity
Compensation Plan (the "ECP"). Under the ECP, the present value of the benefit
of each non-employee director under the terminated directors' retirement plan,
determined as of May 1, 1997, was credited to a bookkeeping account established
for the benefit of each non-employee director. The amount credited to each
account was deemed invested in hypothetical shares of Lukens Common Stock at the
average closing price of such shares for May 1997. Under the ECP, on each April
30 occurring after May 1, 1997, an additional amount will be credited to
accounts established for all non-employee directors, and deemed invested in
hypothetical shares of Lukens Common Stock based on the closing price of Lukens
Common Stock on the allocation date. The amount credited is based on the annual
retainer compensation for directors then in effect, discounted for a ten-year
period at the thirty-year U. S. Treasury bond rate then in effect. Pursuant to
the terms of the ECP, within sixty days following a change of control of Lukens,
the amount credited to each non-employee director's account under the ECP will
be paid in a cash lump sum.
Pursuant to the Company's Stock Option Plan for Non-Employee Directors,
each Director who is not an employee of the Company or any of its subsidiaries
receives an annual grant of options to purchase 1,000 shares of the Company's
common stock at an exercise price equal to the fair market value of the
Company's common stock on the date of grant. Options become exercisable one year
after the date of grant and expire ten years after the date of grant, except
that options terminate three years after a person ceases to be a Director.
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements
The Company has entered into an agreement with Mr. Van Sant which
provides for his employment by the Company until his 65th birthday. The
agreement provides for the following compensation: a minimum base salary of
$600,000 per annum, an annual bonus calculated and paid in accordance with the
Lukens Performance Incentive Plan at a target amount of 30% of base salary and
certain employee benefits. Pursuant to the agreement and adjusted to reflect a
50% stock dividend, Mr. Van Sant was issued 330,000 options to purchase common
stock of the Company at an exercise price of $23.375 per share, which, as
adjusted, was 85% of the fair market value of such common stock on the date of
the grant. Such options vest at a rate of 30,000 per year. The agreement further
provides that if Mr. Van Sant's employment is terminated by the Company prior to
his 65th birthday, other than for disability or for cause, he will be entitled
to continue to receive his full salary and certain other benefits under the
agreement until the earlier of the third anniversary of his termination or his
65th birthday.
Severance Agreements. On various dates during the period between
October 31, 1990 and January 29, 1997, Lukens entered into severance agreements
with Messrs. R. W. Van Sant, T. G. John, J. J. Norton, J. C. van Roden, Jr., R.
D. Luzzi and six other executive officers (the "Severance Agreements"). Under
each of the Severance Agreements, if the employment of any of such executive
officers is terminated within two years following the change in control of
Lukens for any reason other than termination by Lukens for "cause," the
executive officer's
<PAGE>
death or disability or by the executive officer with "good reason," the
executive officer is entitled to receive (i) a lump sum cash payment in an
amount equal to (A) three times the sum of the executive officer's salary plus
the average of the highest three bonus awards made in respect of the five most
recently completed measuring periods preceding the termination of employment
plus (B) additional amounts in respect of contingent bonuses for uncompleted
measuring periods, elective deferred compensation, certain stock options and
certain supplemental retirement benefits, (ii) paid coverage for 36 months under
life, disability, and accident and health programs similar to those in effect at
the date of termination of employment and (iii) for any executive officer who,
as the result of the foregoing, becomes subject to the excise tax pursuant to
Section 280G of the Code, an additional lump sum cash payment in an amount such
that the executive officer will be in the same net after-tax position as the
executive officer would have been had no such excise tax been applicable. The
purpose of the agreements is to assure the continued dedication of such persons
to their duties and their unbiased counsel in the event of an unsolicited tender
offer.
In general, a "change in control" will be deemed to occur if (i) during
a period of two consecutive years, the individuals who constituted the Board of
Directors at the beginning of such period cease to constitute a majority of the
Board, (ii) any person or group acquires 20% or more of the combined voting
power of the Company's then outstanding securities, (iii) the Company is
acquired by merger or consolidation or (iv) the Company is liquidated or
substantially all of its assets are sold.
Accelerated Vesting of Restricted Stock under Lukens Inc. 1997
Performance Vested Restricted Stock Plan. Pursuant to the Performance Vested
Restricted Stock Plan (the "PVRS Plan"), 134,000 shares of Lukens Common Stock
have been granted as "restricted stock" to certain executive officers. Such
shares are subject to forfeiture, in whole or in part, unless Lukens achieves
certain performance objectives for the period commencing January 1, 1997 and
ending December 31, 1999. Upon a change of control of Lukens, all forfeiture
restrictions on such restricted shares will lapse.
Under the PVRS Plan, Mr. Van Sant has received 50,000 restricted shares
of Lukens Common Stock, Messrs. John, Norton and van Roden have each received
14,000 restricted shares of Lukens Common Stock, and Mr. Luzzi has received
7,000 restricted shares of Lukens Common Stock.
Supplemental Retirement Plans. Lukens has adopted three supplemental
retirement plans for the benefit of certain executive officers and other
employees: the Lukens Inc. Supplemental Retirement Plan for Designated
Executives, the Lukens Inc. Supplemental Retirement Plan for Lukens Performance
Incentive Plan Participants and the Lukens Inc. Supplemental Retirement Plan
(collectively, the "SERP"). In general, the SERP provides for the payment of
retirement benefits to certain executive officers and other employees of Lukens
in excess of the retirement benefits generally payable under the Lukens Inc.
Salaried Employees Retirement Plan.
The SERP previously provided for a cash lump sum payment of the value
of participants' accrued benefits upon a "change of control," without regard to
whether the participant's employment was terminated or whether the participant
continued to be eligible to participate in
<PAGE>
the SERP. On December 9, 1997, the Lukens Board amended the SERP, so that (i)
participants' accrued benefits under the SERP become nonforfeitable upon the
completion of five or more years of continuous service in the management group;
(ii) at a change of control of Lukens, no cash lump sum payment will be made
automatically to participants in the SERP; and (iii) if a participant's
employment with the surviving corporation is terminated by the employer without
"cause," the participant resigns for "good reason" or the SERP is terminated
without replacement by a similar plan, in each case within five years following
the change of control, the participant, or all participants, as the case may be,
shall become entitled to a cash lump sum payment of the value of benefits
accrued under the SERP.
On December 9, 1997, the Lukens Board authorized the adoption of an
irrevocable grantor trust. On or before the consummation of a change of control
of Lukens, the present value of accrued benefits under the SERP as of such dates
will be deposited into the grantor trust and will be available for distribution
in accordance with the terms of the SERP.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Security Ownership of Certain Beneficial Owners
The following table sets forth information, as of December 31, 1997,
regarding each person who is known by the Company to beneficially own more than
5% of any class of stock of the Company. Such information was provided to the
Company by such persons or is based on data available to the Company.
<TABLE>
<CAPTION>
Shares
Name and Address Title of Beneficially Percent of
Class Owned Class(1)
<S> <C> <C> <C>
State Street Bank and Trust Company
225 Franklin Street Preferred 470,328(2)(3) 100%
Boston, MA 02110
Merrill Lynch Asset Management, L.P.
800 Scudders Mill Road Common 2,197,035(4) 14.7%
Plainsboro, NJ 08536
Bankers Trust New York Corporation Common 792,930(5) 5.3%
130 Liberty Street
New York, NY 10006
<FN>
(1) Rounded to the nearest one-tenth of one percent and based on the number
of shares of the applicable class outstanding on December 31, 1997.
(2) Rounded to the nearest share.
(3) Held as trustee of the Lukens Inc. Employees Stock Ownership Trust
under the Lukens Inc. Employees Capital Accumulation Plan, as to which
State Street Bank and Trust Company disclaims beneficial ownership. The
trustee's duties include management of the trust and voting the
preferred stock held in the trust. Each share of preferred stock is
generally convertible into three shares of the Company's common stock.
If all of the shares of preferred stock were converted, State Street
Bank and Trust Company would hold 1,410,983 shares of common stock as
trustee. These shares, together with the 60,423 shares of
<PAGE>
common stock held in separate or commingled funds managed by State
Street Bank and Trust Company, would represent approximately 9.0% of
the Company's common stock.
(4) Includes 1,417,035 shares held by Merrill Lynch Asset Management, L.P.
("MLAM"), of which Princeton Services, Inc. ("PSI") is the general
partner, and 780,000 shares held by Merrill Lynch Global Allocation
Fund, Inc. (the "Fund"), for which MLAM serves as investment adviser.
PSI disclaims beneficial ownership of the 1,417,035 shares held by
MLAM.
(5) Includes 527,875 shares for which Bankers Trust Company, a wholly owned
subsidiary of Bankers Trust New York Corporation, has sole voting and
dispositive power, 100,055 shares for which Bankers Trust Company has
sole dispositive power, and 165,000 shares for which BT Alex. Brown
Incorporated, an indirect wholly owned subsidiary of Bankers Trust New
York Corporation, has sole voting and dispositive power.
</FN>
</TABLE>
Security Ownership of Management
The following table sets forth as of March 2, 1998, the approximate
number of shares of common stock and preferred stock of the Company (rounded to
the nearest share) beneficially owned by each Director, by each Executive
Officer named in the Summary Compensation Table and by all Directors and
Executive Officers of the Company as a group who are serving in such capacities
on that date.
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Percent
Owned of Class(1)
Name Common Preferred Common Preferred
<S> <C> <C> <C> <C>
R. W. Van Sant 398,618(2) 909 less than 1% less than 1%
Michael O. Alexander 5,700(3) -0- less than 1% None
Rod Dammeyer 7,000(4) -0- less than 1% None
T. Kevin Dunnigan 7,400(5) -0- less than 1% None
Ronald M. Gross 7,500(3) -0- less than 1% None
Sandra L. Helton 4,500(6) -0- less than 1% None
T. Grant John 89,757(7) 522 less than 1% less than 1%
Richard D. Luzzi 50,841(8) 556 less than 1% less than 1%
William H. Nelson, III 9,000(3) -0- less than 1% None
James J. Norton 65,392(9) -0- less than 1% None
David B. Price, Jr. 2,500(4) -0- less than 1% None
Joab L. Thomas 7,600(10) -0- less than 1% None
W. Paul Tippett 6,500(3) -0- less than 1% None
John C. van Roden 79,599(11) 1,098 less than 1% less than 1%
All Directors and Executive 1,045,184(12) 9,110 6.4% 2.0%
Officers as a Group
(19 Persons)
<FN>
(1) Rounded to the nearest one-tenth of one percent and based on (i) the number
of shares subject to options for common stock exercisable by such person(s)
on or before May 1, 1998, and 14,977,090 shares of common stock, which on
March 2, 1998, was the approximate number of shares outstanding and (ii)
458,338 shares of preferred stock, which on March 2, 1998, was the
approximate number of shares outstanding.
(2) Includes options to purchase 342,735 shares of common stock that are
currently exercisable and 50,000 performance vested restricted shares.
(3) Includes options to purchase 5,000 shares of common stock that are
currently exercisable or will become exercisable on May 1, 1998.
(4) Includes options to purchase 2,000 shares of common stock that are
currently exercisable or will become exercisable on May 1, 1998.
(5) Includes options to purchase 4,000 shares of common stock that are
currently exercisable or will become exercisable on May 1, 1998.
(6) Includes options to purchase 3,000 shares of common stock that are
currently exercisable or will become exercisable on May 1, 1998.
(7) Includes options to purchase 65,005 shares of common stock that are
currently exercisable, 14,000 performance vested restricted shares and
1,541 shares of common stock held by his wife in a retirement plan, as to
which he disclaims beneficial ownership.
(8) Includes options to purchase 39,082 shares of common stock that are
currently exercisable and 7,000 performance vested restricted shares.
(9) Includes options to purchase 45,882 shares of common stock that are
currently exercisable and 14,000 performance vested restricted shares.
(10) Includes 2,600 shares of common stock held jointly with his spouse and
options to purchase 5,000 shares of common stock that are currently
exercisable or will become exercisable on May 1, 1998.
(11) Includes options to purchase 55,715 shares of common stock that are
currently exercisable and 14,000 performance vested restricted shares.
(12) Includes options to purchase 790,145 shares of common stock that are
currently exercisable or will become exercisable on May 1, 1998, 134,000
performance vested restricted shares and 12,441 shares of common stock as
to which beneficial ownership is disclaimed.
</FN>
</TABLE>
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During fiscal year 1997, the Company had an outstanding loan in the
amount of $270,000 to Mr. John, Senior Vice President, Strategic Planning, on an
interest free basis. The purpose of this loan was to assist him in his
relocation.
<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.
On December 16, 1997, a report was filed for Item 5. Other Events., and
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.,
concerning a merger agreement with Bethlehem Steel Corporation.
No other reports on Form 8-K were filed during the quarter ended
December 27, 1997.
Subsequent to year-end 1997, a report was filed on January 5, 1998, for
Item 5. Other Events., and Item 7. Financial Statements, Pro Forma Financial
Information and Exhibits., concerning an amendment to the merger with Bethlehem
Steel Corporation.
<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: February 25, 1998 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 February 25, 1998, by the following persons on
behalf of the registrant and in the capacities indicated.
Signature and Title
/s/ Michael O. Alexander
-------------------------
Michael O. Alexander David B. Price, Jr.
Director Director
/s/ Rod Dammeyer /s/ Joab L. Thomas
------------------------- ---------------------------
Rod Dammeyer Joab L. Thomas
Director Director
/s/ W. Paul Tippett
---------------------------
T. Kevin Dunnigan W. Paul Tippett
Director Director
/s/ Ronald M. Gross /s/ R. W. Van Sant
------------------------- ---------------------------
Ronald M. Gross R. W. Van Sant
Director Chairman and
Chief Executive Officer
/s/ Sandra L. Helton /s/ John C. van Roden, Jr.
------------------------- ---------------------------
Sandra L. Helton John C. van Roden, Jr.
Director Senior Vice President and Chief
Financial Officer
/s/ William H. Nelson, III /s/ P. Blaine Clemens
------------------------- ---------------------------
William H. Nelson, III P. Blaine Clemens
Director Vice President and Controller
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements included in this Form 10-K, and have issued
our report thereon dated January 19, 1998. Our audits were made for the purpose
of forming an opinion on those statements taken as a whole. The financial
statement schedule referred to in Item 14 is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
The financial statement schedule has been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion,
fairly states in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Philadelphia, Pennsylvania
January 19, 1998
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports dated January 19, 1998 included or incorporated by reference in this
annual report on Form 10-K, into the Company's previously filed: Form S-8
Registration Statements File Numbers 33-6673, 33-23405, 33-29105, 33-54269,
33-54271, 33-54371, 33-69780 and 333-09451, and Form S-3 Registration Statement
File Number 33-53681.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Philadelphia, Pennsylvania
March 20, 1998
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Dollars in Thousands)
Allowance for Doubtful Receivables and Customer Claims
<TABLE>
<CAPTION>
Balance at Additions Charged to Balance at
Beginning Costs and End of
Fiscal Year Ended of Period Expenses Other Deductions (a) Period
<S> <C> <C> <C> <C> <C>
December 27, 1997 $7,750 5,130 - 6,164 6,716
December 28, 1996 $6,632 11,348 - 10,230 7,750
December 30, 1995 $7,569 10,044 - 10,981 6,632
(a) Amounts determined not to be collectible, net of recoveries. Amount also
includes a reduction in the reserve from the divestiture of subsidiaries
of $145 in 1995.
Deferred Income Tax Asset Valuation Allowance
Balance at Additions Charged to Balance at
Beginning Costs and End of
Fiscal Year Ended of Period Expenses Other Deductions Period
December 27, 1997 $2,705 65 - -- 2,770
December 28, 1996 $2,575 130 - -- 2,705
December 30, 1995 $2,575 -- - -- 2,575
</TABLE>
<PAGE>
INDEX TO EXHIBITS (Note 1)
(2) Plan of acquisition, reorganization, arrangement, liquidation or succession
(2.1) Agreement and Plan of Merger, dated December 15, 1997
among Bethlehem Steel Corporation, Lukens Acquisition
Corporation and Lukens Inc. (Note 4)
(2.2) Amendment dated as of January 4, 1998 to the Agreement and Plan
of Merger, dated December 15, 1997 among Bethlehem Steel Corporation,
Lukens Acquisition Corporation and Lukens Inc. (Note 5)
(3) Certificate of incorporation and by-laws (Note 2)
(4) Instruments Defining the Rights of Security Holders including Indentures
(4.1) Lukens Inc. Indenture dated as of July 1, 1992
(Note 3)
(4.2) Renewed Rights Agreement, dated as of September 25, 1996 (Note 8)
(4.3) Amendment to Renewed Rights Agreement (Note 4)
(10) Material Contracts
(10.1) Lukens Inc. Supplemental Retirement Plan, as amended and
restated, effective December 9, 1997
(10.2) Lukens Inc. Supplemental Retirement Plan for Lukens
Performance Incentive Plan Participants, as amended and
restated, effective December 9, 1997
(10.3) Lukens Inc. Supplemental Retirement Plan for
Designated Executives, as amended and restated, effective
December 9, 1997
(10.4) Lukens Inc. Performance Incentive Plan, effective
January 1, 1995 (Note 11)
(10.5) Lukens Inc. 1997 Performance-Vested Restricted Stock
Plan, effective February 26, 1997 (Note 6)
(10.6) Lukens Inc. 1985 Stock Option and Appreciation Plan,
as amended (Note 9)
(10.7) Lukens Inc. Stock Option Plan for Non-employee
Directors (Note 13)
<PAGE>
(10.8) Lukens Inc. Non-Employee Director Equity Compensation Plan,
effective May 1, 1997 (Note 6)
(10.9) Employment Agreement dated October 12, 1991, between R. William
Van Sant and Lukens Inc. (Note 15)
(10.10) Severance Agreement dated October 12, 1991, between R. William
Van Sant and Lukens Inc. (Note 15)
(10.11) Form of Severance Agreement between certain Executive Officers
and Lukens Inc.
