<PAGE>
1994
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [fee required] FOR THE FISCAL YEAR ENDED
JANUARY 1, 1995 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [no fee required] FOR THE TRANSITION PERIOD
FROM TO
----- ------
COMMISSION FILE NUMBER 1-9498
ALLEGHENY LUDLUM CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Pennsylvania 25-1364894
(STATE OF INCORPORATION) (I.R.S. EMPLOYER
IDENTIFICATION NO.)
1000 Six PPG Place, Pittsburgh, Pennsylvania 15222-5479
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: 412 - 394-2800
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
================================================================================
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
--------------------------------------------------------------------------------
Common Stock, Par Value $0.10 Per
Share New York Stock Exchange, Inc.
5 7/8% Convertible Subordinated
Debentures Due March 15, 2002 New York Stock Exchange, Inc.
================================================================================
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. [ ]
AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE
REGISTRANT AS OF MARCH 1, 1995: $704,987,515. The amount shown is based on the
closing price of the registrant's common stock on the New York Stock Exchange on
that date. Shares of common stock known by the registrant to be beneficially
owned by officers or directors of the registrant or persons who have filed a
report on Schedule 13D or 13G are not included in the computation. The
registrant, however, has made no determination that such persons are
"affiliates" within the meaning of Rule 12b-2 under the Securities Exchange Act
of 1934.
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AT MARCH 1, 1995: 70,628,703
DOCUMENTS INCORPORATED BY REFERENCE:
Selected portions of the 1994 Annual Report--Part I, Part II and Part IV of
this Report.
Selected portions of the 1995 Proxy Statement--Part III of this Report.
================================================================================
<PAGE>
INDEX
<TABLE>
<S> <C> <C>
PART I
THE COMPANY............................................................................................ 3
Item 1. BUSINESS.................................................................................... 3
Item 2. PROPERTIES.................................................................................. 9
Item 3. LEGAL PROCEEDINGS........................................................................... 10
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......................................... 10
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS........................ 11
Item 6. SELECTED FINANCIAL DATA..................................................................... 11
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................................. 11
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................................................. 11
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.................................................... 11
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......................................... 11
Item 11. EXECUTIVE COMPENSATION...................................................................... 11
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT..................................................................... 11
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............................................. 11
PART IV
Item 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE................................................... 12
SIGNATURES.................................................................................................. 13
</TABLE>
2
<PAGE>
PART I
THE COMPANY
The Company is a Pennsylvania corporation formed in 1979 with its principal
executive offices located at 1000 Six PPG Place, Pittsburgh, Pennsylvania
15222-5479, telephone (412)394-2800. References to the "Company" mean Allegheny
Ludlum Corporation and its subsidiaries and predecessors, unless the context
otherwise requires.
The Company is one of the world's leading manufacturers of specialty
materials and one of the largest domestic producers of stainless steel. The
Company manufactures stainless steel sheet, strip, plate, foil, welded tubing
and stampings; silicon electrical steel sheet and strip; and other specialty
steel and specialty metals alloys, including tool steels, magnetic,
thermostatic and electronic sheet and strip, and high-temperature alloys.
ITEM 1. BUSINESS
INDUSTRY OVERVIEW
The industry in which the Company operates is generally referred to as the
specialty steel industry, which represents a small but distinct segment of the
steel industry. The term "specialty steel" refers to stainless steels, high
speed and tool steels, high temperature alloys (super alloys), electronic and
thermostatic alloys and electrical steels. As compared with carbon steel,
stainless steel alloys contain elements such as chromium, nickel and molybdenum
to make them corrosion- and heat-resistant; electrical steel contains silicon to
minimize energy loss; and tool steel alloys, which contain more carbon than
stainless steel, include tungsten, molybdenum and other metals to make them both
hard and malleable. Most high temperature alloys, electronic alloys and
thermostatic alloys are not steel by definition and are more properly referred
to as specialty metals.
Unlike high-volume carbon steel producers, specialty steelmakers produce
smaller quantities with special equipment. Because of the need to meet more
exacting technical and metallurgical requirements, stainless and other specialty
steels are made with special processing techniques and generally utilize
different alloying elements such as nickel, ferrochromium, molybdenum, niobium,
titanium and cobalt.
Specialty steel is produced in a variety of forms (sheet, strip, plate,
wire, rod, bar and tubing) and is selected for use in environments that demand
materials having exceptional hardness, toughness, strength, resistance to heat,
corrosion or abrasion or a combination of these characteristics. Common end uses
of specialty steel include automobiles, appliances, communications and
electronics equipment, marine equipment, electric power generating and
distribution equipment, environmental equipment, home utensils and cutlery,
construction products, tools, dies, food and chemical processing equipment,
medical and health equipment and aircraft and defense equipment.
