<PAGE>
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1997
COMMISSION FILE NUMBER: 1-12881
LONE STAR TECHNOLOGIES, INC.
(A DELAWARE CORPORATION)
5501 LBJ FREEWAY, SUITE 1200
DALLAS, TEXAS 75240
972/386-3981
I.R.S. EMPLOYER IDENTIFICATION NUMBER: 75-2085454
Indicate by a 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, and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/. No .
---- ----
As of July 10, 1997, the number of shares of Common Stock outstanding at
$1.00 par value was 20,706,695.
- -------------------------------------------------------------------------------
<PAGE>
LONE STAR TECHNOLOGIES, INC.
INDEX
PART I - FINANCIAL INFORMATION
Page
----
Item 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Statements of Earnings. . . . . . . . . . . 3
Consolidated Balance Sheets. . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows. . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . 6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS . . . . . . . . . . . 7
Results of Operations. . . . . . . . . . . . . . . . . . 7
Financial Condition and Liquidity. . . . . . . . . . . . 8
PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. . . 9
Item 5. OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . 9
Item 6. REPORTS ON FORM 8-K. . . . . . . . . . . . . . . . . . . 9
In the opinion of management, the unaudited consolidated financial statements
include all adjustments (consisting of only normal, recurring adjustments)
necessary to present fairly the financial position as of June 30, 1997 and the
cash flows and the results of operations for the three months and six months
ended June 30, 1997 and 1996. Unaudited financial statements are prepared on a
basis substantially consistent with those audited for the year ended
December 31, 1996. The results of operations for the interim periods presented
may not be indicative of total results for the full year. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to the rules and regulations promulgated by the Securities and
Exchange Commission. However, management believes that the disclosures
contained herein are adequate to make the information presented not misleading.
Certain reclassifications of prior period amounts have been made to conform with
the current period. The unaudited financial statements should be read in
conjunction with the audited financial statements and accompanying notes in Lone
Star Technologies, Inc.'s Annual Report on Form 10-K for the year ended December
31, 1996.
2
<PAGE>
LONE STAR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED; IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
FOR THE QUARTER ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
---------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues $ 172.3 $ 141.9 $ 331.5 $ 254.4
Cost of goods sold (156.0) (128.7) (300.9) (233.9)
---------------------------------------------------
Gross earnings 16.3 13.2 30.6 20.5
Selling, general and administrative expenses (4.6) (4.2) (9.6) (7.7)
---------------------------------------------------
Operating earnings 11.7 9.0 21.0 12.8
Interest income 0.8 1.1 1.6 2.2
Interest expense (2.2) (1.6) (4.3) (3.4)
Minority interest in Steel - (1.2) - (1.6)
Other income (loss) 0.3 (0.2) 0.3 (0.3)
---------------------------------------------------
Earnings from continuing operations before
income tax 10.6 7.1 18.6 9.7
Income tax (0.3) - (0.5) -
---------------------------------------------------
NET EARNINGS $ 10.3 $ 7.1 $ 18.1 $ 9.7
---------------------------------------------------
---------------------------------------------------
Per common share:
NET EARNINGS AVAILABLE TO COMMON SHAREHOLDERS $ 0.48 $ 0.34 $ 0.85 $ 0.47
---------------------------------------------------
---------------------------------------------------
</TABLE>
See accompanying notes. 3
<PAGE>
LONE STAR TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED; IN MILLIONS)
JUNE 30, DECEMBER 31,
1997 1996
-------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 9.2 $ 27.3
Short-term investments 7.0 20.1
Accounts receivable, net 87.6 80.0
Current inventories, net 84.7 76.4
Other current assets 6.8 2.8
-------------------------
TOTAL CURRENT ASSETS 195.3 206.6
Marketable securities 16.8 19.8
Property, plant and equipment, net 144.2 139.9
Other noncurrent assets 35.7 29.7
-------------------------
TOTAL ASSETS $ 392.0 $ 396.0
-------------------------
-------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Accounts payable $ 42.1 $ 44.8
Accrued liabilities 27.4 29.6
Current portion of long-term debt - 0.3