(10.12) Form of Indemnification Agreement between certain Executive
Officers and Lukens Inc. (Note 16)
(10.13) Lukens Inc. Directors' Deferred Payment Plan (Note 17)
(10.14) Guaranty Agreement dated as of June 28, 1989, between Lukens
Inc. and The Toronto-Dominion Bank & Trust Company as Agent for the
Guaranteed Parties (Note 16)
(10.15) Retirement Plan for Non-Employee Directors of Lukens Inc., as
amended through November 30, 1994 (Note 12)
(10.16) Form of Indemnification Agreement between Directors and Lukens
Inc. (Note 16)
(10.17) Amended and Restated Credit Agreement, dated as of April 22,
1992, and Amended and Restated as of September 30, 1992 among Lukens
Inc. and Lukens Steel Company, as the Borrowers, Certain Commercial
Lending Institutions, the Toronto-Dominion Bank, and NBD Bank, N.A., as
the Co-Agents, and Provident National Bank, as the Administrative Agent
(Note 14)
(10.18) First Amendment, dated as of January 15, 1995, to Amended and
Restated Credit Agreement (Note 12)
(10.19) Extension Request, dated as of December 1, 1995, to Amended and
Restated Credit Agreement (Note 10)
(10.20) Extension Request, dated as of December 5, 1996, to Amended and
Restated Credit Agreement (Note 7)
(10.21) Lease among PNC Leasing Corp., Blount, Inc., and Washington
Steel Corporation, dated as of October 1, 1986 (Note 14)
(10.22) Lease Amendment No. 1, dated July 22, 1987, among
PNC Leasing Corp., Blount, Inc. and Washington Steel
Corporation (Note 14)
<PAGE>
(10.23) Lease Amendment No. 2, Assumption and Consent among
PNC Leasing Corp., Blount, Inc. and Washington Steel
Corporation, dated as of October 18, 1988 (Note 14)
(10.24) Lease Amendment No. 3, Assumption and Consent among
PNC Leasing Corp., Lukens Inc. and Washington Steel
Corporation, dated as of July 21, 1992 (Note 14)
(11) Statement regarding Computation of Per Share Earnings
(21) Subsidiaries of the Registrant
(23) Consent of Arthur Andersen LLP (Note 18)
(27) Financial Data Schedule
(27.1) Restated Financial Data Schedule (SFAS No. 128) for the thirty-nine
weeks ended September 27, 1997.
(27.2) Restated Financial Data Schedule (SFAS No. 128) for the twenty-six
weeks ended June 28, 1997.
(27.3) Restated Financial Data Schedule (SFAS No. 128) for the thirteen weeks
ended March 29, 1997.
(27.4) Restated Financial Data Schedule (SFAS No. 128) for the fifty-two weeks
ended December 28, 1996.
(27.5) Restated Financial Data Schedule (SFAS No. 128) for the thirty-nine
weeks ended September 28, 1996.
(27.6) Restated Financial Data Schedule (SFAS No. 128) for the twenty-six
weeks ended June 29, 1996.
(27.7) Restated Financial Data Schedule (SFAS No. 128) for the thirteen weeks
ended March 30, 1996.
(27.8) Restated Financial Data Schedule (SFAS No. 128) for the fifty-two weeks
ended December 30, 1995.
NOTES TO EXHIBITS
1. Copies of exhibits will be supplied upon request. Exhibits will be provided
at $.25 per page requested. Annual and quarterly filings are electronically
filed with the SEC. Copies of the exhibits are available free of charge through
the SEC site on the Internet (http://www.sec.gov).
2. The certificate of incorporation is incorporated by reference to exhibits
included in the Lukens Inc. Post-Effective Amendment No. 1 to the Registration
Statement on Form S-8, File No. 33- 23405. By-laws, as amended and restated June
26, 1991, are incorporated by reference to exhibits included in the Lukens Inc.
Form 10-Q for the quarter ended June 29, 1991.
3. Incorporated by reference to exhibits included in the Lukens Inc.
Registration Statement on Form S-3, File No. 33-49112.
4. Incorporated by reference to exhibits included in the Lukens Inc. Form 8-K
for the Date of Report, December 15, 1997.
5. Incorporated by reference to exhibits included in the Lukens Inc. Form 8-K
for the Date of Report, January 4, 1998.
6. Incorporated by reference to exhibits included in the Lukens Inc. Form 10-Q
for the quarter ended June 28, 1997.
7. Incorporated by reference to exhibits included in the Lukens Inc. Form 10-K
for the fiscal year ended December 28, 1996.
8. Incorporated by reference to exhibits included in the Lukens Inc. Form 10-Q
for the quarter ended September 28, 1996.
<PAGE>
9. Incorporated by reference to exhibits included in the Lukens Inc. Form 10-Q
for the quarter ended March 30, 1996.
10. Incorporated by reference to exhibits included in the Lukens Inc. Form 10-K
for the fiscal year ended December 30, 1995.
11. Incorporated by reference to exhibits included in the Lukens Inc. Form 10-Q
for the quarter ended September 30, 1995.
12. Incorporated by reference to exhibits included in the Lukens Inc. Form 10-K
for the fiscal year ended December 31, 1994.
13. Incorporated by reference to exhibits included in the Lukens Inc. Form 10-K
for the fiscal year ended December 25, 1993.
14. Incorporated by reference to exhibits included in the Lukens Inc. Form 10-K
for the fiscal year ended December 26, 1992.
15. Incorporated by reference to exhibits included in the Lukens Inc. Form 10-K
for the fiscal year ended December 28, 1991.
16. Incorporated by reference to exhibits included in the Lukens Inc. Form 10-K
for the fiscal year ended December 30, 1989.
17. Incorporated by reference to exhibits included in the Lukens Inc.
Registration Statement on Form S-4, File No. 33-10935.
18. Incorporated by reference to the sections entitled "Consent of Independent
Public Accountants" in this Form 10-K.
EXHIBIT 10.1
LUKENS INC. SUPPLEMENTAL RETIREMENT PLAN
(As Amended and Restated Effective December 9, 1997)
Lukens Inc., a Delaware corporation, pursuant to Resolution of
its Board of Directors, has amended and restated the following Supplemental
Retirement Plan previously adopted effective as of December 28, 1975 (revised
effective August 1, 1978, January 1, 1980, May 14, 1980, March 18, 1981, July
31, 1983 July 31, 1988, and January 1, 1990), the objective of which is to
provide eligible Participants retirement benefits which are supplemental to
benefits provided under the Lukens Inc. Salaried Employees Retirement Plan.
This Plan, as amended and restated, shall apply only to
Participants who terminate employment with the Company on or after July 31,
1988, except that changes adopted effective December 9, 1997 shall be considered
effective with respect to the version of the Plan in effect at the date of such
termination of employment. The right of an employee who terminated employment
with the Company on or before July 30, 1988, to a supplemental retirement
benefit shall be governed by the Supplemental Retirement Plan as it existed at
the time of such person's termination of employment, as revised in accordance
with the changes adopted effective December 9, 1997.
ARTICLE I
Definitions
Section I.1. As used herein:
(a) "Accrued Benefit" means with respect to any
Participant the portion of the benefit earned under the Plan to the Change in
Control Payment Date calculated in accordance with Article IV. To the extent
that (i) a Participant's Accrued Benefit is calculated under Article IV by
reference to monthly retirement income benefits payable to the Participant under
the Retirement Plan, and (ii) no such benefits are or would upon termination of
employment and application therefor be payable to the Participant as of the
Change in Control Payment Date, the Participant's Accrued Benefit shall be
calculated under Article IV by reference to the
<PAGE>
monthly retirement income benefits accrued with respect to the Participant under
the Retirement Plan as of the Change in Control Payment Date.
(b) "Board" means the Board of Directors of Lukens Inc.
(c) "Cause" for termination by the Company of a
Participant's employment means (i) the willful and continued failure by the
Participant to substantially perform the Participant's duties with the Company
(other than any such failure resulting from the Participant's incapacity due to
physical or mental illness or any such actual or anticipated failure after the
issuance of a notice of termination for Good Reason by the Participant) after a
written demand for substantial performance is delivered to the Participant by
the Board, which demand specifically identifies the manner in which the Board
believes that the Participant has not substantially performed the Participant's
duties, or (ii) the willful engaging by the Participant in conduct which is
demonstrably and materially injurious to the Company or its subsidiaries,
monetarily or otherwise. For purposes of clauses (i) and (ii) of this
definition, no act, or failure to act, on the Participant's part shall be deemed
"willful" unless done, or omitted to be done, by the Participant not in good
faith and without reasonable belief that the Participant's act, or failure to
act, was in the best interest of the Company.
-2-
<PAGE>
(d) "Change in Control" means any of the following
events:
(i) (A) 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"
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 ton
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
(ii) A change in the composition of a majority of the
Board within 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 hold by such person or group or
their affiliates or associates which by their terms are
-3-
<PAGE>
convertible, even if not then convertible, represent twenty percent (20%) of the
voting power of the then outstanding securities of the Company; or
(iii) (A) Any "persons" 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 of Directors of the Company as it existed immediately prior to any
such offer, after having been advised thereof, does not, within ten business
days after being so adviser, adopt a resolution specifically determining that
such offer does not constitute a change of control event within the meaning of
this paragraph. The terms "person" and "group," as used in this Subsection (d),
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 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.
(e) "Change in Control Payment Date" means the date of
the occurrence of one of the following events following a Change of Control and
before the fifth anniversary of the effective date of such Change of Control:
(i) termination of the Participant's employment by
the Company other than for Cause;
-4-
<PAGE>
(ii) the Participant's termination of employment with
the Company for Good Reason; or
(iii) termination of the Plan without establishment
of a similar plan covering the Participant.
(f) "Committee" means the Executive Development and
Compensation Committee of the Board.
(g) "Compensation" means the average during the highest
five consecutive Plan Years of the last ten Plan Years preceding the earlier of
the year of the Participant's Retirement or the year of the Participant's Normal
Retirement Date, calculated as follows:
(i) for Plan Years beginning on or after January 1,
1988, one hundred percent (100%) of the Participant's compensation as defined in
the Retirement Plan (as amended and restated effective January 1, 1988)
(including amounts deferred as salary reduction contributions under the Lukens
Inc. Employees Capital Accumulation Plan), plus, for any Plan Year for which
such definition of compensation in the Retirement Plan does not include
incentive compensation, one hundred percent (100%) of the incentive compensation
allocated under the Lukens Inc. 1983 Target Incentive Plan (in the year
accrued); plus
(ii) for Plan Years beginning before January 1, 1988,
one hundred percent (100%) of the Participant's annual base salary, computed by
converting the last regular full pay period base salary rate paid in the Plan
Year to an annual amount, including amounts deferred as salary reduction
contributions under the Lukens Inc. Employees Capital Accumulation Plan, but
excluding any amount resulting from a cost-of-living adjustment which took
effect after May 1, 1974 plus one hundred percent (100%) of the incentive
compensation allocated under the Lukens Incentive compensation Plan, the Lukens
Inc. 1983 Target Incentive Plan or the Lukens Profit Sharing Program.
(h) "Continuous Service" means the period of time, not
exceeding forty years, during which a Salaried Employee or Participant
-5-
<PAGE>
shall be deemed continuously employed by the Company or any subsidiary in
accordance with past employment practices.
(i) "Good Reason" for termination by the Participant
of the Participant's employment with the Company means, with respect to each
Participant who is a party to an individual agreement with the Company providing
for benefits in the event of a Change in Control, "Good Reason" as defined in
such individual agreement, and with respect to each Participant who is not a
party to an individual agreement with the Company providing for benefits in the
event of a Change in Control, the occurrence (without the Participant's express
written consent) of any one of the following acts by the Company, or failures by
the Company to act, unless, in the case of any act described in clause (iii)
hereof, such act or failure to act is corrected prior to the date of termination
specified in the notice of termination given in respect thereof:
(i) a reduction by the Company in the Participant's
annual base salary as in effect on the date hereof or as the same may be
increased from time to time except for across-the-board salary reductions
similarly affecting all similarly-situated employees of the Company and all
similarly-situated employees of any "person" in control of the Company as
described in the definition of Change in Control;
(ii) the Company's failure to pay to the Participant
any portion of the Participant's current compensation except pursuant to an
across-the-board compensation deferral similarly affecting all
similarly-situated employees of the Company and all similarly-situated employees
of any "person" in control of the Company, as described in the definition of
Change in Control, or to pay to the Participant any portion of an installment of
deferred compensation under any deferred compensation program of the Company,
within seven (7) days of the date such compensation is due; or
(iii) the Company's failure to continue in effect any
other compensation, incentive, insurance, fringe benefit or similar program in
which the Participant participates immediately prior to the Change
-6-
<PAGE>
in Control, unless an equitable arrangement (embodied in an ongoing substitute
or alternative program) has been made with respect to such program, or the
Company's failure to continue the Participant's participation therein (or in
such substitute or alternative plan), the result of which is a material adverse
effect on the Participant's total compensation in the aggregate.
(j) "Lukens" or "Company" means Lukens Inc. or any
successor thereto.
(k) "Management Group" means (A) those employees of the
Company who (i) are employed in the Lukens Steel Company or Lukens Corporate
Headquarters, (ii) are in salary grade 16 or above, and (iii) do not participate
in any other non-qualified incentive or sales compensation plan or arrangement
of the Company other than the Lukens Incentive Compensation Plan, the Lukens
Inc. 1983 Target Incentive Plan or the Lukens Inc. Divisional Incentive
Compensation Plan, and (B) any employees of a subsidiary of the company who have
been designated by the Committee as members of the Management Group.
(l) "Normal Retirement Date" means the last day of the
month in which a Participant attains age 65.
(m) "Participant" means any Salaried Employee who has
five or more years of Continuous Service in the Management Group at the time of
Retirement or a Change in Control Payment Date. No Salaried Employee who was not
a Participant as of December 31, 1987 shall become a Participant after that
date.
(n) "Plan" means the supplemental retirement plan
described herein which shall be known as the "Lukens Inc. Supplemental
Retirement Plan".
(o) "Plan Year" means any year commencing on any January
1 and ending on the following December 31.
(p) "Retirement" means (i) retirement at Normal
Retirement Date or later, or (ii) retirement prior to Normal Retirement Date but
after completing at least five years of Continuous Service in the
-7-
<PAGE>
Management Group, other than a termination of employment by the Company prior to
age 62 for Cause.
(q) "Retirement Plan" means the Lukens Inc. Salaried
Employees Retirement Plan as from time to time amended and any other defined
benefit employee pension plan maintained by the company and/or its subsidiaries
and affiliated companies.
(r) "Salaried Employee" means any salaried employee of
the Company or any subsidiary of the Company who is paid on a periodic or yearly
salary basis, but shall not include a Director of the Company unless he is also
a regular salaried employee.
Section I.2. Wherever used herein, masculine pronouns include
the feminine, and the plural includes the singular.
ARTICLE II
Cost of Plan
Section II.1. The cost of the supplemental retirement benefits
payable hereunder shall be paid for by the Company.
ARTICLE III
Eligibility
Section III.1.
(a) A Participant who retires on or after his Normal
Retirement Date and, on the date of his Retirement, has completed at least five
years of Continuous Service in the Management Group shall be eligible to receive
full benefits hereunder in accordance with Article IV.
(b) Each Participant whose Retirement is prior to his
Normal Retirement Date shall be eligible to receive benefits hereunder in
accordance with Article V.
(c) Except on or after a Change in Control Payment Date,
no Participant shall be eligible to receive benefits under Subsections (a) or
(b) until the Participant has commenced to receive retirement benefits under the
Retirement Plan.
ARTICLE IV
Computation of Benefits
-8-
<PAGE>
Section IV.1. Subject to Section 4.3, the monthly retirement
benefit payable to a Participant at his Normal Retirement Date shall be an
amount equal to the excess of (a) over (b) where
(a) is 1/12th of the sum determined by multiplying his
Compensation by
(i) 1-2/3% for each year or fraction thereof of his
Continuous Service not exceeding 20, plus
(ii) 1.0% for each year or fraction thereof of his
Continuous Service in excess of 20, and
(b) is the amount of any monthly retirement income
benefit (computed on a straight life annuity basis) payable to him under the
Retirement Plan (exclusive of any supplement payable under Section 6.9 of the
Retirement Plan as in effect on December 31, 1987 and determined without regard
to any reduction thereof for payments made on account of disability) as of his
date of Retirement.
Section IV.2. In the event of a Participant's Retirement after
his Normal Retirement Date, benefits payable hereunder shall be computed as if
the Participant had retired as of his Normal Retirement Date, except as
otherwise required by applicable law.