While other materials such as carbon steel, titanium, composites, ceramics,
aluminum and plastic compete in various applications with stainless steel, the
largest part of the specialty steel industry, the Company believes that the
domestic market for stainless steel has been growing over the past twenty years
as a result of the less rapid growth in the price of stainless steel relative to
competitive products and the increasing demand for higher quality products with
greater durability.
ACQUISITION
On November 10, 1993, the Company completed its acquisition of Athlone
Industries, Inc., a Delaware corporation ("Athlone"), by means of the merger of
a wholly owned subsidiary of the Company into Athlone. Athlone, through its
Jessop Steel Company ("Jessop" or "Jessop Steel") operations, was primarily a
manufacturer of specialty metals, primarily tool steel and stainless steel and
nickel alloy plate mill plate. See Note 11 of the Notes to the Consolidated
Financial Statements of the Company on page 36 of the 1994 Annual Report to
Shareholders which is incorporated herein by reference.
3
<PAGE>
GENERAL
The Company operates in a single business segment, specialty steel. The
Company has three principal product lines, consisting of stainless steel,
silicon electrical steel and other specialty steel alloys (including tool steels
and other specialty metals), which are produced at eleven facilities located in
five states. Stainless steel products are marketed principally in the form of
sheet, strip and plate as well as stampings and welded tubing. Silicon
electrical steel is marketed in the form of sheet and strip. Other specialty
steel alloys are marketed principally as sheet, strip and plate.
The following table sets forth certain information concerning sales of the
Company's principal product lines for the past five fiscal years.
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Stainless Steel....................................... $ 834.0 $ 892.3 $ 831.4 $ 771.2 $ 798.4
Silicon Electrical Steel.............................. 141.5 156.0 161.1 172.2 205.8
Other Specialty Alloys................................ 101.4 51.9 43.5 61.2 80.7
---------- --------- --------- --------- ---------
Total Sales...................................... $ 1,076.9 $ 1,100.2 $ 1,036.0 $ 1,004.6 $ 1,084.9
========== ========= ========= ========= =========
</TABLE>
For 1993 and 1994, the table reflects the inclusion of the Company's Washington
Plant (Jessop) which was acquired in November 1993.
Additional information concerning the Company's sales and operating profit
is set forth under the heading "Selected Financial Data" on page 39 of the
Company's 1994 Annual Report to Shareholders which is incorporated herein by
reference.
The Company's products are sold primarily to distributors and to other
customers within the United States who further process such materials into end
products for resale to others. The Company's backlog of firm orders at the end
of 1994 was $301.0 million (nearly all of which are expected to be filled within
the year), as compared to $249.4 million at the end of 1993.
STAINLESS STEEL
Stainless steel products have represented the largest share of the
Company's total sales. In 1994 stainless steel represented approximately 78% of
total sales. Sheet and strip represent the most rapidly growing products in
stainless steel.
Stainless steel sheet (24" and wider) accounts for the largest portion of
the Company's sales. It is used in a wide variety of consumer and industrial
applications that require easy cleaning and fabricability and corrosion
resistance. Approximately 60% of the Company's stainless steel sheet is sold to
service centers which have slitting, cutting and other processing facilities.
Stainless steel strip (less than 24" wide) is used in a variety of consumer
products and a wide range of automotive components. The Company's products
include its very thin Precision Rolled Strip(Trademark) products which range in
thickness from 0.0015" up to 0.015". Approximately 80% of the Company's
stainless steel strip is sold directly to end-use customers, with the remainder
sold to service centers, including the Company's own distributor outlet for
stainless steel strip, ALstrip, Inc. ALstrip, Inc. is a 90% owned subsidiary
with locations in Skokie, Illinois; Exton, Pennsylvania; and Springfield,
Tennessee.
Stainless steel plate (at least .1875" thick and 10" wide) has a variety of
applications, primarily in industrial equipment that requires cleanliness or
corrosion-resistant capabilities such as pollution control scrubbers and other
equipment, food processing equipment, pulp and paper equipment, chemical
equipment and power generation equipment. The Company's plate products are sold
in both coil and cut-to-length ("plate mill plate") form. Coil plate is sold to
service center customers who further process the material by roller leveling and
cutting to length before final use or sale. The Company's Washington,
Pennsylvania Plant produces nearly all of the Company's plate mill plate.
However, a small amount of extra-wide plate product is processed by outside
converters. Approximately 80% of the Company's stainless steel plate is sold to
service centers.
---------
(Trademark)Trademark of the Company.
4
<PAGE>
SILICON ELECTRICAL STEEL
The Company's silicon electrical steel products, primarily grain oriented,
are used generally in applications in which electrical conductivity and magnetic
properties are important and are sold directly to end-use customers. Users of
the Company's silicon electrical steel products include manufacturers of
transformers and communications equipment.