-------------------------
TOTAL CURRENT LIABILITIES 69.5 74.7
Long-term debt 90.4 87.8
Other noncurrent liabilities 85.5 87.6
Minority interest in Steel - 17.1
-------------------------
TOTAL LIABILITIES 245.4 267.2
-------------------------
TOTAL SHAREHOLDERS' EQUITY 146.6 128.8
-------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 392.0 $ 396.0
-------------------------
-------------------------
See accompanying notes. 4
<PAGE>
LONE STAR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED; IN MILLIONS)
<TABLE>
FOR THE QUARTER ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
-------------------------------------------------
<S> <C> <C> <C> <C>
BEGINNING CASH AND CASH EQUIVALENTS $ 2.0 $ 33.5 $ 27.3 $ 40.0
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings 10.3 7.1 18.1 9.7
Minority interest in Steel - 1.2 - 1.6
Depreciation and amortization 3.2 2.9 6.4 5.8
Accounts receivable, net (6.5) (12.4) (7.6) (11.7)
Current inventories 17.3 2.8 (8.3) 7.7
Accounts payable and accrued liabilities (14.6) 13.9 (4.9) 14.9
Other assets and liabilities (4.4) (1.3) (5.4) (2.3)
-------------------------------------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 5.3 14.2 (1.7) 25.7
-------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (7.6) (4.8) (10.7) (9.5)
Short-term investments 9.7 (16.5) 13.1 (15.9)
Marketable securities 3.0 (16.8) 3.0 (16.8)
Other - 0.9 - 0.9
-------------------------------------------------
NET CASH PROVIDED (USED) BY OTHER INVESTING ACTIVITIES 5.1 (37.2) 5.4 (41.3)
-------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in borrowings under revolving credit
agreement (3.7) (0.4) 2.6 (15.4)
Issuance of common stock 0.5 0.3 0.9 0.4
Installment note repayment - (0.3) (0.3) (0.6)
Acquisition of minority interest - - (25.0) -
Minority interest contributions for preferred stock
in Steel - - - 1.3
-------------------------------------------------
NET CASH USED BY FINANCING ACTIVITIES (3.2) (0.4) (21.8) (14.3)
-------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 7.2 (23.4) (18.1) (29.9)
-------------------------------------------------
ENDING CASH AND CASH EQUIVALENTS $ 9.2 $ 10.1 $ 9.2 $ 10.1
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes. 5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - LONE STAR STEEL ("STEEL") REVOLVING CREDIT AGREEMENT
Steel, a subsidiary of Lone Star Technologies, Inc. (LST), has a revolving
credit agreement under which it can borrow the lesser of $75.0 million or an
amount based upon eligible accounts receivable and inventories, reduced by
outstanding letters of credit. At June 30, 1997, borrowings totaled $40.4
million on an available borrowing base of $74.6 million. The interest rate on
borrowings was prime plus .25 percent which, at quarter end, was 8.75 percent.
Steel also pays a fee of 0.5 percent on the unused portion of the credit
facility. The agreement, which extends to March 1999, contains various
restrictive covenants including requirements to maintain minimum net worth
levels and meet other financial ratios.
NOTE 2 - EARNINGS PER SHARE
The computation of primary earnings per share is based on the weighted
average number of shares of common stock and common stock equivalents. The
numbers of shares used in the share calculations for the three months ended
June 30, 1997 and 1996, respectively, were 21.2 million and 20.8 million, and
the six months ended June 30, 1997 and 1996, were 21.2 million and 20.8
million, respectively. The effect of potentially dilutive shares on fully
diluted earnings per share was either antidilutive or not significant for
both periods.
LST will adopt SFAS No. 128 "Earnings per Share," effective December 15, 1997.
SFAS No. 128 requires the calculation of basic and diluted earnings per share.
Basic earnings per share is computed by dividing net income by the weighted
average number of shares of common stock outstanding during the period. Diluted
earnings per share is computed by dividing net income by the weighted average
number of shares of common stock and common stock equivalents. As required, LST
will restate the reported earnings per share. Basic earnings per share for the
three months ended June 30, 1997 and 1996, respectively, would have been $.50
and $.35, and the six months ended June 30, 1997 and 1996, respectively, would
have been $.87 and $.48. Diluted earnings per share for the three months ended
June 30, 1997 and 1996, respectively, would have been $.48 and $.34, and the six
months ended June 30, 1997 and 1996, respectively, would have been $.85 and
$.47.