Section IV.3. Notwithstanding any provision contained herein
to the contrary, the minimum benefit payable to a Participant hereunder shall be
the excess of (a) over (b) where
(a) is the amount of any monthly retirement income
benefit (computed on a straight life annuity basis) that would have been payable
to him under the Retirement Plan (exclusive of any supplement payable under
Section 6.9 of the Retirement Plan and determined without regard to any
reduction thereof for payments made on account of disability) as of his date of
Retirement, but for the limitations contained therein and in Sections 401(a)(17)
and 415 of the Internal Revenue Code of 1986, as amended, and
-9-
<PAGE>
(b) is the amount of the monthly retirement income
benefit (computed on a straight life annuity basis) payable to him under the
Retirement Plan (exclusive of any supplement payable under Section 6.9 of the
Retirement Plan as in affect on December 31, 1987 and determined without regard
to any reduction thereof for payments made on account of disability) as of his
date of Retirement.
ARTICLE V
Early Retirement
Section V.1. A Participant who retires prior to his Normal
Retirement Date, but after attaining age 62, shall be eligible to receive a
supplemental retirement benefit hereunder computed as of the date of his
Retirement in accordance with Article IV, without actuarial reduction for such
early retirement.
Section V.2. A Participant who retires prior to attaining age
62 shall be eligible to receive a supplemental retirement benefit hereunder;
provided, however, that, except in the event of a Change in Control Payment
Date, such Participant's monthly retirement benefit, computed pursuant to
Article IV as of the date of his Retirement, shall be reduced by 4% or a
proportionate part thereof for each full and partial year by which the
Participant's age at the time benefits commence hereunder is less than 62.
ARTICLE VI
Forfeiture
Section VI.1. A Participant shall forfeit his right to any
benefits that may accrue hereunder in the event of the termination of his
employment with the Company as the result of (i) his death (except as is
provided in Section 7.2), or (ii) his discharge from the Company prior to
attaining age 62 for any reason which, in the sole judgment of the Committee,
shall constitute Cause therefor.
-10-
<PAGE>
A Participant shall also forfeit his right to any benefits
hereunder if, within a five-year period following termination of employment with
the Company and within the regular geographic marketing area of the Company or a
subsidiary, such Participant shall enter into a business or employment
determined by the Committee to be both (a) competitive with the business of the
Company or a subsidiary, and (b) injurious to the Company's interests.
ARTICLE VII
Payments
Section VII.1. The monthly retirement benefits payable to a
Participant in accordance with Articles IV and V shall commence on the first day
of the month following the Participant's Retirement (provided that for a
Participant whose Retirement is described in clause (ii) of the definition of
the term "Retirement" in Article I, such benefits shall commence on the first
day of the month following the later of the Participant's Retirement or his
attainment of age 55) and shall be payable on the first day of each month
thereafter during his lifetime. At the prior written request of the Participant,
the Committee may, in its sole discretion, select a different commencement date
or method of payment or both, provided that the benefit payments commencing on
such date and under such method are the equivalent actuarial value of the
benefits payable on the Participant's Retirement under a straight life annuity
as provided hereinabove. If the Committee approves a method of payment pursuant
to which amounts may be paid to another person subsequent to the death of the
Participant, the Participant shall designate a beneficiary thereunder under
rules adopted by the Committee.
-11-
<PAGE>
Section VII.2. In the event of the death of a Participant to
whom a benefit is payable under Section 7.1, a monthly benefit, equal to 50% of
the benefit payable to such Participant (determined on the basis of a straight
life annuity), shall be paid to such Participant's surviving spouse, if any,
commencing on the first day of the month following the month in which the
Participant died and continuing throughout his or her lifetime; provided,
however, that this Section 7.2 shall only be applicable to a spouse to whom the
Participant was married at the time of his Retirement.
ARTICLE VIII
Continuance of Plan
Section VIII.1. 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 term "Company" wherever used
herein shall mean and include any such corporation or organization after such
succession, and such obligations shall be deemed to have been expressly assumed
by any such other corporation or organization.
Section VIII.2.
(a) If there is a Change in Control Payment Date with
respect to a Participant, the following benefits shall become immediately due
and payable in an actuarially equivalent single sum amount, based upon
reasonable actuarial methods and assumptions.
(i) With respect to each Participant to whom benefits
under the Plan have not commenced as of the Change in Control Payment Date, the
present value of his Accrued Benefit.
(ii) With respect to each spouse of a Participant who
is deceased as of the Change in Control Payment Date and who is eligible for
benefits under Section 7.2 but to whom such benefits have not commenced as of
the Change in Control Payment Date, the present value of the benefits payable
under Section 7.2.
-12-
<PAGE>
(b) With respect to Participants who participate in the
Lukens Inc. Supplemental Retirement Plan for Lukens Performance Incentive Plan
Participants, the provisions of Article VI shall be of no effect as of the date
of a Change in Control with respect to events that occur after the date of a
Change in Control, and shall not cause the forfeiture of any benefits under the
Plan, except with respect to events that occurred prior to the date of the
Change in Control.
ARTICLE I
No Right, Title or Interest
Section I.1. No Participant shall have an, right, title, or
interest whatsoever in or to any investments which the Company may make to aid
it in meeting its obligations hereunder. Nothing contained in the Plan, and no
action taken pursuant to its provisions, shall create or be construed to create
a trust of any kind, or a fiduciary relationship between the Company and the
Participant or any other person. To the extent that any person acquires a right
to receive payments from the Company under this Plan, such right shall be no
greater than the right of an unsecured general creditor of the Company. All
payments to be made hereunder shall be paid in cash from the general funds of
the Company and no special or separate fund shall be established and no
segregation of assets shall be made to assure payments or such amounts.
ARTICLE II
General
Section II.1. This Plan may be amended in whole or in part or
terminated by Resolution of the Board, provided that any benefits which have
accrued or which have become payable hereunder shall not be reduced or
terminated by reason of any such amendment to or termination of this Plan. For
purposes of this Section, any Salaried Employee who has five or more years of
Continuous Service in the Management Group at the time of termination or
amendment of this Plan shall be deemed to have accrued a benefit equal to the
benefit calculated under Section 4.1 or 4.3 based upon such Salaried Employee's
Compensation and actual number of years of Continuous Service.
-13-
<PAGE>
Section II.2. Except as otherwise provided herein, this Plan
shall be administered by the Committee which shall be deemed to have all powers
necessary to administer the Plan in accordance with its terms and provisions.
Section II.3. The records of the Company shall be presumed to
be conclusive of the facts concerning the employment or non-employment of a
Participant unless shown beyond a reasonable doubt to be incorrect.
Section II.4. Neither this Plan nor any action taken hereunder
shall be construed as giving to any employee the right to be retained in the
employ of the Company or as affecting the right of the Company to dismiss any
employee.
Section II.5. Each Participant shall file with the committee
such pertinent information concerning himself and any beneficiary designated by
him as the Committee may demand and no Participant or other person shall have
any rights or be entitled to any benefits under this Plan unless such
information is filed by the Participant with respect to them.
Section II.6. If the Committee shall find that any person to
whom any payment is payable under this Plan is unable to care for his affairs
because of illness or accident, or is a minor, then any payment due (unless a
prior claim therefor shall have been made by a duly appointed guardian,
committee or other legal representative) may be paid to his spouse, a child, a
parent, or a brother or sister, or any other person deemed by the Committee to
have incurred expenses for such person otherwise entitled to payment, in such
manner and proportions as the Committee may determine. Any such payment shall be
a complete discharge of the liabilities of the Company under this Plan.
Section II.7. The right of any person to the payment of
benefits under the Plan may not be assigned, transferred, pledged or encumbered,
either voluntarily or by operation of law, except as may otherwise be required
by law. If any person shall attempt to, or shall, assign, transfer, pledge or
encumber any amount payable hereunder, or if by reason of his bankruptcy or
other event happening at any time any such payment would be made subject to his
debts or liabilities or would otherwise devolve upon anyone else and not be
-14-
<PAGE>
enjoyed by him or his beneficiary, the Committee may, in its sole discretion,
terminate his interest in any such payment and direct that the same be hold and
applied to or, for the benefit of such person, his spouse, children or other
dependents, or any other persons deemed to be the natural objects of his bounty,
or any of them, in such manner as the Committee may deem proper.
Section II.8. This Plan shall be governed by and construed in
accordance with laws of the Commonwealth of Pennsylvania.
The undersigned hereby certifies that this Plan has been
amended and restated effective as of December 9, 1997, by the Board of Directors
of Lukens Inc.
LUKENS INC.
----------------------------------------
Secretary to the Board of Directors of Lukens Inc.
EXHIBIT 10.2
LUKENS INC. SUPPLEMENTAL RETIREMENT PLAN
FOR LUKENS PERFORMANCE INCENTIVE PLAN PARTICIPANTS
(Amended and Restated, Effective December 9, 1997)
Lukens Inc., a Delaware corporation, pursuant to resolution of
its Board of Directors, has established the following Supplemental Retirement
Plan ("Plan") originally effective January 1, 1988, as amended and restated
effective January 1, 1994, and renamed the Lukens Inc. Supplemental Retirement
Plan for Lukens Performance Incentive Plan Participants, and now amended and
restated as of December 9, 1997, to provide retirement benefits to eligible
Participants which are supplemental to benefits under the Lukens Inc. Salaried
Employees Retirement Plan.
This Plan shall apply only to Participants who terminate
employment with the Company after December 31, 1993, except that changes adopted
effective December 9, 1997 shall be considered effective with respect to the
version of the Plan in effect at the date of such termination of employment. The
right of an employee who terminated employment with the Company before January
1, 1994 to a supplemental retirement benefit shall be governed by the Lukens
Inc. Supplemental Retirement Plan for Target Incentive Plan Participants as in
effect as of the employment termination date, or any other pre-existing
supplemental retirement plan, as revised in accordance with the changes adopted
effective December 9, 1997.
ARTICLE I
Definitions
Section 1.01. As used herein:
(a) "Accrued Benefit" means with respect to any
Participant the portion of the benefit earned under the Plan to the Change in
Control Payment Date calculated in accordance with Article IV. To the extent
<PAGE>
that (i) a Participant's Accrued Benefit is calculated under Article IV by
reference to monthly retirement income benefits payable to the Participant under
the Retirement Plan or the Lukens Inc. Supplemental Retirement Plan, and (ii) no
such benefits are or would upon termination of employment and application
therefor be payable to the Participant as of the Change in Control Payment Date,
the Participant's Accrued Benefit shall be calculated under Article IV by
reference to the amounts of the monthly retirement income benefits accrued with
respect to the Participant under the Retirement Plan and the Lukens Inc.
Supplemental Retirement Plan as of the Change in Control Payment Date and
payable to him at the earliest dates on which he would be eligible to begin to
receive such benefits under the terms of such plans, respectively.
(b) "Board" means the Board of Directors of Lukens Inc.
(c) "Cause" for termination by the Company of a
Participant's employment means (i) the willful and continued failure by the
Participant to substantially perform the Participant's duties with the Company
(other than any such failure resulting from the Participant's incapacity due to
physical or mental illness or any such actual or anticipated failure after the
issuance of a notice of termination for Good Reason by the Participant) after a
written demand for substantial performance is delivered to the Participant by
the Board, which demand specifically identifies the manner in which the Board
believes that the Participant has not substantially performed the Participant's
duties, or (ii) the willful engaging by the Participant in conduct which is
demonstrably and materially injurious to the Company or its subsidiaries,
monetarily or otherwise. For purposes of clauses (i) and (ii) of this
definition, no act, or failure to act, on the Participant's part shall be deemed
"willful" unless done, or omitted to be done, by the Participant not in good
faith and without reasonable belief that the Participant's act, or failure to
act, was in the best interest of the Company.
(d) "Change in Control" means any of the following
events:
-2-
<PAGE>
(i) (A) 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" 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 l3d-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 of the Company 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 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
(ii) A change in the composition of a majority of the
Board within 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 l3d-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
-3-
<PAGE>
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
(iii) (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 of Directors of the Company as it existed immediately prior to any
such offer, after having been advised thereof, does not, within ten 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.
The terms "person" and "group," as used in this Subsection (c), 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 corporation; (iii) any employee benefit plan
of the Company or of any corporation described in clause (ii), above; (iv) any
-4-
<PAGE>
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.
(e) "Change in Control Payment Date" means the date of
the occurrence of one of the following events following a Change of Control and
before the fifth anniversary of the effective date of such Change of Control:
(i) termination of the Participant's employment by
the Company other than for Cause;
(ii) the Participant's termination of employment with
the Company for Good Reason; or
(iii) termination of the Plan without establishment
of a similar plan covering the Participant.
(f) "Committee" means the Executive Development and
Compensation Committee of the Board. (g) "Compensation" means the average during
the highest five Plan Years of the last ten Plan Years preceding the earlier of
the year of the Participant's Retirement or the year of the Participant's Normal
Retirement Date, calculated as follows:
(i) for Plan Years beginning on or after January 1,
1995, the sum of (A) one hundred percent (100%) of the Participant's
compensation as defined in the Retirement Plan (including amounts
deferred as salary reduction contributions under the Lukens Inc.
Employees Capital Accumulation Plan, but without regard to any
applicable dollar limitation in the Retirement Plan on the amount of
compensation that may be taken into account), plus (B) for any
Participant who receives an award of non-qualified stock options
pursuant to the Lukens Performance Incentive Plan, one hundred percent
(100%) of the cash portion of the incentive compensation payable under
the Lukens Performance Incentive Plan.
-5-
<PAGE>
(ii) for Plan Years beginning on or after January 1,
1988 and before January 1, 1995, one hundred percent (100%) of the
Participant's compensation as defined in the Retirement Plan (including
amounts deferred as salary reduction contributions under the Lukens
Inc. Employees Capital Accumulation Plan, but without regard to any
applicable dollar limitation in the Retirement Plan on the amount of
compensation that may be taken into account).
(iii) for Plan Years beginning before January 1,
1988, one hundred percent (100%) of the Participant's annual base
salary, computed by converting the last regular full pay period base
salary rate paid in the Plan Year to an annual amount, including
amounts deferred as salary reduction contributions under the Lukens
Inc. Employees Capital Accumulation Plan, but excluding any amount
resulting from a cost-of-living adjustment which took effect after May
1, 1974, plus one hundred percent (100%) of the incentive compensation
allocated under the Lukens Incentive Compensation Plan, the Lukens Inc.
1983 Target Incentive Plan or the Lukens Profit Sharing Program.
(h) "Continuous Service" means the period of time
preceding a Salaried Employee's or Participant's Normal Retirement Date, not
exceeding 40 years, during which a Salaried Employee or Participant shall be
deemed continuously employed by the Company or any subsidiary in accordance with
past employment practices.
(i) "Good Reason" for termination by the Participant of
the Participant's employment with the Company means, with respect to each
Participant who is a party to an individual agreement with the Company providing
for benefits in the event of a Change in Control, "Good Reason" as defined in
such individual agreement, and with respect to each Participant who is not a
-6-
<PAGE>
party to an individual agreement with the Company providing for benefits in the
event of a Change in Control, the occurrence (without the Participant's express
written consent) of any one of the following acts by the Company, or failures by
the Company to act, unless, in the case of any act described in clause (iii)
hereof, such act or failure to act is corrected prior to the date of termination
specified in the notice of termination given in respect thereof:
(i) a reduction by the Company in the Participant's
annual base salary as in effect on the date hereof or as the same may be
increased from time to time except for across-the-board salary reductions
similarly affecting all similarly-situated employees of the Company and all
similarly-situated employees of any "person" in control of the Company as
described in the definition of Change in Control;
(ii) the Company's failure to pay to the Participant
any portion of the Participant's current compensation except pursuant to an
across-the-board compensation deferral similarly affecting all
similarly-situated employees of the Company and all similarly-situated employees
of any "person" in control of the Company, as described in the definition of
Change in Control, or to pay to the Participant any portion of an installment of
deferred compensation under any deferred compensation program of the Company,
within seven (7) days of the date such compensation is due; or
(iii) the Company's failure to continue in effect any
other compensation, incentive, insurance, fringe benefit or similar program in
which the Participant participates immediately prior to the Change in Control,
unless an equitable arrangement (embodied in an ongoing substitute or
alternative program) has been made with respect to such program, or the
Company's failure to continue the Participant's participation therein (or in
such substitute or alternative plan), the result of which is a material adverse
effect on the Participant's total compensation in the aggregate.
-7-
<PAGE>
(j) "Lukens" or "Company" means Lukens Inc. or any
successor thereto.
(k) "Management Group" means those employees of the
Company who participate in the Lukens Inc. 1983 Target Incentive Plan, or who,
for periods beginning after 1994, would have participated in the Lukens Inc.
1983 Target Incentive Plan if it had continued in effect after 1994, as
determined by the Committee.
(l) "Normal Retirement Date" means the first day of the
month coincident with or next following the month in which a Participant attains
age 65.
(m) "Participant" means any Salaried Employee with at
least five (5) years of Continuous Service who (i) either (A) is a member of the
Management Group at the time of his Retirement or death or at the time of a
Change in Control Payment Date, or (B) was a member of the Management Group at
any time within one year prior to his Retirement or death or within one year
prior to a Change in Control, and (ii) is designated as a Participant by the
Committee.
(n) "Plan" means the supplemental retirement plan
described herein, which shall be known as the "Lukens Inc. Supplemental
Retirement Plan for Lukens Performance Incentive Plan Participants."
(o) "Plan Year" means any twelve-month period commencing
on any January 1 and ending on the following December 31.
(p) "Retirement" means: (i) retirement at Normal
Retirement Date or later, or (ii) any termination of employment prior to Normal
Retirement Date but after completing at least five years of Continuous Service
in the Management Group, other than a termination of employment by the Company
prior to age 62 for Cause.
(q) "Retirement Plan" means the Lukens Inc. Salaried
Employees Retirement Plan as from time to time amended and any other defined
-8-
<PAGE>
benefit employee pension plan maintained by the Company and/or its subsidiaries
and affiliated companies.