OTHER SPECIALTY ALLOYS
The Company also produces tool steel, high temperature alloys, electronic
and thermostatic alloys, and other specialty alloys. These specialty alloys are
used primarily in applications that require high strength, hardness, heat
resistance and special magnetic, electronic or expansion characteristics. During
1994, other specialty alloy sales increased significantly due to the acquisition
of the Washington Plant (Jessop Steel).
RAW MATERIALS
The principal materials used by the Company in the production of its
specialty steel are scrap (including nickel-, chromium- and molybdenum-bearing
scrap), nickel and nickel alloys, ferrochromium, ferrosilicon, molybdenum and
molybdenum alloys, manganese and manganese alloys and other alloying materials.
Certain of these raw materials, such as ferrochromium and nickel, can be
acquired by the Company and its specialty steel industry competitors, in large
part, only from foreign sources. The Company purchases its nickel requirements
principally from producers in Australia, Canada, Norway, the Commonwealth of
Independent States and the Dominican Republic. Ferrochromium is purchased
primarily from producers in South Africa, Zimbabwe, Turkey and the Commonwealth
of Independent States. Some of these foreign sources are located in countries
that may be subject to unstable political and economic conditions which might
disrupt supplies or affect the price of these materials. More than 80% of the
world's reserves of ferrochromium are located in South Africa, Zimbabwe, Albania
and Kazakhstan. The Company also uses large amounts of electricity, particularly
in the melt shop in the Company's Brackenridge Works, and natural gas in the
manufacture of its products; energy costs currently represent approximately 6%
of the Company's revenue dollars.
RESEARCH, DEVELOPMENT AND TECHNICAL SERVICES
The Company's research, development and technical service activities are
closely interrelated and are directed toward cost reduction, process
improvement, process control, quality assurance and control, system development,
the development of new manufacturing methods, the improvement of existing
manufacturing methods, the improvement of existing products and the development
of new products where a proprietary position is possible. The Company conducts
its primary research activities at its Technical Center in Natrona Heights,
Pennsylvania.
Expenditures for research, development and technology totaled $36.5 million
in 1994, $41.9 million in 1993, and $40.7 million in 1992. Research and
development expenses related to activities conducted at the
Technical Center were $8.2 million, $9.2 million, and $10.0 million in 1994,
1993, and 1992, respectively.
In 1992, the Company and Voest-Alpine Industrieanlagenbau GesmbH,
headquartered in Linz, Austria, completed construction of the first
COILCAST(Trademark) commercial-size prototype thin strip direct casting machine
to produce stainless and carbon steel flat products directly from molten steel,
using technology developed by them as joint venture partners. If successful, the
new technology to direct cast sheet and strip steel could eliminate the need for
conventional slab or ingot casting and hot strip rolling practices used for
certain products, thus significantly advancing the state-of-the-art of
steelmaking. The COILCAST prototype machine, installed by Voest-Alpine at the
Company's Lockport, New York plant, is owned by the Company. Test casts at
Lockport began in 1992 and developmental and other COILCAST-related work also
continued in 1994 at the Technical Center and in Linz, Austria using
Voest-Alpine's test caster. While it is difficult to predict whether or when
this project will succeed, and progress has been slower than anticipated, the
COILCAST joint venture's objective is to market the new technology as soon as
commercial viability is established. Under licensing and royalty agreements with
the Company, Voest-Alpine would have exclusive worldwide marketing rights.
Because of the strike, the Company's
---------
(Trademark)Trademark of the Company.
5
<PAGE>
test casts were discontinued in 1994 and the Lockport caster has not been
restarted. Developmental work is continuing at Voest-Alpine's facilities in
Linz, Austria.
The Company owns over 200 United States patents, many of which are also
filed under the patent laws of other nations, but does not consider its business
to be materially dependent on any patent or patent rights.
COMPETITION AND IMPORTS OF SPECIALTY STEEL
The Company is a leading producer of specialty steel. There are at least
six domestic producers of stainless steel sheet, strip and plate. The Company's
principal domestic competitors are J&L Specialty Steel, Inc. ("J&L"), whose
majority stockholder is France's Ugine, S.A. ("Ugine"), a subsidiary of Usinor
Sacilor, which is Europe's largest steelmaker and is controlled by the French
government; Armco Inc. ("Armco"); Lukens Inc. ("Lukens"), which owns Washington
Steel Company; and North American Stainless, which is owned primarily by
Acerinox, S.A. (a Spanish stainless steel producer), and which in 1993 began
shipments from a new finishing facility in Kentucky. In October 1994, Avesta
Sheffield Inc., a producer of stainless steel plate, announced plans to acquire
the Eastern Stainless plate company from Armco, which for the first time would
give Avesta Sheffield a stainless melting source in the United States. With
respect to grain-oriented silicon electrical steel (used in electrical
transformers), the Company believes that it and Armco Inc. are the only two U.S.
producers. The Company believes that there are several other domestic producers
of other specialty alloys in flat-rolled form.