NOTE 3 - INVENTORIES
At June 30, 1997, inventories totaled $132.0 million before LIFO reserves and
were composed of finished goods, $22.8 million; work in process, $74.9 million;
and raw materials and supplies, $34.3 million. Net of LIFO reserves of $37.6
million, inventories were $94.4 million, of which $9.7 million (consisting of
supplies and spare parts) were classified as noncurrent assets.
NOTE 4 - CASH, INVESTMENTS, AND MARKETABLE SECURITIES
LST's cash equivalents include U. S. government and related agencies
obligations. Short-term investments consist of U. S. government and related
agencies obligations with maturities at purchase greater than three months and
up to one year. Marketable securities consist of U. S. government and related
agencies obligations with maturities greater than one year and up to two years.
LST's total cash equivalents, short-term investments and marketable securities,
the weighted average maturity of which is less than one year, are classified as
held-to-maturity because LST has the intent and ability to hold them to
maturity.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Steel's operations are subject to numerous environmental laws. The three major
areas of regulation are air quality, water quality, and solid and hazardous
waste management. The primary governmental oversight agencies include the Texas
Natural Resource Conservation Commission and the Environmental Protection
Agency. Steel has agreements with these agencies to conduct numerous
environmental studies and to develop plans to ensure continuous compliance with
applicable laws and regulations. Steel is engaged in various ongoing
environmental studies, monitoring programs, and capital projects. Steel
believes that its environmental expenditures will continue to fall within its
contemplated operating and capital plans.
NOTE 6 - INCOME TAXES
LST has federal tax net operating loss carryforwards of approximately $246.0
million at December 31, 1996, a portion
6
<PAGE>
of which may be related to American Federal Bank, a previous subsidiary of
LST, and subject to an agreement with the Federal Deposit Insurance
Corporation (FDIC) whereby LST may be required to pay the FDIC for certain
tax benefits. A provision for alternative minimum tax of $.3 million has
been recognized for the three months ended June 30, 1997 and $.5 million for
the six months ended June 30, 1997. No other provision for tax has been
recognized because LST anticipates utilizing net operating loss carryforwards
in 1997 to offset taxes. If not utilized, the net operating loss
carryforwards will expire between years 2000 and 2010.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Lone Star Technologies, Inc. (LST) is a management and holding company whose
principal operating subsidiary, Lone Star Steel Company (Steel), manufactures
and globally markets oilfield products to the oil and gas drilling industry,
specialty tubing products to automotive, fluid power, and other markets for
various mechanical applications, and flat rolled steel and other tubular
products to domestic industrial markets.
RESULTS OF OPERATIONS
Second quarter 1997 net revenues totaled $172.3 million, up 21.4 percent from
the first quarter of 1996. Revenues comprised $122.3 million from oilfield
product and $32.4 million from specialty tubing products, representing increases
of 25.8% and 19.6%, while revenues from flat rolled steel and other tubular
products of $17.6 million were flat.
Net revenues for the first six months of 1997 of $331.5 million were 30.3%
better than the same 1996 period. Oilfield products, specialty tubing products
and flat rolled steel and other tubular products increased 35.9%, 21.2%, and
16%, respectively.
Second quarter shipments improved 12% to 249,300 tons and consisted of 170,800
tons of oilfield products, 30,100 tons of specialty tubing products and 48,400
tons of flat rolled steel and other tubular products. Oilfield products and
specialty tubing products increased 16.3% and 21.4%, respectively, with a slight
decline in flat rolled steel shipments.
First half 1997 shipments increased 22.6% over the first six months of 1996.
Oilfield products, specialty tubing products and flat rolled steel, and other
tubular products increased 28.4%, 22.6%, and 6.9%, respectively.