(r) "Salaried Employee" means any salaried employee of
the Company or any subsidiary of the Company who is paid on a periodic or yearly
salary basis, but shall not include a Director of the Company unless he is also
a regular salaried employee.
(s) "Social Security Benefit" means any Social Security
benefit which a Participant is entitled or would upon application be entitled to
receive under the Social Security Act in any month for which he receives
benefits under this Plan, and which Social Security benefit the Participant does
or would, assuming proper and timely application therefor had been made, in fact
receive for such month pursuant to the payment procedures of the Social Security
Administration then in effect. The amount of such Social Security Benefit shall
be determined upon termination of the Participant's employment with the Company
under the provisions of the Social Security Act in effect at that time by
assuming that (i) the Participant receives no earnings covered by the Social
Security Act in any year following the year his employment with the Company
terminates and (ii) the Participant received wages in excess of the Social
Security taxable wage base for each year preceding and including the year his
employment with the Company terminates. Notwithstanding the foregoing, for
purposes of calculating a distribution in the event of a Change in Control
Payment Date, such distribution shall be calculated based on a Social Security
Benefit determined under the provisions of the Social Security Act in effect at
the time of the Change in Control Payment Date, by assuming that the Participant
receives no earnings covered by the Social Security Act after the Change in
Control Payment Date and, if the Participant has not yet reached an age at which
-9-
<PAGE>
he would be entitled to receive benefits under the Social Security Act, that the
Participant will be entitled to receive a Social Security benefit beginning at
the earliest age then provided under the Social Security Act.
Section 1.02 Wherever used herein, masculine pronouns include
the feminine, and the plural includes the singular.
ARTICLE II
Cost of Plan
Section 2.01. The cost of the supplemental retirement benefits
payable hereunder shall be paid for by the Company.
ARTICLE III
Eligibility to Receive Benefits
Section 3.01.
(a) A Participant who retires on or after his Normal
Retirement Date and, on the date of his Retirement, has completed at least five
years of Continuous Service as a member of the Management Group shall be
eligible to receive full benefits hereunder in accordance with Article IV.
(b) Each Participant whose Retirement is prior to his
Normal Retirement Date shall be eligible to receive benefits hereunder in
accordance with Article V.
(c) The surviving spouse of a Participant who dies before
or after his Normal Retirement Date and who meets the requirements set forth in
Section 7.02 shall be eligible for surviving spouse benefits as set forth in
Section 7.02.
(d) Except on or after a Change in Control Payment Date,
no Participant shall be eligible to receive benefits under Subsections (a) or
(b) until the Participant has commenced to receive retirement benefits under the
Retirement Plan.
-10-
<PAGE>
ARTICLE IV
Computation of Benefits
Section 4.01. Subject to section 4.02, the monthly retirement
benefit payable to a Participant at or after his Normal Retirement Date shall be
an amount equal to (a) minus (b) minus (c) where
(a) is one-twelfth (1/12) of the sum determined as
follows:
(i)(A) two percent (2%) of the Participant's
Compensation multiplied by each year or fraction thereof of the
Participant's Continuous Service not exceeding 25, plus
(ii) one percent (1%) of the Participant's Compensation
multiplied by each year or fraction thereof of the Participant's
Continuous Service in excess of 25, and
(b) is the monthly amount of any retirement income
benefits (computed on a straight life annuity basis) payable to the Participant
under (i) the Retirement Plan (determined without regard to any reduction
thereof for payments made on account of disability), (ii) the Lukens Inc.
Supplemental Retirement Plan, and (iii) the Supplemental Retirement Plan of
General Steel Industries, Inc., as of his date of Retirement, and
(c) is four percent (4%) of the Participant's Social
Security Benefit multiplied by each year or fraction thereof of the
Participant's Continuous Service not exceeding 25.
Section 4.02. Notwithstanding any provision contained herein
to the contrary, the minimum benefit payable to a Participant hereunder shall be
the excess of (a) over (b) where
(a) is the amount of any monthly retirement income
benefit (computed on a straight life annuity basis) that would have been payable
to the Participant under the Retirement Plan, determined without regard to any
reduction thereof for payments made on account of disability, as of his date of
-11-
<PAGE>
Retirement, but for the maximum compensation and benefit limitations contained
therein and in Sections 401(a)(17) and 415 of the Internal Revenue Code of 1986,
as amended, and
(b) is the amount of the monthly retirement income
benefit (computed on a straight life annuity basis) payable to him under the
Retirement Plan, determined without regard to any reduction thereof for payments
made on account of disability, as of his date of Retirement.
ARTICLE V
Early Retirement
Section 5.01. A Participant who retires prior to his Normal
Retirement Date, but after attaining age 62, shall be eligible to receive
benefits hereunder computed as of the date of his Retirement in accordance with
Article IV, without actuarial reduction for such early retirement.
Section 5.02. A Participant who retires prior to attaining age
62 shall be eligible to receive benefits hereunder; provided, however, that such
Participant's monthly retirement benefit shall be calculated (i) by first
determining the amount pursuant to Section 4.01(a) as of the date of his
Retirement, reduced by 4% or a proportionate part thereof for each full or
partial year by which the Participant's age at the time benefits commence
hereunder is less than 62, except that no such reduction shall apply if the
Participant is entitled to benefits under the Retirement Plan which are not
reduced by reason of early commencement, (ii) by next reducing such amount by
the amount determined pursuant to Section 4.01(b) as of the date of the
Participant's Retirement, and (iii) by then reducing such amount further
pursuant to Section 4.01(c) for any month during which the Participant is
entitled or would upon application be entitled to receive benefits under the
Social Security Act.
-12-
<PAGE>
ARTICLE VI
Forfeiture
Section 6.01.
(a) A Participant shall forfeit his right to any benefits that
may accrue hereunder in the event of the termination of his employment with the
Company as the result of (i) his death, except as set forth in Section 7.02, or
(ii)resignation or other termination of employment other than a Retirement, or
(iii) his discharge from the Company prior to attaining age 62 for any reason
which, in the sole judgment of the Committee, shall constitute Cause therefor.
(b) A Participant shall also forfeit his right to any benefits
hereunder if, within a five year period following termination of employment with
the Company and within the regular geographic marketing area of the Company or a
subsidiary, such Participant shall enter into a business or employment
determined by the Committee to be both competitive with the business of the
Company or a subsidiary, and injurious to the Company's interests.
-13-
<PAGE>
ARTICLE VII
Payments
Section 7.01. The monthly retirement benefits payable to a
Participant in accordance with Articles IV and V shall commence on the first day
of the month following the Participant's Retirement and shall be payable on the
first day of each month thereafter during his lifetime. At the prior written
request of the Participant, the Committee may, in its sole discretion, select a
different commencement date or method of payment or both, provided that such
commencement date and method of payment are available under the Retirement Plan,
and provided further that the benefit payments commencing on such date and under
such method are the actuarially equivalent value of the benefits payable on the
Participant's Retirement under a straight life annuity as provided hereinabove.
Notwithstanding any provision of this Plan to the contrary, benefits hereunder
may not be paid in lump sum form except on or after a Change in Control Payment
Date. If the Committee approves a method of payment pursuant to which amounts
may be paid to another person subsequent to the death of the Participant, the
Participant shall designate a beneficiary thereunder pursuant to rules adopted
by the Committee.
Section 7.02.
(a) In the event of the death of a Participant for whom
benefits have commenced under Section 7.01, a monthly benefit equal to 50% of
the benefit payable to such Participant (determined on the basis of a straight
life annuity) shall be paid to such Participant's surviving spouse, if any,
commencing on the first day of the month following the month in which the
Participant died and continuing throughout the spouse's lifetime; provided,
however, that this Section 7.02(a) shall only be applicable to a spouse to whom
the Participant was married at the time of his Retirement.
-14-
<PAGE>
(b) In the event of the death of a Participant to whom
benefits have not commenced under Section 7.01 and who has completed at least
five years of Continuous Service as a member of the Management Group:
(i) A monthly benefit shall be paid to the spouse, if
any, to whom the Participant was married on the date of his death,
calculated as hereinafter provided. The benefit shall commence on a
date determined pursuant to Section 7.02(b)(ii) and continue throughout
the spouse's lifetime.
(ii) The spouse's benefit payable pursuant to Section
7.02(b)(i) shall commence as of the first day of any month following
the month in which the Participant died, as the spouse shall elect, but
not later than the later of (A) the first day of the month in which the
Participant would have attained age 65 but for his death or (B) the
first day of the month coincident with or next following the
Participant's death.
(iii) Except as otherwise provided in this Section
7.02(b), the amount of benefit payable under this Section 7.02(b) shall
be fifty percent (50%) of (A) the amount determined under Section
4.01(a) and (b) or Section 4.02(a) and (b), whichever is appropriate,
based only on the Participant's years of Continuous Service as of the
date of his death, as if the Participant's Retirement occurred on the
date the spouse elects to have benefits commence under this Section,
determined on the basis of a straight life annuity and as if the
Participant's age on such date would have been the greater of 55 or his
actual age had he lived, (B) reduced in accordance with Section
-15-
<PAGE>
4.01(b), based only on the Participant's years of Continuous Service as
of the date of his death, as if the Participant's Retirement occurred
on the date the spouse elects to have benefits commence under this
Section 7.02(b).
(iv) The amount payable pursuant to this Section
7.02(b) shall be determined (A) on the basis of a straight life annuity
and as if the Participant's age on the date benefits commence to the
spouse would have been the greater of 55 or his actual age had he
-16-
<PAGE>
lived, and (B) if the Participant would not have attained age 55 as of
the date the spouse elects to have benefits commence under this Section
7.02(b), reduced further by 4% or a proportionate part thereof for each
full or partial year by which the date benefits commence precedes the
date the Participant would have attained age 55 but for his death, and
based only on the Participant's years of Continuous Service as of the
date of his death.
(v) The amount payable pursuant to this Section
7.02(b) shall be reduced by the amount determined under Section 4.01(c)
based on the Participant's eligibility or ineligibility to receive a
Social Security benefit as of the date of his death.
(vi) In the event that, after benefits commence under
this Section 7.02(b), surviving spouse's benefits payable to the spouse
under the Retirement Plan are reduced by reason of the spouse's
eligibility for Social Security widow's or widower's benefits, benefits
under this Section 7.02(b) shall be increased by an amount equal to
such reduction for each month surviving spouse's benefits under the
Retirement Plan are so reduced.
-17-
<PAGE>
ARTICLE VIII
Continuance of Plan
Section 8.01. 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, and such obligations shall be deemed to have been expressly assumed
by any such successor corporation or organization.
Section 8.02. (a) If there is a Change in Control Payment Date
with respect to a Participant, the following benefits shall become immediately
due and payable in a single sum amount. For purposes of this Section 8.02,
present value shall be determined on the basis of the UP 1984 mortality table
and an interest assumption of 7% or the PBGC interest rates for immediate or
deferred annuities, whichever is appropriate, in effect for the month of the
distribution, whichever produces a greater benefit.
(i) With respect to each Participant to whom benefits
under the Plan have not commenced as of the Change in Control Payment
Date and who is not a party to an individual agreement with the Company
providing for benefits in the event of a Change in Control Payment
Date, the present value of his Accrued Benefit, determined by assuming
that the Participant is eligible to begin receiving benefits under the
Plan as of the Change in Control Payment Date, regardless of his age,
and that no reduction for early commencement is applicable under
Section 5.02, plus, if such Participant is married as of the Change in
Control Payment Date, the present value of the spouse's benefit
calculated pursuant to Section 7.02(b) as if the Participant had died
on the Change in Control Payment Date and had attained age 65 as of the
date of his death.
-18-
<PAGE>
(ii) With respect to each other Participant to whom
benefits under the Plan have not commenced as of the Change in Control
Payment Date, the present value of his Accrued Benefit, determined by
assuming that the Participant is or would be eligible and would have
begun to receive benefits in accordance with section 5.02 upon the
later of attainment of age 55 or occurrence of the Change in Control
Payment Date.
(iii) With respect to each spouse of a Participant
who is deceased as of the Change in Control Payment Date Payment Date
and who is eligible for benefits under Section 7.02(a) or (b) but to
whom such benefits have not commenced as of the Change in Control
Payment Date Payment Date, the present value of the benefits payable
under Section 7.02(a) or (b), whichever is applicable, calculated in
the case of benefits under Section 7.02(b) as if the Participant would
have attained age 65 on the Change in Control Payment Date.
(b) As of the date of a Change in Control, the
provisions of Article VI shall be of no effect with respect to events
that occur after the date of a Change in Control, and shall not cause
the forfeiture of any benefits under the Plan, except with respect to
events that occurred prior to the date of the Change in Control.
-19-
<PAGE>
ARTICLE IX
No Right, Title or Interest
Section 9.01. No Participant shall have any right, title, or
interest whatsoever in or to any investments which the Company may make to aid
it in meeting its obligations hereunder. Nothing contained in the Plan, and no
action taken pursuant to its provisions, shall create or be construed to create
a trust of any kind, or a fiduciary relationship between the Company and the
Participant or any other person. To the extent that any person acquires a right
to receive payments from the Company under this Plan, such right shall be no
greater than the right of an unsecured general creditor of the Company. All
payments to be made hereunder shall be paid in cash from the general funds of
the Company, and no special or separate fund shall be established and no
segregation of assets shall be made, to assure payments of such amounts.
ARTICLE X
General
Section 10.01. This Plan may be amended in whole or in part or
terminated by resolution of the Board; provided, however, that any benefits
which have accrued or which have become payable hereunder shall not be reduced
or terminated by reason of any such amendment to or termination of this Plan.
For purposes of this Section, any Participant who is a Salaried Employee who has
five or more years of Continuous Service as a member of the Management Group at
the time of termination or amendment of this Plan shall be deemed to have
accrued a benefit equal to the benefit calculated under Section 4.01 or 4.02
based upon such Participant's Compensation and actual number of years of
Continuous Service.
-20-
<PAGE>
Section 10.02. Except as otherwise provided herein, this Plan
shall be administered by the Committee, which shall be deemed to have all powers
necessary to administer the Plan in accordance with its terms and provisions.
All determinations made by the Committee shall be conclusive upon the Company,
each Participant and his beneficiaries. 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. Any claims for a benefit under this
Plan shall be filed with the Committee and resolved in accordance with the
provisions of the Claims Procedure provided in the Retirement Plan, except that
the Committee shall be responsible for handling, reviewing and disposing of any
claim filed under this Plan. The Committee shall have full discretion and
authority to interpret the provisions of this Plan and the eligibility for
benefits under the Plan with respect to any claim for benefits submitted to the
Committee.
Section 10.03. The records of the Company shall be presumed to
be conclusive of the facts concerning the employment or non-employment of a
Participant unless shown beyond a reasonable doubt to be incorrect.
Section 10.04. Neither this Plan nor any action taken
hereunder shall be construed as giving to any employee the right to be retained
in the employ of the Company or as affecting the right of the Company to dismiss
any employee.
Section 10.05. Each Participant shall file with the Committee
such pertinent information concerning himself and any beneficiary designated by
him as the Committee may demand, and no Participant or other person shall have
any rights or be entitled to any benefits under this Plan unless such
information is filed by the Participant with respect to them.
Section 10.06. If the Committee shall find that any person to
whom any payment is payable under this Plan is unable to care for his affairs
because of illness or accident, or is a minor, then any payment due (unless a
-21-
<PAGE>
prior claim therefor shall have been made by a duly appointed guardian,
committee or other legal representative) may be paid to his spouse, child,
parent, brother or sister, or any other person deemed by the Committee to have
incurred expenses for such person otherwise entitled to payment, in such manner
and proportions as the Committee may determine. Any such payment shall be a
complete discharge of the liabilities of the Company under this Plan.
Section 10.07. The right of any person to the payment of
benefits under the Plan may not be assigned, transferred, pledged or encumbered,
either voluntarily or by operation of law, except as may otherwise be required
by law. If any person shall attempt to, or shall, assign, transfer, pledge or
encumber any amount payable hereunder, or if by reason of his bankruptcy or
other event happening at any time any such payment would be made subject to his
debts or liabilities or would otherwise devolve upon anyone else and not be
enjoyed by him or his beneficiary, the Committee may, in its sole discretion,
terminate his interest in any such payment and direct that the same be held and
applied to or for the benefit of such person, his spouse, children or other
dependents, or any other persons deemed to be the natural objects of his bounty,
or any of them, in such manner as the Committee may deem proper.
-22-
<PAGE>
Section 10.08. This Plan shall be governed by and construed in
accordance with laws of the Commonwealth of Pennsylvania.
The undersigned hereby certifies that this Plan has been
amended and restated, effective as of December 9, 1997, by the Board of
Directors of Lukens Inc.
LUKENS INC.
--------------------------------
Secretary to the Board of
Directors of Lukens Inc.
-23-
EXHIBIT 10.3
LUKENS INC. SUPPLEMENTAL RETIREMENT PLAN
FOR DESIGNATED EXECUTIVES
(AMENDED AND RESTATED, EFFECTIVE DECEMBER 9, 1997)
Lukens Inc., a Delaware corporation, pursuant to resolution of
its Board of Directors, has established the following Supplemental Retirement
Plan for Designated Executives (the "Plan"), originally effective January 1,
1990, amended and restated effective April 29, 1992, and now amended and
restated as of December 9, 1997, to provide retirement benefits to designated
executives which are supplemental to benefits under the Lukens Inc. Salaried
Employees Retirement Plan and the Lukens Inc. Supplemental Retirement Plan for
Lukens Performance Incentive Plan Participants.
ARTICLE I
Definitions
Section 1.01. As used herein:
(a) "Accrued Benefit""Accrued Benefit" means with respect
to any Participant the portion of the benefit earned under the Plan to the
Change in Control Payment Date calculated in accordance with Article IV. To the
extent that (i) a Participant's Accrued Benefit is calculated under Article IV
by reference to monthly retirement income benefits payable to the Participant
under the Retirement Plan or the Lukens Inc. Supplemental Retirement Plan or the
<PAGE>
Lukens Inc. Supplemental Retirement Plan for Lukens Performance Incentive Plan
Participants, and (ii) no such benefits are or would upon termination of
employment and application therefor be payable to the Participant as of the
Change in Control Payment Date, the Participant's Accrued Benefit shall be
calculated under Article IV by reference to the amounts of the monthly
retirement income benefits accrued with respect to the Participant under the
Retirement Plan and the Lukens Inc. Supplemental Retirement Plan and the Lukens
Inc. Supplemental Retirement Plan for Lukens Performance Incentive Plan
Participants as of the Change in Control Payment Date and payable to him at the
earliest dates on which he would be eligible to begin to receive such benefits
under the terms of such plans, respectively.
(b) "Actuarial Equivalent" means an amount which, when
payable at a time or in a form different from another amount is of equivalent
actuarial value to such other amount, as determined by the Committee in its sole
discretion.
(c) "Board""Board" means the Board of Directors of Lukens
Inc.
(d) "Cause" means the basis for a Participant's
termination of employment by the Company defined as "cause" in the Participant's
2
<PAGE>
Employment Agreement, and as determined under such Employment Agreement.
(e) "Change in Control""Change in Control" means any of
the following events:
(i) (A) 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" 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 of the Company held by
such person or group of 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 days after being so advised, adopt a resolution specifically
3
<PAGE>
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
(ii) A change in the composition of a majority of the
Board within 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 of
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
(iii) (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
4
<PAGE>
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 of Directors of the Company as it existed immediately prior to any
such offer, after having been advised thereof, does not, within ten 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. The terms "person" and "group," as used in this Subsection (c),
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 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.
(f) "Change in Control Payment Date" means the date of
the occurrence of one of the following events following a Change of Control and
5
<PAGE>
before the fifth anniversary of the effective date of such Change of Control:
(i) termination of the Participant's employment by
the Company other than for Cause;
(ii) the Participant's termination of employment with
the Company for Good Reason; or
(iii) termination of the Plan without establishment
of a similar plan covering the Participant.
(g) "Committee""Committee" means the Executive
Development and Compensation Committee of the Board.
(h) "Compensation""Compensation" means the average during
the highest five Plan Years of the last ten Plan Years preceding the earlier of
the year of the Participant's Retirement or the year of the Participant's Normal
Retirement Date, calculated as follows:
(i) for Plan Years beginning on or after January 1,
1995, the sum of (A) one hundred percent (100%) of the Participant's
compensation as defined in the Retirement Plan (including amounts deferred as
salary reduction contributions under the Lukens Inc. Employees Capital
Accumulation Plan, but without regard to any applicable dollar limitation in the
6
<PAGE>
Retirement Plan on the amount of compensation that may be taken into account),
plus (B) one hundred percent (100%) of the cash portion of the incentive
compensation payable under the Lukens Performance Incentive Plan.
(ii) for Plan Years beginning on or after January 1,
1988 and before January 1, 1995, one hundred percent (100%) of the Participant's
compensation as defined in the Retirement Plan (including amounts deferred as
salary reduction contributions under the Lukens Inc. Employees Capital
Accumulation Plan, but without regard to any applicable dollar limitation in the
Retirement Plan on the amount of compensation that may be taken into account).
(iii) for Plan Years beginning before January 1,
1988, one hundred percent (100%) of the Participant's annual base salary,
computed by converting the last regular full pay period base salary rate paid in
the Plan Year to an annual amount, including amounts deferred as salary
reduction contributions under the Lukens Inc. Employees Capital Accumulation
Plan, but excluding any amount resulting from a cost-of-living adjustment which
took effect after May 1, 1974, plus one hundred percent (100%) of the incentive
compensation allocated under the Lukens Incentive Compensation Plan, the Lukens
Inc. 1983 Target Incentive Plan or the Lukens Profit Sharing Program.
(i) "Continuous Service""Continuous Service" means the
period of time preceding a Participant's Normal Retirement Date, not exceeding
30 years, during which a Participant shall be deemed continuously employed by
7
<PAGE>
the Company or any subsidiary in accordance with past employment practices. A
Participant shall be treated as continuously employed during any period of time
following a Participant's actual termination of employment with the Company
which is included in the Participant's Period of Employment. For purposes of
determining Continuous Service, each Participant shall be treated as if hired by
the Company at age 35.
(j) "Employment Agreement" means the employment
agreement, if any, between a Participant and the Company.
(k) "Good Reason" means the basis for a Participant's
termination of employment defined as "good reason" in the Participant's
Employment Agreement, and as determined under such Employment Agreement.
(l) "Lukens" or "Company""Lukens" or "Company" means
Lukens Inc. or any successor thereto.
(m) "Lukens Inc. Supplemental Retirement Plan for Lukens
Performance Incentive Plan Participants" means such Plan, as it may be in effect
from time to time, including, as applicable, as the Lukens Inc. Supplemental
Retirement Plan for Target Incentive Plan Participants.
(n) "Normal Retirement Date""Normal Retirement Date"
means the first day of the month coincident with or next following the month in
which a Participant attains age 65.
(o) "Participant""Participant" means only executives of
Lukens Inc. who are designated as Participants in this Plan by the Committee.
8
<PAGE>
Such designation shall be recorded in the minutes of the meeting of the
Committee in which such executive is designated a Participant.
(p) "Period of Employment" means the contractual period
of employment described in a Participant's Employment Agreement, as determined
under such Employment Agreement.
(q) "Plan""Plan" means the supplemental retirement plan
described herein which shall be known as the "Lukens Inc. Supplemental
Retirement Plan for Designated Executives."
(r) "Plan Year""Plan Year""Plan Year" means any
twelve-month period commencing on any January 1 and ending on the following
December 31.
(s) "Retirement""Retirement""Retirement" means:
(i) retirement at Normal Retirement Date or later and
commencement of benefits under the Retirement Plan;
(ii) retirement prior to Normal Retirement Date but
after attaining age 62, and commencement of benefits under the Retirement Plan;
(iii) retirement with the consent of the Committee
after attaining age 55 but prior to attaining age 62, and commencement of
benefits under the Retirement Plan;
(iv) the end of the Participant's Period of
Employment following his termination of employment with the Company for Good
Reason;
9
<PAGE>
(v) the end of the Participant's Period of Employment
following his termination of employment by the Company other than for Cause or
disability; or
(vi)termination of employment with the Company after
completing at least five (5) years of Continuous Service.
(t) "Retirement Plan""Retirement Plan""Retirement Plan"
means the Lukens Inc. Salaried Employees Retirement Plan as from time to time
amended and any other defined benefit employee pension plan maintained by the
Company and/or its subsidiaries and affiliated companies.
(u) "Social Security Benefit""Social Security
Benefit""Social Security Benefit" means any Social Security benefit which a
Participant is entitled or would upon application be entitled to receive under
the Social Security Act in any month for which he receives benefits under this
Plan. The amount of the Social Security Benefit shall be determined upon
termination of the Participant's employment with the Company under the
provisions of the Social Security Act in effect at that time by assuming that
(i) the Participant receives no earnings covered by the Social Security Act in
any year following the year his employment with the Company terminates and (ii)
the Participant received wages in excess of the Social Security taxable wage
base for each year preceding and including the year his employment with the
Company terminates. Notwithstanding the foregoing, for purposes of calculating a
distribution in the event of a Change in Control Payment Date, such distribution
10
<PAGE>
shall be calculated based on a Social Security Benefit determined under the
provisions of the Social Security Act in effect at the time of the Change in
Control Payment Date, by assuming that the Participant receives no earnings
covered by the Social Security Act after the Change in Control Payment Date and,
if the Participant has not yet reached an age at which he would be entitled to
receive benefits under the Social Security Act, that the Participant will be
entitled to receive a Social Security benefit beginning at the earliest age then
provided under the Social Security Act.
Section 1.02. Wherever used herein, masculine pronouns
include the feminine, and the plural includes the singular.
ARTICLE II
Cost of Plan
Section 2.01. The cost of the supplemental retirement
benefits payable hereunder shall be paid for by the Company.
ARTICLE III
Eligibility to Receive Benefits
Section 3.01.
11
<PAGE>
(a) A Participant who retires on or after his Normal
Retirement Date shall be eligible to receive full benefits hereunder in
accordance with Article IV.
(b) Each Participant whose Retirement is prior to his
Normal Retirement Date shall be eligible to receive benefits hereunder in
accordance with Article V.
(c) The surviving spouse of a Participant who dies
before or after his Normal Retirement Date and who meets the requirements set
forth in Section 7.02 shall be eligible for surviving spouse benefits as in
Section 7.02.
(d) Except on or after a Change in Control Payment
Date or Retirement within the meaning of paragraphs (iv), or (v) of the
definition of the term "Retirement," no Participant shall be eligible to receive
benefits under Subsection (a) or (b) until the Participant has commenced to
receive retirement benefits under the Retirement Plan.
ARTICLE IV
Computation of Benefits
Section 4.01. Subject to section 4.02, the monthly
retirement benefit payable to a Participant at or after his Normal Retirement
Date shall be an amount equal to (a) minus (b) minus (c) where
(a) is one-twelfth (1/12) of the sum determined as
follows:
(i) two percent (2%) of the Participant's
Compensation multiplied by each year or fraction thereof of the Participant's
12
<PAGE>
Continuous Service not exceeding 25, plus (ii) one percent (1%) of the
Participant's Compensation multiplied by each year or fraction thereof of the
Participant's Continuous Service in excess of 25, and
(b)is the monthly amount of any retirement income
benefits (computed on a straight life annuity basis) payable to the Participant
under (i) the Retirement Plan (determined without regard to any reduction
thereof for payments made on account of disability), (ii) the Lukens Inc.
Supplemental Retirement Plan, (iii) the Lukens Inc. Supplemental Retirement Plan
for Lukens Performance Incentive Plan Participants, (iv) the Supplemental
Retirement Plan of General Steel Industries, Inc., as of his date of Retirement
and (v) any retirement plans of the Participant's immediate prior employer and
such other employers' plans as designated by the Committee in the minutes of
their meeting in which such executive is designated a Participant, and
(c)is four percent (4%) of the Participant's Social
Security Benefit multiplied by each year or fraction thereof of the
Participant's Continuous Service not exceeding 25.
Section 4.02. Notwithstanding any provision contained
herein to the contrary, the minimum benefit payable to a Participant hereunder
shall be the excess of (a) over (b) where
(a) is the amount of any monthly retirement income
benefit (computed on a straight life annuity basis) that would have been payable
to the Participant under the Retirement Plan and the Lukens Inc. Supplemental
13
<PAGE>
Retirement Plan for Lukens Performance Incentive Plan Participants, determined
without regard to any reduction thereof for payments made on account of
disability, as of his date of Retirement, but for the maximum compensation and
benefit limitations contained therein and in Section 401(a)(17) and 415 of the
Internal Revenue Code of 1986, as amended, and
(b) is the amount of the monthly retirement income
benefit (computed on a straight life annuity basis) payable to him under the
Retirement Plan and the Lukens Inc. Supplemental Retirement Plan for Lukens
Performance Incentive Plan Participants, determined without regard to any
reductions thereof for payments made on account of disability, as of his date of
Retirement.
ARTICLE V
Early Retirement
Section 5.01. A Participant who retires prior to his
Normal Retirement Date, but after attaining age 62 and after completing at least
five years of Continuous Service shall be eligible to receive benefits hereunder
computed as of his Retirement in accordance with Article IV, without actuarial
reduction for such early retirement.
Section 5.02. A Participant who retires prior to
attaining age 62 but after attaining age 55 and completing ten years of
Continuous Service, or a Participant who has attained age 55 and whose
14
<PAGE>
Retirement is described in paragraphs (iv),(v) or (vi) of the definition of the
term "Retirement" in Article I, shall be eligible to receive benefits hereunder;
provided, however, that such Participant's monthly retirement benefit shall be
calculated (i) by first determining the amount pursuant to Section 4.01(a) as of
the date of his Retirement, reduced by 4% or a proportionate part thereof for
each full or partial year by which the participant's age at the time benefits
commence hereunder is less than 62, except that no such reduction shall apply if
the Participant is entitled to benefits under the Retirement Plan which are not
reduced by reason of early commencement, (ii) by next reducing such amount by
the amount determined pursuant to Section 4.01(b) as of the date of the
Participant's Retirement, or, in the case of a Participant whose Retirement is
described in paragraphs (iv),(v) or (vi) of the definition of the term
"Retirement" and who is not entitled to commence benefits under the Retirement
Plan upon his Retirement hereunder, by the Actuarial Equivalent of the amount
determined pursuant to section 4.01(b) if Retirement Plan benefits commenced at
the same time as benefits under this Plan, and (iii) by then reducing such
amount further pursuant to Section 4.01(c) for any month during which the
15
<PAGE>
Participant is entitled or would upon application be entitled to receive
benefits under the Social Security Act.
ARTICLE VI
Forfeiture
Section 6.01.
(a) A Participant shall forfeit his right to any benefits
that may accrue hereunder in the event of the termination of his employment with
the Company as the result of (i) his death, except as set forth in Section 7.02,
(ii) other termination of employment other than a Retirement, or (iii) his
discharge from the Company prior to attaining age 62 for any reason which, in
the sole judgment of the Committee, shall constitute Cause therefor.
(b) A Participant shall also forfeit his right to any
benefits hereunder if, within a five year period following termination of
employment with the Company and within the regular geographic marketing area of
the Company or a subsidiary, such Participant shall enter into a business or
employment determined by the Committee to be both competitive with the business
of the Company or a subsidiary, and injurious to the Company's interests.
16
<PAGE>
ARTICLE VII
Payments
Section 7.01. The monthly retirement benefits payable
to a Participant in accordance with Articles IV and V shall commence on the
first day of the month following the Participant's Retirement (provided that for
a Participant whose Retirement is described in paragraph (iv),(v) or (vi) of the
definition of the term "Retirement" in Article I, such benefits shall commence
on the first day of the month following the later of the Participant's
Retirement or his attainment of age 55) and shall be payable on the first day of
each month thereafter during his lifetime. At the prior written request of the
Participant, the Committee may, in its sole discretion, select a different
commencement date or method of payment or both, provided that such commencement
date and method of payment are available under the Retirement Plan, and provided
further that the benefit payments commencing on such date and under such method
are the actuarially equivalent value of the benefits payable on the
Participant's Retirement under a straight life annuity as provided hereinabove.
Notwithstanding any provision of this Plan to the contrary, benefits hereunder
may not be paid in lump sum form except on or after a Change in Control Payment
Date. If the Committee approves a method of payment pursuant to which amounts
may be paid to another person subsequent to the death of the Participant, the
17
<PAGE>
Participant shall designate a beneficiary thereunder pursuant to rules adopted
by the Committee.
Section 7.02.
(a) In the event of the death of a Participant for whom
benefits have commenced under Section 7.01, a monthly benefit equal to 50% of
the benefit payable to such Participant (determined on the basis of a straight
life annuity) shall be paid to such Participant's surviving spouse, if any,
commencing on the first day of the month following the month in which the
Participant died and continuing throughout the spouse's lifetime; provided,
however, that this Section 7.02(a) shall only be applicable to a spouse to whom
the Participant was married at the time of his Retirement.
(b) In the event of the death of a Participant to whom
benefits have not commenced under Section 7.01:
(i) A monthly benefit shall be paid to the spouse, if
any, to whom the Participant was married on the date of his death, calculated as
hereinafter provided. The benefit shall commence on a date determined pursuant
to Section 7.02(b)(ii) and continue throughout the spouse's lifetime.
(ii) The spouse's benefit payable pursuant to Section
7.02(b)(i) shall commence as of the first day of any month following the month
in which the Participant died, as the spouse shall elect, but not later than the
18
<PAGE>
later of (A) the first day of the month in which the Participant would have
attained age 65 but for his death or (B) the first day of the month coincident
with or next following the Participant's death.
(iii) Except as otherwise provided in this Section
7.02(b), the amount of benefit payable under this Section 7.02(b) shall be fifty
percent (50%) of (A) the amount determined under Section 4.01(a) and (b) or
Section 4.02(a) and (b), whichever is appropriate, as if the Participant's
Retirement occurred on the date the spouse elects to have benefits commence
under this Section, determined on the basis of a straight life annuity.
(iv) The amount payable pursuant to this Section
7.02(b) shall be determined without regard to any benefit payable to the
Participant under the Lukens Inc. Supplemental Retirement Plan or the
Supplemental Retirement Plan of General Steel Industries, Inc., or the Lukens
Inc. Supplemental Retirement Plan for Lukens Performance Incentive Plan
Participants, or any plans of the Participant's immediate prior employer and
such other employers' plans as designated by the Committee.
(v) The amount payable pursuant to this Section
7.02(b) shall be determined without regard to the Participant's ineligibility to
receive benefits under this Plan (or the Retirement Plan, if applicable) prior
to age 55 or with fewer than ten years of Continuous Service, if applicable, but
19
<PAGE>
reduced by 4% or a proportionate part thereof for each full or partial year by
which the date benefits commence precedes the date the Participant would have
attained age 55 but for his death, and based only on the Participant's years of
Continuous Service as of the date of his death.