Consolidated revenues reported in the statements of earnings are as follows:
<TABLE>
($ in millions)
For the Quarter Ended For the Six Months Ended
June 30, June 30,
1997 % 1996 % 1997 % 1996 %
---- --- ---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Oilfield products revenues 122.3 71 97.2 69 229.4 69 168.8 66
Specialty tubing products revenues 32.4 19 27.1 19 65.2 20 53.8 21
Flat rolled steel and other tubular
revenues 17.6 10 17.6 12 36.9 11 31.8 13
----- --- ----- --- ----- --- ----- ---
Consolidated net revenues 172.3 100 141.9 100 331.5 100 254.4 100
----- --- ----- --- ----- --- ----- ---
----- --- ----- --- ----- --- ----- ---
</TABLE>
7
<PAGE>
Shipments of products by segment are as follows:
<TABLE>
(in tons)
For the Quarter Ended For the Six Months Ended
June 30, June 30,
1997 % 1996 % 1997 % 1996 %
---- --- ---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Oilfield products 170,800 69 146,800 66 323,100 67 251,600 64
Specialty tubing products 30,100 12 24,800 11 60,300 12 49,200 12
Flat rolled steel and other
tubular products 48,400 19 51,000 23 100,400 21 93,900 24
------- --- ------- --- ------- --- ------- ---
Total tons shipped 249,300 100 222,600 100 483,800 100 394,700 100
------- --- ------- --- ------- --- ------- ---
------- --- ------- --- ------- --- ------- ---
</TABLE>
Increased oilfield products revenues resulted from both volume and price
improvements due to higher levels of onshore drilling. Specialty tubing
revenues were up due to additional volume from Steel's expanded specialty tubing
finishing facilities. Revenues for flat rolled steel and other tubular products
were flat as volumes decreased due to Steel using more flat rolled steel in the
manufacture of its tubular products coupled with small realized price
improvements.
Gross earnings for the three months ended June 30, 1997 were up 23.5% to $16.3
million from the same 1996 period. Operating earnings for the second quarter of
1997 improved 30% to $11.7 million from $9.0 million from the second quarter of
1996. Gross earnings and operating earnings for the first six months of 1997
improved 49.3% and 64%, respectively, over the first half of 1996.
Net earnings for the second quarter of 1997 of $10.3 million, or $.48 per share,
were up 45.1% over the earnings for the same period in 1996 of $7.1 million, or
$.34 per share. Net earnings for the first half of 1997 of $18.1 million, or
$.85 per share, increased 86.6% over the same 1996 period.
FINANCIAL CONDITION AND LIQUIDITY
LST has no direct business operations other than Steel or significant sources of
cash other than from investments or the sale of securities. Steel is restricted
from paying cash dividends under terms of its revolving credit agreement;
however, LST is reimbursed by Steel for a portion of its operating costs as
provided by its cost-sharing agreement with Steel.
At June 30, 1997, LST had available cash and cash equivalents, short-term
investments, and marketable securities of $33.0 million, down from $38.5 million
at March 31, 1997, primarily due to the purchase by LST of slabs under its slab
purchase agreement with Steel. Cash requirements for LST as a holding company
include a minimal level of general and administrative expenses and annual
interest payments of $4.0 million on the outstanding $50.0 million convertible
subordinated debentures due 2002.
Steel requires capital primarily to fund general working capital needs and
capital expenditures. Principal sources of funds include cash generated by
operations and borrowings.
Steel has a revolving credit agreement under which it can borrow the lesser of
$75.0 million or an amount based upon eligible accounts receivable and
inventories, reduced by outstanding letters of credit. At June 30, 1997,
borrowings totaled $40.4 million on an available borrowing base of $74.6
million. The interest rate on borrowings was prime plus .25 percent which, at
quarter end, was 8.75 percent. Steel also pays a fee of 0.5 percent on the
unused portion of the credit facility. The agreement which extends to March
1999, contains various restrictive covenants, including requirements to maintain
minimum net worth levels and meet other financial ratios.
Steel's operations are subject to numerous environmental laws. The three major
areas of regulation are air quality,
8
<PAGE>
water quality, and solid and hazardous waste management. Steel believes that
its environmental expenditures will continue to fall within its contemplated
operating and capital plans.