(vi) The amount payable pursuant to this Section
7.02(b) shall be reduced by the amount determined under Section 4.01(c) based on
the Participant's eligibility or ineligibility to receive a Social Security
benefit as of the date of his death.
(vii) In the event that, after benefits commence
under this Section 7.02(b), surviving spouse's benefits payable to the spouse
under the Retirement Plan are reduced by reason of the spouse's eligibility for
Social Security widow's or widower's benefits, benefits under this Section
7.02(b) shall be increased by an amount equal to such reduction for each month
surviving spouse's benefits under the Retirement Plan are so reduced.
20
<PAGE>
ARTICLE VIII
Continuance of Plan
Section 8.01. 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, and such obligations shall be deemed to have been expressly
assumed by any such successor corporation or organization.
Section 8.02.
(a) If there is a Change in Control Payment Date with
respect to a Participant, the benefits described in this Section 8.02(a) shall
become immediately due and payable in a single sum amount. For purposes of this
Section 8.02, present value shall be determined on the basis of the UP 1984
mortality table and an interest assumption of 7% or the PBGC interest rates for
deferred annuities in effect for the month of the distribution, whichever
produces the greater benefit.
(i) With respect to each Participant to whom benefits
under the Plan have not commenced as of the Change in Control Payment Date, the
present value of his Accrued Benefit, determined by assuming that the
Participant is eligible to begin receiving benefits under the Plan as of such
date and that no reduction for early commencement is applicable under Section
21
<PAGE>
5.02, plus, if such Participant is married as of such date, the present value of
the spouse's benefit calculated pursuant to Section 7.02(b) as if the
Participant had died on such date and had attained age 65 as of the date of his
death.
(ii) With respect to each spouse of a Participant who
is deceased as of a Change in Control Payment Date, and who is eligible for
benefits under Section 7.02(a) or (b) but to whom such benefits have not
commenced as of such date, the present value of the benefits payable under
Section 7.02(a) or (b), whichever is applicable, calculated in the case of
benefits under Section 7.02(b) as if the Participant would have attained age 65
on such date.
(iii) With respect to each Participant to whom
benefits under the Plan have commenced as of a Change in Control Payment Date,
the present value of the benefits payable to the Participant, plus, if the
Participant is married as of such date the present value of the spouse's benefit
calculated pursuant to Section 7.02(a) as if the Participant had died on such
date.
(iv) With respect to each spouse to whom benefits
under Section 7.02(a) or (b) have commenced as of a Change in Control Payment
Date, the present value of the benefits payable to such spouse under Section
22
<PAGE>
7.02(a) or (b), whichever is applicable.
(b) As of a Change in Control Payment Date, the
provisions of Article VI shall be of no effect with respect to events that occur
after the Change in Control Payment Date, and shall not cause the forfeiture of
any benefits under the Plan, except with respect to events that occurred prior
to the date of the Change in Control Payment Date.
ARTICLE IX
No Right, Title or Interest
Section 9.01. No Participant shall have any right, title, or
interest whatsoever in or to any investments which the Company may make to aid
it in meeting its obligations hereunder. Nothing contained in the Plan, and no
action taken pursuant to its provisions, shall create or be construed to create
a trust of any kind, or a fiduciary relationship between the Company and the
Participant or any other person. To the extent that any person acquires a right
to receive payments from the Company under this Plan, such right shall be no
greater than the right of an unsecured general creditor of the Company. All
payments to be made hereunder shall be paid in cash from the general funds of
the Company, and no special or separate fund shall be established and no
segregation of assets shall be made, to assure payment of such amounts.
23
<PAGE>
ARTICLE X
General
Section 10.01. This Plan may be amended in whole or in part or
terminated by resolution of the Board, provided that any benefits which have
accrued or which have become payable hereunder shall not be reduced or
terminated by reason of any such amendment to or termination of this Plan. For
purposes of this Section, any Participant at the time of termination or
amendment of this Plan shall be deemed to have accrued a benefit equal to the
benefit calculated under Section 4.01 or 4.02 based upon such Participant's
Compensation and actual number of years of Continuous Service as determined
under this Plan.
Section 10.02. Except as otherwise provided herein, this Plan
shall be administered by the Committee, which shall be deemed to have all powers
necessary to administer the Plan in accordance with its terms and provisions.
All determinations made by the Committee shall be conclusive upon the Company,
each Participant and his beneficiaries. 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. Any claims for a benefit under this
Plan shall be filed with the Committee and resolved in accordance with the
provisions of the Claims Procedure provided in the Retirement Plan, except that
the Committee shall be responsible for handling, reviewing and disposing of any
claim filed under this Plan. The Committee shall have full discretion and
authority to interpret the provisions of this Plan and the eligibility for
benefits under the Plan with respect to any claim for benefits submitted to the
Committee.
24
<PAGE>
Section 10.03. The records of the Company shall be presumed to
be conclusive of the facts concerning the employment or non-employment of a
Participant unless shown beyond a reasonable doubt to be incorrect.
Section 10.04. Neither this Plan nor any action taken
hereunder shall be construed as giving to any employee the right to be retained
in the employ of the Company or as affecting the right of the Company to dismiss
any employee.
Section 10.05. Each Participant shall file with the Committee
such pertinent information concerning himself and any beneficiary designated by
him as the Committee may demand, and no Participant or other person shall have
any rights or be entitled to any benefits under this Plan unless such
information is filed by the Participant with respect to them.
Section 10.06. If the Committee shall find that any person to
whom any payment is payable under this Plan is unable to care for his affairs
because of illness or accident, or is a minor, then any payment due (unless a
prior claim therefor shall have been made by a duly appointed guardian,
committee or other legal representative) may be paid to his spouse, child,
parent, brother or sister, or any other person deemed by the Committee to have
25
<PAGE>
incurred expenses for such person otherwise entitled to payment, in such manner
and proportions as the Committee may determine. Any such payment shall be a
complete discharge of the liabilities of the Company under this Plan.
Section 10.07. The right of any person to the payment of
benefits under the Plan may not be assigned, transferred, pledged or encumbered,
either voluntarily or by operation of law, except as may otherwise be required
by law. If any person shall attempt to, or shall, assign, transfer, pledge or
encumber any amount payable hereunder, or if by reason of his bankruptcy or
other event happening at any time any such payment would be made subject to his
debts or liabilities or would otherwise devolve upon anyone else and not be
enjoyed by him or his beneficiary, the Committee may, in its sole discretion,
terminate his interest in any such payment and direct that the same be held and
applied to or for the benefit of such person, his spouse, children or other
dependents, or any other persons deemed to be the natural objects of his bounty,
or any of them, in such manner as the Committee may deem proper.
Section 10.08. This Plan shall be governed by and construed in
accordance with laws of the Commonwealth of Pennsylvania.
26
<PAGE>
This undersigned hereby certifies that this Plan has been
amended and restated, effective as of December 9, 1997 by the Board of Directors
of Lukens Inc.
LUKENS INC.
------------------------------
Secretary to the Board of
Directors of Lukens Inc.
EXHIBIT 10.11
SEVERANCE AGREEMENT
THIS AGREEMENT dated as of Date, is made by and between Lukens Inc., a
Delaware corporation (the "Company"), and Name and Address. (the "Executive").
WHEREAS the Company considers it essential to the best interests of its
stockholders to foster the continuous employment of key management personnel;
and
WHEREAS the Board of Directors of the Company (the "Board") recognizes
that, as is the case with many publicly held corporations, the possibility of a
Change in Control (as defined in the last Section hereof) exists and that such
possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of management personnel
to the detriment of the Company and its stockholders; and
WHEREAS the Board has determined that appropriate steps should be taken
to reinforce and encourage the continued attention and dedication of members of
the Company's management, including the Executive, to their assigned duties
without distraction in the face of potentially disturbing circumstances arising
from the possibility of a Change in Control;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the Company and the Executive hereby agree as
follows:
1. Defined Terms. The definition of capitalized terms used in this
Agreement is provided in the last Section hereof.
2. Term of Agreement. This Agreement shall commence on the date hereof
and shall continue in effect through December 31, 1994; provided, however, that
commencing on January 1, 1994 and each January 1 thereafter, the term of this
Agreement shall automatically be extended for one additional year unless, not
later than September 30 of the preceding year, the Company or the Executive
shall have given notice not to extend this Agreement or a Change in Control
shall have occurred prior to such January 1; and further provided, however, if a
Change in Control shall have occurred during the term of this Agreement, this
Agreement shall continue in effect for a period of not less than twenty-four
(24) months beyond the month in which such Change in Control occurred.
Notwithstanding the foregoing provisions of this Section, this Agreement shall
terminate upon the Executive's attaining the age of 65 years.
3. Company's Covenants Summarized. In order to induce the Executive to
remain in the employ of the Company and in consideration of the Executive's
covenants set forth in Section 4 hereof, the Company agrees, under the
conditions described herein, to pay the Executive the Severance Payments
described in Section 6.01 hereof and the other payments and benefits described
<PAGE>
herein in the event the Executive's employment with the Company is terminated
following a Change in Control and during the term of this Agreement. Except as
provided in Section 9.01 hereof or Section 6.02 hereof, no amount or benefit
shall be payable under this Agreement unless there shall have been (or, pursuant
to Section 6.01 hereof, there shall be deemed to have been) a termination of the
Executive's employment with the Company following a Change in Control. This
Agreement shall not be construed as creating an ex- press or implied contract of
employment and, except as otherwise agreed in writing between the Executive and
the Company, the Executive shall not have any right to be retained in the employ
of the Company.
4. The Executive's Covenants. The Executive agrees that, subject to the
terms and conditions of this Agreement, in the event of a Potential Change in
Control during the term of this Agreement, the Executive will remain in the
employ of the Company until the earliest of (i) a date which is six (6) months
from the date of such Potential Change in Control, (ii) the date of a Change in
Control, (iii) the date of termination by the Executive of the Executive's
employment for Good Reason (determined by treating the Potential Change in
Control as a Change in Control in applying the definition of Good Reason) or by
reason of death, Disability or retirement, or (iv) the termination by the
Company of the Executive's employment for any reason.
5. Compensation Other Than Severance Payments.
5.01 Following a Change in Control and during the term of this
Agreement, during any period that the Executive fails to perform the Executive's
full-time duties with the Company as a result of incapacity due to physical or
mental illness, the Company shall pay the Executive's full salary to the
Executive at the rate in effect at the commencement of any such period, together
with all compensation and benefits payable to the Executive under the terms of
any compensation or benefit plan, program or arrangement maintained by the
Company during such period, until the Executive's employment is terminated by
the Company for Disability.
5.02 If the Executive's employment shall be terminated for any reason
following a Change in Control and during the term of this Agreement, the Company
shall pay the Executive's full salary to the Executive through the Date of
Termination at the rate in effect at the time the Notice of Termination is
given, together with all compensation and benefits payable to the Executive
through the Date of Termination under the terms of any compensation or benefit
plan, program or arrangement maintained by the Company during such period.
5.03 If the Executive's employment shall be terminated for any reason
following a Change in Control and during the term of this Agreement, the Company
shall pay the Executive's normal post-termination compensation and benefits to
the Executive as such payments become due. Such post-termination compensation
and benefits shall be determined under, and paid in accordance with, the
Company's retirement, insurance and other compensation or benefit plans,
programs and arrangements.
-2-
<PAGE>
6. Severance Payments.
6.01 The Company shall pay the Executive the payments described in this
Section 6.01 (the "Severance Payments") upon the termination of the Executive's
employment following a Change in Control and during the term of this Agreement,
in addition to the payments and benefits described in Section 5 hereof, unless
such termination is (i) by the Company for Cause, (ii) by reason of death or
Disability, or (iii) by the Executive without Good Reason. The Executive's
employment shall be deemed to have been terminated following a Change in Control
by the Company without Cause or by the Executive with Good Reason if the
Executive's employment is terminated prior to a Change in Control without Cause
after consultation with a Person who has entered into an agreement with the
Company the consummation of which will constitute a Change in Control or if the
Executive terminates his employment with Good Reason prior to a Change in
Control (determined by treating a Potential Change in Control as a Change in
Control in applying the definition of Good Reason) if the circumstance or event
that constitutes Good Reason occurs at the direction of such Person.
(A) In lieu of any further salary payments to the Executive
for periods subsequent to the Date of Termination and in lieu of any
severance benefit otherwise payable to the Executive, the Company shall
pay to the Executive a lump sum severance payment, in cash, equal to
three or, if less, the number of years, including fractional portions
thereof, from the Date of Termination until the Executive reaches the
age of 65 years, times the sum of (i) the higher of the Executive's
annual base salary in effect immediately prior to the occurrence of the
event or circumstance upon which the Notice of Termination is based or
such salary in effect immediately prior to the Change in Control, and
(ii) the higher of (x) the average of the highest three awards made to
the Executive pursuant to the Company's 1983 Target Incentive
Compensation Plan or any successor thereto (the "Incentive Compensation
Plan") in respect of each of the five measuring periods completed
immediately prior to the occurrence of the event or circumstance upon
which the Notice of Termination is based or (y) such average in respect
of such periods completed immediately prior to the occurrence of the
Change in Control; provided however, that if fewer than three such
awards have been made to the Executive, the averages described in
subclauses (x) and (y) of this clause (ii) shall be based solely on
awards which were actually made to the Executive and which covered at
least eight months of employment.
(B) Notwithstanding any provision of the Incentive
Compensation Plan, the Company shall pay to the Executive a lump sum
amount, in cash, equal to the sum of (i) any incentive compensation
which has been allocated or awarded to the Executive for a completed
fiscal year or other measuring period preceding the Date of Termination
under the Incentive Compensation Plan but has not yet been paid
(pursuant to Section 5.02 hereof or otherwise), (ii) a pro rata portion
to the Date of Termination of the aggregate value of all contingent
incentive compensation awards to the Executive for all uncompleted
-3-
<PAGE>
periods under the Incentive Compensation Plan calculated as to each
such award by assuming the achievement of the maximum performance level
within the performance range established with respect to such award and
basing such pro-rata portion upon the portion of the award period that
has elapsed as of the Date of Termination, and (iii) any amounts,
including interest thereon to the date of payment at the rate
determined pursuant to the terms of the Incentive Compensation Plan,
with respect to which the Executive has elected, pursuant to the terms
of the Incentive Compensation Plan, to defer payment;
(C) In lieu of Company Shares issuable upon exercise of
outstanding Options (which Options shall be canceled upon the making of
the payment referred to below), the Company shall pay the Executive a
lump sum amount, in cash, equal to the product of ( i) the excess of
(x) in the case of ISOs granted after the date hereof, the closing
price of Company Shares as reported on the New York Stock
Exchange--Composite Tape on or nearest the Date of Termination (or, if
not listed on such exchange, on the nationally recognized exchange or
quotation system on which trading volume in Company Shares is highest),
or in the case of all other Options, the higher of such closing price
or the highest per share price for Company Shares actually paid in
connection with any Change in Control, over (y) the per share exercise
price of each such Option held by the Executive (whether or not then
fully exercisable), and (ii) the number of Company Shares covered by
each such Option;
(D) In addition to the retirement benefits to which the
Executive is entitled under the Pension Plan, the Company shall pay the
Executive a lump sum amount, in cash, equal to the actuarial equivalent
of the excess of (i) the retirement pension (determined as a straight
life annuity commencing at Normal Retirement Age) which the Executive
would have accrued under the terms of the Pension Plan (without regard
to any amendment to the Pension Plan made subsequent to a Change in
Control and on or prior to the Date of Termination, which amendment
adversely affects in any manner the computation of retirement benefits
thereunder), determined as if the Executive were eligible to
participate therein and fully vested thereunder and had accumulated
(after the Date of Termination) thirty-six (36) additional months of
service credit thereunder at the Executive's highest annual rate of
compensation during the twelve (12) months immediately preceding the
Date of Termination (but in no event shall the Executive be deemed to
have accumulated additional months of service credit after the
Executive's attaining Normal Retirement Age), over (ii) the retirement
pension (determined as a straight life annuity commencing at Normal
Retirement Age) which the Executive had then accrued pursuant to the
provisions of the Pension Plan. For purposes of this Section 6.01(D),
"actuarial equivalent" shall be determined using the same assumptions
utilized under the Pension Plan immediately prior to the Date of
Termination.
-4-
<PAGE>
(E) For a thirty-six (36) month period after the Date of
Termination, the Company shall arrange to provide the Executive with
life, disability, accident and health insurance benefits substantially
similar to those which the Executive is receiving immediately prior to
the Notice of Termination (without giving effect to any reduction in
such benefits subsequent to a Change in Control if such reduction
constitutes Good Reason); provided, however, that if the date upon
which the Executive attains Normal Retirement Age occurs during such
period, the Executive shall thereafter receive such life, disability,
accident and health maintenance benefits as would be provided to him as
a retiree. Benefits otherwise receivable by the Executive pursuant to
this Section 6.01(E) shall be reduced to the extent comparable benefits
are actually received by or made available to the Executive without
cost during the thirty-six (36) month period following the Executive's
termination of employment (and any such benefits actually received by
the Executive shall be reported to the Company by the Executive).
6.02 (A) Whether or not the Executive becomes entitled to the
Severance Payments, if any of the Total Payments will be subject to the
Excise Tax, the Company shall pay to the Executive an additional amount
(the "Gross-Up Payment") such that the net amount retained by the
Executive, after deduction of any Excise Tax on the Total Payments and
any federal, state and local income tax and Excise Tax upon the payment
provided for by this Section 6.02, shall be equal to the excess of the
Total Payments over the payment provided for by this Section 6.02.
(B) For purposes of determining whether any of the Total
Payments will be subject to the Excise Tax and the amount of such
Excise Tax, (i) any payments or benefits received or to be received by
the Executive in connection with a Change in Control oz the Executive's
termination of employment (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the Company,
any Person whose actions result in a Change in Control or any Person
affiliated with the Company or such Person (the "Total Payments"))
shall be treated as "parachute payments" (within the meaning of section
280G(b)(2) of the Code) unless, in the opinion of tax counsel selected
by the Company's independent auditors and reasonably acceptable to the
Executive, such payments or benefits (in whole or in part) do not
constitute parachute payments, including by reason of section
280G(b)(4)(A) of the Code, and all "excess parachute payments" (within
the meaning of section 280G(b)(1) of the Code) shall be treated as
subject to the Excise Tax unless, in the opinion of such tax counsel,
such excess parachute payments (in whole or in part) represent
reasonable compensation for services actually rendered (within the
meaning of section 280G(b)(4)(B) of the Code), or are otherwise not
subject to the Excise Tax, and (ii) the value of any noncash benefits
or any deferred payment or benefit shall be determined by the Company's
independent auditors in accordance with the principles of sections
280G(d)(3) and (4) of the Code. For purposes of determining the amount
-5-
<PAGE>
of the Gross-Up Payment, the Executive shall be deemed to pay federal
income taxes at the highest marginal rate of federal income taxation in
the calendar year in which the Gross-Up Payment is to be made and state
and local income taxes at the highest marginal rate of taxation in the
state and locality of the Executive's residence on the Date of
Termination (or such other time as is hereinafter described), net of
the maximum reduction in federal income taxes which could be obtained
from deduction of such state and local taxes.
(C) In the event that the Excise Tax is subsequently
determined to be less than the amount taken into account hereunder at
the time of termination of the Executive's employment (or such other
time as is hereinafter described), the Executive shall repay to the
Company, at the time that the amount of such reduction in Excise Tax is
finally determined, the portion of the Gross-Up Payment attributable to
such reduction (plus that portion of the Gross-Up Payment attributable
to the Excise Tax and federal, state and local income tax imposed on
the Gross-Up Payment being repaid by the Executive to the extent that
such repayment results in a reduction in Excise Tax or a federal, state
or local income tax deduction) plus interest on the amount of such
repayment at the rate provided in section 1274(b)(2)(B) of the Code. In
the event that the Excise Tax is determined to exceed the amount taken
into account hereunder at the time of the termination of the
Executive's employment (or such other time as is hereinafter described)
(including by reason of any payment the existence or amount of which
cannot be determined at the time of the Gross-Up Payment), the Company
shall make an additional Gross-Up Payment in respect of such excess
(plus any interest, penalties or additions payable by the Executive
with respect to such excess) at the time that the amount of such excess
is finally determined. The Executive and the Company shall each
reasonably cooperate with the other in connection with any
administrative or judicial proceedings concerning the existence or
amount of liability for Excise Tax with respect to the Total Payments.
If an Executive who remains in the employ of the Company becomes
entitled to the payment provided for by this paragraph, such payment
shall be made no later than the later of (i) the fifth day following
the date on which the Executive notifies the Company that he is subject
to the Excise Tax and (ii) twenty days prior to the date on which the
Excise Tax is initially due.
6.03 The payments provided for in Section 6.01 hereof (other than
Section 6.01(E)) and in Section 6.02 hereof shall be made not later than the
fifth day following the Date of Termination; provided, however, that, if the
amounts of such payments cannot be finally deter- mined on or before such day,
the Company shall pay to the Executive on such day an estimate, as determined in
good faith by the Company, of the minimum amount of such payments to which the
Executive is clearly entitled and shall pay the remainder of such payments
(together with interest at the rate provided in section 1274(b)(2)(B) of the
Code) as soon as the amount thereof can be determined but in no event later than
the thirtieth (30th) day after the Date of Termination. In the event that the
amount of the estimated payments exceeds the amount subsequently determined to
have been due, such excess shall constitute a loan by the Company to the
Executive, payable on the fifth (5th) business day after demand by the Company
(together with interest at the rate provided in section 1274(b)(2)(B) of the
-6-
<PAGE>
Code). At the time that payments are made under this Section, the Company shall
provide the Executive with a written statement setting forth the manner in which
such payments were calculated and the basis for such calculations including,
without limitation, any opinions or other advice the Company has received from
outside counsel, auditors or consultants (and any such opinions or advice which
are in writing shall be attached to the statement).
6.04 The Company also shall pay to the Executive all legal fees and
expenses incurred in good faith by the Executive as a result of a termination of
the Executive's employment following a Change in Control and during the term of
this Agreement (including all such fees and expenses, if any, incurred in
disputing in good faith any such termination or in seeking in good faith to
obtain or enforce any benefit or right provided by this Agreement or in
connection with any tax audit or proceeding to the extent attributable to the
application of section 4999 of the Code to any payment or benefit provided
hereunder). For purposes of this Section 6.04, an Executive shall be deemed to
have acted in good faith unless an arbitrator finds that the Executive's action
resulting in such legal fees and expenses was frivolous. Such payments shall be
made within five (5) business days after delivery of the Executive's written
requests for payment accompanied with such evidence of fees and expenses
incurred as the Company reasonably may require.
7. Termination Procedures and Compensation During Dispute.
7.01 After a Change in Control and during the term of this Agreement,
any purported termination of the Executive's employment (other than by reason of
death) shall be communicated by written Notice of Termination from one party
hereto to the other party hereto in accordance with Section 10 hereof. For
purposes of this Agreement, a "Notice of Termination" shall mean a notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated. Further, a Notice of Termination for Cause is required
to include a copy of a resolution duly adopted by the affirmative vote of not
less than three-quarters (3/4) of the entire membership of the Board at a
meeting of the Board which was called and held for the purpose of considering
such termination (after reasonable notice to the Executive and an opportunity
for the Executive, together with the Executive's counsel, to be heard before the
Board) finding that, in the good faith opinion of the Board, the Executive
engaged in conduct set forth in clause (i) or (ii) of the definition of Cause
herein, and specifying the particulars thereof in detail.
-7-
<PAGE>
7.02 "Date of Termination," with respect to any purported termination
of the Executive's employment after a Change in Control and during the term of
this Agreement, shall mean (i) if the Executive's employment is terminated for
Disability, thirty (30) days after Notice of Termination is given (provided that
the Executive shall not have returned to the full-time performance of the
Executive's duties during such thirty (30) day period), and (ii) if the
Executive's employment is terminated by for any other reason, the date specified
in the Notice of Termination (which, in the case of a termination by the
Company, shall not be less than thirty (30) days (except in the case of a
termination for Cause) and, in the case of a termination by the Executive, shall
not be less than fifteen (15) days nor more than sixty (60) days from the date
such Notice of Termination is given).
7.03 If within fifteen (15) days after any Notice of Termination is
given or, if later, prior to the Date of Termination (as determined without
regard to this Section 7.03), the party receiving such Notice of Termination
notifies the other party that a dispute exists concerning the termination, the
Date of Termination shall be the date on which the dispute is finally resolved,
either by mutual written agreement of the parties or by a final judgment, order
or decree of a court of competent jurisdiction (which is not appealable or with
respect to which the time for appeal therefrom has expired and no appeal has
been perfected); provided, however, that the Date of Termination shall be
extended by a notice of dispute provided by the Executive only if such notice is
given in good faith and the Executive pursues the resolution of such dispute
with reasonable diligence.
7.04 If a purported termination occurs following a Change in Control
and during the term of this Agreement, and such termination is disputed in
accordance with Section 7.03 hereof, the Company shall continue to pay the
Executive the full compensation in effect when the notice giving rise to the
dispute was given (including, but not limited to, salary) and continue the
Executive as a participant in all compensation, benefit and insurance plans in
which the Executive was participating when the notice giving rise to the dispute
was given until the Date of Termination, determined in accordance with Section
7.03 hereof. Amounts paid under this Section 7.04 are in addition to all other
amounts due under this Agreement (other than those due under Section 5.02
hereof) and shall not be offset against or reduce any other amounts due under
this Agreement.
8. No Mitigation. The Company agrees that, if the Executive's
employment by the Company is terminated during the term of this Agreement, the
Executive is not required to seek other employment; or to attempt in any way to
reduce any amounts payable to the Executive by the Company pursuant to Section 6
or Section 7.04 hereof. Further, the amount of any payment or benefit provided
for in such Section 6 (other than Section 6.01(E)) or such Section 7.04 shall
not be reduced by any compensation earned by the Executive as the result of
employment by another employer, by retirement benefits, by offset against any
amount claimed to be owed by the Executive to the Company, or otherwise.
-8-
<PAGE>
9. Successors; Binding Agreement.
9.01 In addition to any obligations imposed by law upon any successor
to the Company, the Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company to expressly assume
and agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such succession had taken
place. Failure of the Company to obtain such assumption and agreement prior to
the effectiveness of any such succession shall be a breach of this Agreement and
shall entitle the Executive to compensation from the Company in the same amount
and on the same terms as the Executive would be entitled to hereunder if the
Executive were to terminate the Executive's employment for Good Reason after a
Change in Control, except that, for purposes of implementing the foregoing, the
date on which any such succession becomes effective shall be deemed the Date of
Termination.
9.02 This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive shall
die while any amount would still be payable to the Executive hereunder (other
than amounts which, by their terms, terminate upon the death of the Executive)
if the Executive had continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement to
the executors, personal representatives or administrators of the Executive's
estate.
10. Notices. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, addressed to
the respective addresses set forth below, or to such other address as either
party may have furnished to the other in writing in accordance herewith, except
that notice of change of address shall be effective only upon actual receipt:
To the Company:
Lukens Inc.
50 South First Avenue
Coatesville, Pennsylvania 19320
Attention: William D. Sprague
Vice President, General Counsel &
Secretary
-9-
<PAGE>
To the Executive:
Name
Address
11. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and such officer as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Delaware. All references to sections of the Exchange
Act or the Code shall be deemed also to refer to any successor provisions to
such sections. Any payments provided for hereunder shall be paid net of any
applicable withholding required under federal, state or local law and any
additional withholding to which the Executive has agreed. The obligations of the
Company and the Executive under Sections 6 and 7 shall survive the expiration of
the term of this Agreement.
12. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
13. Counterparts; Coordination with Employment Agreement
13.01 This Agreement may be executed in several counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
13.02 The terms of this Agreement shall be coordinated with and applied
in conjunction with the terms of the Executive's employment agreement, if any,
with the Company. In general, it is the intent of the parties that, subsequent
to a Change in Control and during the term of this Agreement, the provisions of
this Agreement shall supersede and substitute for those provisions of the
employment agreement relating to the Executive's entitlement to benefits in
connection with any termination of the Executive's employment, but, shall not
supersede for any period the provisions of such employment agreement pertaining
to the terms of the Executive's employment. Except for circumstances relating to
a termination of employment following a Change in Control during the term of
this Agreement, as provided for herein, all terms and conditions of the
Executive's employment with the Company shall be governed by the terms of the
Executive's employment agreement (including but not limited to any such term
-10-
<PAGE>
granting additional years of service to the Executive for purposes of any of the
Company's employee benefit plans).
14. Settlement of Disputes: Arbitration. All claims by the Executive
for benefits under this Agreement shall be directed to and determined by the
Board and shall be in writing. Any denial by the Board of a claim for benefits
under this Agreement shall be delivered to the Executive in writing and shall
set forth the specific reasons for the denial and the specific provisions of
this Agreement relied upon. The Board shall afford a reasonable opportunity to
the Executive for a review of the decision denying a claim and shall further
allow the Executive to appeal to the Board a decision of the Board within sixty
(60) days after notification by the Board that the Executive's claim has been
denied. Any further dispute or controversy arising under or in connection with
this Agreement shall be settled exclusively by arbitration in Philadelphia,
Pennsylvania, in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award in
any court having Jurisdiction; provided, however, that the Executive shall be
entitled to seek specific performance of the Executive's right to be paid until
the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
15. Definitions. For purposes of this Agreement, the following terms
shall have the meanings indicated below:
(A) "Base Amount" shall have the meaning defined in section
280G(b)(3) of the Code.
(B) "Beneficial Owner" shall have the meaning set, forth in
Rule 13d-3 under the Exchange Act.
(C) "Board" shall mean the Board of Directors of the Company.
(D) "Cause" for termination by the Company of the Executive's
employment, after any Change in Control, shall mean (i) the willful and
continued failure by the Executive to substantially perform the Executive's
duties with the Company (other than any such failure resulting from the
Executive's incapacity due to physical or mental illness or any such actual or
anticipated failure after the issuance of a Notice of Termination for Good
Reason by the Executive pursuant to Section 7.01 hereof) after a written demand
for substantial performance is delivered to the Executive by the Board, which
demand specifically identifies the manner in which the Board believes that the
Executive has not substantially performed the Executive's duties, or (ii) the
willful engaging by the Executive in conduct which is demonstrably and
materially injurious to the Company or its subsidiaries, monetarily or
otherwise. For purposes of clauses (i) and (ii) of this definition, no act, or
failure to act, on the Executive's part shall be deemed "willful" unless done,
-11-
<PAGE>
or omitted to be done, by the Executive not in good faith and without reasonable
belief that the Executive's act, or failure to act, was in the best interest of
the Company.
(E) A "Change in Control" shall be deemed to have occurred if
the events set forth in any one of the following paragraphs shall have occurred:
(I) any Person is or becomes the Beneficial
Owner, directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the
Company's then outstanding securities (unless the event
causing the 20% threshold to be crossed is an acquisition of
securities directly from the Company or its affiliates); or
(II) during any period of two consecutive
years (not including any period prior to the execution of this
Agreement), individuals who at the beginning of such period
constitute the Board and any new director (other than a
director designated by a Person who has entered into an
agreement with the Company to effect a transaction described
in clause (I), (III) or (IV) of this paragraph) whose election
by the Board or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds
(2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or
nomination for election was previously so approved cease for
any reason to constitute a majority thereof; or
(III) the stockholders of the Company
approve a merger or consolidation of the Company with any
other corporation, other than (i) a merger or consolidation
which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into
voting securities of the surviving entity), in combination
with the ownership of any trustee or other fiduciary holding
securities under an employee benefit plan of the Company, at
least 80% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or (ii) a
merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in
which no Person acquires more than 50% of the combined voting
power of the Company's then outstanding securities; or
(IV) the stockholders of the Company approve
a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of all or
substantially all the Company's assets; or
Notwithstanding the foregoing, a Change in Control shall not include
any event, circumstance or transaction occurring during the six-month period
-12-
<PAGE>
following a Potential Change in Control which potential Change in Control
results from the action of any entity or group which includes the Executive (a
"Management Group"); provided, however, that such action shall not be taken into
account for this purpose if it occurs within a six-month period following a
Potential Change in Control resulting from the action of any Person which is not
a member of the Management Group.
(F) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time. References to specific sections of the Code shall
include any successors thereto.
(G) "Company" shall mean Lukens Inc., a Delaware corporation,
and any successor to its business or assets which assumes and agrees to perform
this Agreement by operation of law, or otherwise (except in determining, under
Section 15(E) hereof, whether or not any Change in Control of the Company has
occurred in connection with such succession).
(H) "Company Shares" shall mean shares of common stock of the
Company or any equity securities into which such shares have been converted.
(I) "Date of Termination" shall have the meaning stated in
Section 7.02 hereof.
(J) "Disability" shall be deemed the reason for the
termination by the Company of the Executive's employment if, as a result of the
Executive's incapacity due to physical or mental illness, the Executive shall
have been absent from the full-time performance of the Executive's duties with
the Company for a period of six (6) consecutive months, the Company shall have
given the Executive a Notice of Termination for Disability and, within thirty
(30) days after such Notice of Termination is given, the Executive shall not
have returned to the full-time performance of the Executive's duties.
(K) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended from time to time.
(L) "Excise Tax" shall mean any excise tax imposed under
section 4999 of the Code.
(M) "Executive" shall mean the individual named in the first
paragraph of this Agreement.