Steel believes that funds generated by operations and its borrowing capacity
under the revolving credit agreement will provide the liquidity necessary to
fund its cash requirements in 1997.
The matters discussed or incorporated by reference in this report on Form
10-Q that are forward-looking statements involve risks and uncertainties
including, but not limited to, economic conditions, product demand, the
regulatory and trade environment, and other risks indicated in other filings
with the Securities and Exchange Commission.
PART II. - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 1997 Annual Meeting of Shareholders of the registrant was held on May 8,
1997. At that meeting, two proposals were voted on: the election of two
directors and the adoption of amendments to the 1985 Long-Term Incentive Plan.
Frederick B. Hegi, Jr. and William C. McCord were elected directors of the
registrant and received affirmative votes of 16,542,808 and 16,542,459,
respectively, and negative votes of 24,141 and 24,490, respectively. The
amendments to the Plan were approved by an affirmative vote of 15,439,597, with
1,058,812 shares voted against and 68,540 shares abstaining.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: No. 10.1(a) Amendments to the 1985 Long-Term Incentive Plan
adopted on May 8, 1997.
No. 27 Financial Data Schedule
(b) Reports on Form 8-K: none
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LONE STAR TECHNOLOGIES, INC.
By: /s/ Charles J. Keszler
--------------------------
(Charles J. Keszler)
Vice President - Finance
Dated: July 15, 1997
9
<PAGE>
EXHIBIT 10.1(a)
AMENDMENTS TO THE
1985 LONG-TERM INCENTIVE PLAN (THE "PLAN")
APPROVED BY BOARD OF DIRECTORS ON MARCH 26, 1997 AND
SHAREHOLDERS ON MAY 8, 1997
Section 2 of the Plan is amended by adding a new sentence immediately
following the first sentence of said Section to read as follows: "Each member of
the Committee shall be an "outside director" under Section 162(m) of the
Internal Revenue Code of 1986, as amended."
Section 5 of the Plan is amended by adding a new sentence immediately
following the first sentence of said Section to read as follows: "The aggregate
number of shares with respect to which Options and stock appreciation rights can
be granted under Sections 5 and 9 of the Plan to any one individual during any
calendar year shall not exceed 100,000, subject to adjustment pursuant to
Section 14 hereof."
Section 6 of the Plan is amended by adding a new sentence immediately
following the second sentence of said Section to read as follows: "The fair
market value shall mean the average of the high and low prices per share of the
Common Stock on the principal United States securities exchange on which the
Common Stock is listed or, if not so listed, on the National Association of
Securities Dealers Automated Quotations System or any successor system then in
use, on the date of grant or, if there are no sales on such date, on the next
succeeding day on which there are sales."
Section 10 of the Plan is amended by amending and restating subparts (a)
through (c) to read as follows (the new language is in bold type):
"(a) A participant's right to exercise any Option or stock appreciation
right and right of a non-executive director to exercise any Option (Options
and stock appreciation rights collectively referred to in subparts (a)
through (d) only of this section as "Option") shall terminate on the
earliest of the following dates:
(1) Ten years after the date the Option is granted.
<PAGE>
(2) Three months after the date the participant shall cease to be
employed by the Company or a subsidiary, or, if a non-executive
director, the non-executive director shall cease to be a director
of the Company, unless such cessation of employment or as a
director is by reason of the participant's or non-executive
director's RETIREMENT OR death or unless death occurs within such
three months. "RETIREMENT" MEANS RETIREMENT FROM EMPLOYMENT WITH
THE COMPANY OR A SUBSIDIARY OR CESSATION OF SERVICE AS A DIRECTOR
OF THE COMPANY (i) AT OR AFTER AGE 55 BUT PRIOR TO AGE 65 AND
WITH THE APPROVAL OF THE COMMITTEE OR (ii) AT OR AFTER AGE 65.
ANY PARTICIPANT WHO RETIRES FROM EMPLOYMENT AT OR AFTER AGE 55
BUT PRIOR TO AGE 65 SHALL INFORM THE COMMITTEE IN WRITING AS TO
WHETHER SUCH PARTICIPANT INTENDS TO BE EMPLOYED BY, OR OTHERWISE
PROVIDE SERVICES TO, ANY COMPETITOR OF THE COMPANY OR A
SUBSIDIARY AND SHALL PROVIDE THE COMMITTEE WITH ANY OTHER
INFORMATION THAT IT MAY REASONABLY REQUEST. THE COMMITTEE MAY
CONSIDER THE INFORMATION PROVIDED BY THE PARTICIPANT AND ANY
OTHER AVAILABLE INFORMATION IN DETERMINING WHETHER TO APPROVE THE
PARTICIPANT'S RETIREMENT. THE DETERMINATION OF THE COMMITTEE AS
TO AN INDIVIDUAL'S RETIREMENT PRIOR TO AGE 65 SHALL BE CONCLUSIVE
ON ALL PARTIES.
(3) SIX MONTHS AFTER THE DATE OF A PARTICIPANT'S OR NON-EXECUTIVE
DIRECTOR'S RETIREMENT, UNLESS THE PARTICIPANT OR NON-EXECUTIVE
DIRECTOR DIES DURING THAT SIX-MONTH PERIOD.
(4) Nine months after the date of a participant's or non-executive
director's death.
(b) If a participant's employment by the Company or a subsidiary or
directorship, in the case of a non-executive director, ceases for any
reason other than RETIREMENT OR death without the participant or non-
executive director having fully exercised the Option, the participant or
non-executive director shall be entitled within three months (or any later
period applicable under paragraph (c)) following the date of such cessation
(but not more than ten years from the date such Option was granted) to
exercise the Option to the full extent such Option was exercisable on the
date of such cessation. IN THE CASE OF A PARTICIPANT'S OR NON-EXECUTIVE
DIRECTOR'S RETIREMENT WITHOUT THE PARTICIPANT OR NON-EXECUTIVE DIRECTOR
HAVING FULLY EXERCISED THE OPTION, THE OPTION SHALL BECOME FULLY
EXERCISABLE FOR UP TO 100% OF THE UNEXERCISED SHARES UNDER THE OPTION, AND
THE PARTICIPANT OR NON-EXECUTIVE DIRECTOR SHALL BE ENTITLED WITHIN SIX
MONTHS (OR ANY LATER PERIOD APPLICABLE UNDER
2
<PAGE>
PARAGRAPH (C)) FOLLOWING THE DATE OF RETIREMENT (BUT NOT MORE THAN TEN
YEARS FROM THE DATE SUCH OPTION WAS GRANTED) TO EXERCISE THE OPTION TO THE
FULL EXTENT SUCH OPTION IS EXERCISABLE.
(c) If a participant or non-executive director dies while employed by the
Company or a subsidiary, or while a director in the case of a non-executive
director, or within three months after cessation of such employment or
directorship OR WITHIN SIX MONTHS AFTER RETIREMENT, without having fully
exercised his Option, such Option SHALL BECOME FULLY EXERCISABLE FOR UP TO
100% OF THE UNEXERCISED SHARES UNDER THE OPTION, AND THE OPTION may be
exercised within nine months following such participant's or non-executive
director's death (but not more than ten years from the date such Option was
granted) by participant's or non-executive director's estate or by a person
who acquired the right to exercise such Option by will or the laws of
descent, to the full extent such Option IS exercisable."
3
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 9
<SECURITIES> 17
<RECEIVABLES> 88
<ALLOWANCES> 1
<INVENTORY> 85
<CURRENT-ASSETS> 195
<PP&E> 319
<DEPRECIATION> 175
<TOTAL-ASSETS> 392
<CURRENT-LIABILITIES> 70
<BONDS> 0
0
0
<COMMON> 21
<OTHER-SE> 126
<TOTAL-LIABILITY-AND-EQUITY> 392
<SALES> 172
<TOTAL-REVENUES> 172
<CGS> 156
<TOTAL-COSTS> 161
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2
<INCOME-PRETAX> 10
<INCOME-TAX> 0
<INCOME-CONTINUING> 10
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10
<EPS-PRIMARY> .48
<EPS-DILUTED> 0
</TABLE>