(N) "Good Reason" for termination by the Executive of the
Executive's employment shall mean the occurrence (without the Executive's
express written consent) of any one of the following acts by the Company, or
failures by the Company to act, unless, in the case of any act or failure to act
described in paragraph (1), (V), (VI) or (VII) hereof, such act or failure to
act is corrected prior to the Date of Termination specified in the Notice of
Termination given in respect thereof:
-13-
<PAGE>
(I) the assignment by the Company to the Executive of
any duties inconsistent with the Executive's status as an executive of
the Company or a substantial adverse alteration in the nature or status
of the Executive's responsibilities from those in effect immediately
prior to the Change in Control;
(II) a reduction by the Company in the Executive's
annual base salary as in effect on the date hereof or as the same may
be increased from time to time except for across- the-board salary
reductions similarly affecting all executives of the Company and all
executives of any Person in control of the Company;
(III) the relocation by the Company of its principal
executive offices to a location more than 30 miles from the location of
such office immediately prior to the Change in Control or the Company's
requiring the Executive to be based anywhere other than the Company's
principal executive offices except for required travel on the Company's
business to an extent substantially consistent with the Executive's
present business travel obligations;
(IV) the failure by the Company to pay to the
Executive any portion of the Executive's current compensation except
pursuant to an across-the-board compensation deferral similarly
affecting all executives of the Company and all executives of any
Person in control of the Company, or to pay to the Executive any
portion of an installment of deferred compensation under any deferred
compensation program of the Company, within seven (7) days of the date
such compensation is due;
(V) the failure by the Company to continue in effect
any compensation plan in which the Executive participates immediately
prior to the Change in Control which is material to the Executive's
total compensation, including but not limited to the Company's 1983
Target Incentive Plan, 1985 Stock Option and Appreciation Plan and any
similar or substitute plans adopted prior to the Change in Control,
unless an equitable arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to such plan, or the
failure by the Company to continue the Executive's participation
therein (or in such substitute or alternative plan) on a basis not
materially less favorable, both in terms of the amount of benefits
provided and the level of the Executive's participation relative to
other participants, as existed at the time of the Change in Control;
(VI) the failure by the Company to continue to
provide the Executive with benefits substantially similar to those
-14-
<PAGE>
enjoyed by the Executive under any of the Company's pension, life
insurance, medical, health and accident, or disability plans in which
the Executive was participating at the time of the Change in Control,
the taking of any action by the Company which would directly or
indirectly materially reduce any of such benefits or deprive the
Executive of any material fringe benefit enjoyed by the Executive at
the time of the Change in Control, or the failure by the Company to
provide the Executive with the number of paid vacation days to which
the Executive is entitled on the basis of years of service with the
Company in accordance with the Company's normal vacation policy in
effect at the time of the Change in Control; or
(VII) any purported termination by the Company of the
Executive's employment which is not effected pursuant to a Notice of
Termination satisfying the requirements of Section 7.01; for purposes
of this Agreement, no such purported termination shall be effective.
The Executive's right to terminate the Executive's employment for Good
Reason shall not be affected by the Executive's incapacity due to physical or
mental illness. The Executive's continued employment shall not constitute
consent to, or a waiver of rights with respect to, any act or failure to act
constituting Good Reason hereunder.
(0) "Gross-Up Payment" shall have the meaning given in Section
6.02 hereof.
(P) "Incentive Compensation Plan" shall have the meaning given
in Section 6.01(A) hereof.
(Q) "ISOs" shall mean options qualifying as incentive stock
options under section 422A of the Code.
(R) "Normal Retirement Age" shall mean the earliest age at
which the Executive may retire and become entitled to an unreduced pension under
the Pension Plan.
(S) "Notice of Termination" shall have the meaning stated in
Section 7.01 hereof.
(T) "Options" shall mean options for Company Shares granted to
the Executive under the Company's 1985 Stock Option and Appreciation Plan or any
similar plan in effect subsequent hereto, whether or not vested on the Date of
Termination, other than ISOs granted on or before the date of this Agreement and
ISOs which have not become exercisable on the Date of Termination.
(U) "Pension Plan" shall mean the Company's Supplemental
Retirement Plan for Target Incentive Plan Participants or its Supplemental
Retirement Plan for Designated Executives, as the case may be, or any plans
successor thereto.
-15-
<PAGE>
(V) "Person" shall have the meaning given in Section 3(a)(9)
of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof;
provided, however, that a Person shall not include (i) the Company or any of its
subsidiaries, (ii) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any of its subsidiaries, (iii) an
underwriter temporarily holding securities pursuant to an offering of such
securities, or (iv) a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company.
(W) "Potential Change in Control" shall be deemed to have
occurred if the events set forth in any one of the following paragraphs shall
have occurred:
(I) the Company enters into an agreement, the
consummation of which would result in the occurrence of a Change in
Control;
(II) the Company or any Person publicly announces an
intention to take or to consider taking actions which, if consummated,
would constitute a Change in Control;
(III) any Person who both (x) is on the date hereof
or subsequently becomes the Beneficial Owner, directly or indirectly,
of securities of the Company representing at least 10% or more of the
combined voting power of the Company's then outstanding securities and
(y) increases his or her beneficial ownership of such securities by 5%
or more over the percentage so owned by such Person on the date hereof;
or
(IV) the Board adopts a resolution to the effect
that, for purposes of this Agreement, a Potential Change in Control has
occurred.
(X) "Severance Payments" shall mean those payments described
in Section 6.01 hereof.
(Y) "Total Payments" shall mean those payments described in
Section 6.02 hereof.
-16-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed, as of
the date first above written, on behalf of the Company by its duly authorized
officer and by the Executive.
ATTEST: COMPANY
By:
__________________________ By:____________________________
Secretary Chairman & CEO
EXECUTIVE
____________________________
Name
-17-
EXHIBIT 11
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Net earnings (loss) applicable to common stock
Net earnings (loss) $ (4,620) (28,411) 34,014
ESOP dividend requirements
Preferred stock dividends declared (2,266) (2,338) (2,406)
Tax benefit on dividends - unallocated shares 251 344 444
-------- -------- --------
Net earnings (loss) applicable to common stock $ (6,635) (30,405) 32,052
-------- -------- --------
Weighted average number of common shares outstanding 14,806 14,784 14,696
Basic Earnings (Loss) per Common Share $ (0.45) (2.06) 2.18
======== ======== ========
Net earnings (loss) applicable to common stock
Net earnings (loss) $ -- -- 34,014
Incremental cash contribution to the ESOP assuming conversion of
preferred stock to common -- -- (902)
Tax benefit on the incremental cash contribution -- -- 316
-------- -------- --------
Net earnings (loss) applicable to common stock $ -- -- 33,428
-------- -------- --------
Weighted average number of common shares outstanding
Weighted average number of common shares outstanding -- -- 14,696
Common stock equivalents -- -- 129
Assumed conversion of Series B ESOP preferred stock -- -- 1,509
-------- -------- --------
Weighted average number of common shares and equivalents outstanding -- -- 16,334
-------- -------- --------
Diluted Earnings (Loss) per Common Share $ (0.45)** (2.06)** 2.05
======== ======== ========
</TABLE>
* Not applicable because it would result in an antidilutive calculation.
** Fully diluted calculation is not presented because it is antidilutive.
EXHIBIT 21
LUKENS INC.
SUBSIDIARIES
December 27, 1997
Lukens Inc. has 14 direct or indirect wholly-owned subsidiaries:
State or Other
Jurisdiction of
Incorporation
Brandywine Valley Railroad Company Delaware
Encoat-North Arlington, Inc. Delaware
Energy Coatings Company Delaware
LI Acquisition Corporation Delaware
LI Service Company Pennsylvania
Lukens Development Corporation Delaware
Lukens Foreign Sales Corporation Barbados
Lukens Management Corporation Pennsylvania
Lukens Steel Company Pennsylvania
Pennock Corp. Delaware
Sponsor's Plan Asset Management, Inc. Delaware
Washington Specialty Metals Corporation Illinois
Washington Specialty Metals Inc. Canada
Washington Steel Corporationa Delaware
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM LUKENS INC.
FINANCIAL STATEMENTS FOR THE FIFTY-TWO WEEKS ENDED DECEMBER 27, 1997, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-START> DEC-29-1996
<PERIOD-END> DEC-27-1997
<CASH> 6,629
<SECURITIES> 0
<RECEIVABLES> 124,742
<ALLOWANCES> 6,716
<INVENTORY> 145,587
<CURRENT-ASSETS> 285,699
<PP&E> 960,823
<DEPRECIATION> 463,264
<TOTAL-ASSETS> 877,430
<CURRENT-LIABILITIES> 171,191
<BONDS> 244,671
<COMMON> 158
0
28,218
<OTHER-SE> 213,374
<TOTAL-LIABILITY-AND-EQUITY> 877,430
<SALES> 994,380
<TOTAL-REVENUES> 994,380
<CGS> 925,984
<TOTAL-COSTS> 925,984
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 5,130
<INTEREST-EXPENSE> 19,073
<INCOME-PRETAX> (5,669)
<INCOME-TAX> (1,049)
<INCOME-CONTINUING> (4,620)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,620)
<EPS-PRIMARY> (0.45)
<EPS-DILUTED> (0.45)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
RESTATED FINANCIAL DATA SCHEDULE - SFAS NO 128 THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION EXTRACTED FROM LUKENS INC. FINANCIAL STATEMENTS FOR THE
THIRTY-NINE WEEKS ENDED SEPTEMBER 27, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-START> DEC-29-1996
<PERIOD-END> SEP-27-1997
<CASH> 4,549
<SECURITIES> 0
<RECEIVABLES> 130,196
<ALLOWANCES> 7,622
<INVENTORY> 163,153
<CURRENT-ASSETS> 305,487
<PP&E> 965,507
<DEPRECIATION> 455,562
<TOTAL-ASSETS> 904,092
<CURRENT-LIABILITIES> 174,008
<BONDS> 272,050
<COMMON> 158
16,064
0
<OTHER-SE> 227,910
<TOTAL-LIABILITY-AND-EQUITY> 904,092
<SALES> 749,736
<TOTAL-REVENUES> 749,736
<CGS> 697,673
<TOTAL-COSTS> 697,673
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,260
<INTEREST-EXPENSE> 14,464
<INCOME-PRETAX> (23)
<INCOME-TAX> 641
<INCOME-CONTINUING> (664)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (664)
<EPS-PRIMARY> (0.15)
<EPS-DILUTED> (0.15)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
RESTATED FINANCIAL DATA SCHEDULE - SFAS NO. 128 THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION EXTRACTED FROM LUKENS INC. FINANCIAL STATEMENTS FOR THE
TWENTY-SIX WEEKS ENDED JUNE 28, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-START> DEC-29-1996
<PERIOD-END> JUN-28-1997
<CASH> 5,389
<SECURITIES> 0
<RECEIVABLES> 134,640
<ALLOWANCES> 7,542
<INVENTORY> 166,000
<CURRENT-ASSETS> 313,716
<PP&E> 959,930
<DEPRECIATION> 443,200
<TOTAL-ASSETS> 920,629
<CURRENT-LIABILITIES> 190,111
<BONDS> 265,435
<COMMON> 158
15,082
0
<OTHER-SE> 235,575
<TOTAL-LIABILITY-AND-EQUITY> 920,629
<SALES> 506,365
<TOTAL-REVENUES> 506,365
<CGS> 472,090
<TOTAL-COSTS> 472,090
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,140
<INTEREST-EXPENSE> 9,532
<INCOME-PRETAX> (669)
<INCOME-TAX> 128
<INCOME-CONTINUING> (797)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (797)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
RESTATED FINANCIAL DATA SCHEDULE - SFAS NO 128 THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION EXTRACTED FROM LUKENS INC. FINANCIAL STATEMENTS FOR THE
THIRTEEN WEEKS ENDED MARCH 29, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-START> DEC-29-1996
<PERIOD-END> MAR-29-1997
<CASH> 9,080
<SECURITIES> 0
<RECEIVABLES> 124,275
<ALLOWANCES> 7,681
<INVENTORY> 158,750
<CURRENT-ASSETS> 298,144
<PP&E> 956,316
<DEPRECIATION> 431,024
<TOTAL-ASSETS> 915,153
<CURRENT-LIABILITIES> 188,477
<BONDS> 257,184
<COMMON> 158
14,191
0
<OTHER-SE> 238,374
<TOTAL-LIABILITY-AND-EQUITY> 915,153
<SALES> 248,118
<TOTAL-REVENUES> 248,118
<CGS> 233,837
<TOTAL-COSTS> 233,837
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,637
<INTEREST-EXPENSE> 4,729
<INCOME-PRETAX> (2,834)
<INCOME-TAX> (856)
<INCOME-CONTINUING> (1,978)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,978)
<EPS-PRIMARY> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
RESTATED FINANCIAL DATA SCHEDULE - SFAS NO 128 THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION EXTRACTED FROM LUKENS INC. FINANCIAL STATEMENTS FOR THE
FIFTY-TWO WEEKS ENDED DECEMBER 28, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> DEC-28-1996
<CASH> 10,282
<SECURITIES> 0
<RECEIVABLES> 100,106
<ALLOWANCES> 7,750
<INVENTORY> 148,925
<CURRENT-ASSETS> 266,656
<PP&E> 953,753
<DEPRECIATION> 420,427
<TOTAL-ASSETS> 888,751
<CURRENT-LIABILITIES> 167,498
<BONDS> 248,695
<COMMON> 158
13,427
0
<OTHER-SE> 244,484
<TOTAL-LIABILITY-AND-EQUITY> 888,751
<SALES> 970,320
<TOTAL-REVENUES> 970,320
<CGS> 915,113
<TOTAL-COSTS> 915,113
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 11,348
<INTEREST-EXPENSE> 16,735
<INCOME-PRETAX> (42,788)
<INCOME-TAX> (14,377)
<INCOME-CONTINUING> (28,411)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (28,411)
<EPS-PRIMARY> (2.06)
<EPS-DILUTED> (2.06)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
RESTATED FINANCIAL DATA SCHEDULE - SFAS NO 128 THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION EXTRACTED FROM LUKENS INC. FINANCIAL STATEMENTS FOR THE
THIRTY-NINE WEEKS ENDED SEPTEMBER 28, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> SEP-28-1996
<CASH> 7,087
<SECURITIES> 0
<RECEIVABLES> 121,622
<ALLOWANCES> 7,666
<INVENTORY> 149,061
<CURRENT-ASSETS> 282,132
<PP&E> 954,549
<DEPRECIATION> 414,257
<TOTAL-ASSETS> 934,591
<CURRENT-LIABILITIES> 174,140
<BONDS> 260,495
<COMMON> 158
0
29,107
<OTHER-SE> 242,909
<TOTAL-LIABILITY-AND-EQUITY> 934,951
<SALES> 754,548
<TOTAL-REVENUES> 754,548
<CGS> 711,999
<TOTAL-COSTS> 711,999
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 5,329
<INTEREST-EXPENSE> 12,030
<INCOME-PRETAX> (21,218)
<INCOME-TAX> (7,023)
<INCOME-CONTINUING> (14,195)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,195)
<EPS-PRIMARY> (1.06)
<EPS-DILUTED> (1.06)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
RESTATED FINANCIAL DATA SCHEDULE - SFAS NO 128 THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION EXTRACTED FROM LUKENS INC.FINANCIAL STATEMENTS FOR THE
TWENTY-SIX WEEKS ENDED JUNE 29, 1996, AND ISQUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> JUN-29-1996
<CASH> 6,780
<SECURITIES> 0
<RECEIVABLES> 130,966
<ALLOWANCES> 7,618
<INVENTORY> 173,787
<CURRENT-ASSETS> 314,295
<PP&E> 945,876
<DEPRECIATION> 402,314
<TOTAL-ASSETS> 968,558
<CURRENT-LIABILITIES> 191,243
<BONDS> 265,952
0
29,432
<COMMON> 158
<OTHER-SE> 254,163
<TOTAL-LIABILITY-AND-EQUITY> 968,558
<SALES> 520,127
<TOTAL-REVENUES> 520,127
<CGS> 488,807
<TOTAL-COSTS> 488,807
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,293
<INTEREST-EXPENSE> 7,895
<INCOME-PRETAX> (15,223)
<INCOME-TAX> (5,115)
<INCOME-CONTINUING> (10,108)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,108)
<EPS-PRIMARY> (0.75)
<EPS-DILUTED> (0.75)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
RESTATED FINANCIAL DATA SCHEDULE - SFAS NO 128 THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION EXTRACTED FROM LUKENS INC. FINANCIAL STATEMENTS FOR THE
THIRTEEN WEEKS ENDED MARCH 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> MAR-30-1996
<CASH> 10,424
<SECURITIES> 0
<RECEIVABLES> 135,381
<ALLOWANCES> 6,990
<INVENTORY> 180,915
<CURRENT-ASSETS> 329,201
<PP&E> 928,437
<DEPRECIATION> 390,244
<TOTAL-ASSETS> 969,369
<CURRENT-LIABILITIES> 185,471
<BONDS> 268,183
0
29,607
<COMMON> 158
<OTHER-SE> 262,644
<TOTAL-LIABILITY-AND-EQUITY> 969,369
<SALES> 264,172
<TOTAL-REVENUES> 264,172
<CGS> 252,464
<TOTAL-COSTS> 252,464
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,666
<INTEREST-EXPENSE> 3,850
<INCOME-PRETAX> (6,966)
<INCOME-TAX> (2,591)
<INCOME-CONTINUING> (4,375)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,375)
<EPS-PRIMARY> (.33)
<EPS-DILUTED> (.33)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
RESTATED FINANCIAL DATA SCHEDULE - SFAS NO 128 This schedule contains summary
financial information extracted from Lukens Inc. Financial Statements for the
fifty-two weeks ended December 30, 1995, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-30-1995
<CASH> 11,056
<SECURITIES> 0
<RECEIVABLES> 137,233
<ALLOWANCES> 6,632
<INVENTORY> 163,125
<CURRENT-ASSETS> 314,891
<PP&E> 908,379
<DEPRECIATION> 378,947
<TOTAL-ASSETS> 919,663
<CURRENT-LIABILITIES> 208,670
<BONDS> 217,339
<COMMON> 158
0
29,665
<OTHER-SE> 268,896
<TOTAL-LIABILITY-AND-EQUITY> 919,663
<SALES> 1,049,158
<TOTAL-REVENUES> 1,049,158
<CGS> 922,667
<TOTAL-COSTS> 922,667
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 10,044
<INTEREST-EXPENSE> 13,471
<INCOME-PRETAX> 54,509
<INCOME-TAX> 20,495
<INCOME-CONTINUING> 34,014
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,014
<EPS-PRIMARY> 2.18
<EPS-DILUTED> 2.05
</TABLE>