In the fourth quarter of 1993, Lukens' Washington Steel Group began to
manufacture and sell stainless steel plate mill products; previously, Washington
Steel produced stainless sheet, strip and coil plate products and
Lukens produced stainless plate mill plate only on a conversion basis. In the
past two years, J&L and Armco have announced plans to increase their melt
capacities and J&L, Armco, Lukens, and North American Stainless have announced
plans to increase their specialty steel finishing capacities. In 1993, Nucor
Corp., a carbon steel minimill with $1.6 billion of sales, announced plans to
enter the stainless steel market and produce stainless steel products used
primarily in automotive exhaust systems.
The Company faces active competition in the sale of all of its products
from both domestic and foreign competitors. A number of foreign competitors are
government owned and/or subsidized. The principal methods of competition in
specialty steel are price, service, product quality and delivery.
The level of stainless steel imports increased in the 1994 fiscal year.
Import penetration in 1994 for stainless steel sheet and strip increased 12.9%
and was 23.4% of the domestic market. Import penetration of stainless steel
plate increased 13.3% to 17.4% in 1994.
Imports of silicon electrical steel increased to 17.5% in 1992 and to 22.7%
in 1993, and decreased to 20.3% of the domestic market in 1994. In August 1993,
the Company and others filed trade cases charging that dumping and unfairly
priced and subsidized silicon electrical steel imports are undermining the U.S.
market. In October 1993, the International Trade Commission ruled that imports
of grain-oriented silicon steel from Italy and Japan injure or threaten injury
to domestic producers. Beginning in 1994, importers from these nations were
required to post either cash or bonds of 85% and 31%, respectively, on the
value of imported silicon electrical steel products. Silicon electrical steel
also faces competition from amorphous metals, currently produced in the United
States only by AlliedSignal Inc. In 1994, the Company filed a patent
infringement suit against AlliedSignal in the United States District Court for
the Western District of Pennsylvania. The suit asks for an injunction
prohibiting AlliedSignal from making and selling an amorphous electrical steel
alloy in violation of a patent granted to the Company which covers a specific
composition for the steel which provides improved magnetic properties.
Multilateral steel consensus agreements which are aimed at eliminating
foreign subsidies and foreign market access barriers have not yet been reached.
The Company believes the U.S. government must take action to protect domestic
markets from unfair trade practices by any company or nation which does not have
to meet a profit or capital formation discipline. Therefore, the Company is
urging the U.S. government to reach agreements with foreign governments to
accomplish these objectives.
In addition to competition from other stainless steel producers, other
materials such as carbon steel, titanium, composites, ceramics, aluminum and
plastic compete in various applications with stainless steel.
6
<PAGE>
EXPORTS
Revenues from export sales were $73 million, $79 million, and $69 million,
in fiscal years 1994, 1993, and 1992, respectively. Political unrest and
economic problems in some important export markets and the volatility of foreign
exchange rates make it difficult to predict whether export sales will continue
at the levels reached in the last three years.
EXECUTIVE OFFICERS OF THE REGISTRANT
Executive officers of the Company as of February 28, 1995:
<TABLE>
<CAPTION>
TITLE AND YEAR ELECTED
NAME AGE TO PRESENT POSITION
<S> <C> <C>
Richard P. Simmons............................... 63 Chairman of the Board ........................... 1986
Robert P. Bozzone................................ 61 Vice Chairman of the Board ...................... 1994
Arthur H. Aronson................................ 59 President and Chief Executive Officer ........... 1994
James L. Murdy................................... 56 Senior Vice President-Finance and
Chief Financial Officer ....................... 1988
Robert W. Rutherford............................. 55 Senior Vice President-Commercial ................ 1994
Jack W. Shilling................................. 51 Senior Vice President-Technical ................. 1994
Harry R. Wagner.................................. 50 Senior Vice President-Production ................ 1994
Douglas A. Kittenbrink........................... 39 Vice President-Engineering and Information
Technology .................................... 1992
Bruce A. McGillivray............................. 61 Vice President-Human Resources .................. 1986
Carl M. Moulton.................................. 47 Group Vice President ............................ 1993
Robert S. Park................................... 50 Vice President-Treasurer ........................ 1994
Richard R. Roeser................................ 48 Vice President-Controller ....................... 1994
David G. Vietmeier............................... 50 Vice President-Purchasing ....................... 1988
Jon D. Walton.................................... 52 Vice President-General Counsel
and Secretary ................................. 1990
</TABLE>
Previously, Mr. Simmons served as Chairman of the Board and Chief Executive
Officer of the Company. Previously, Mr. Bozzone served as President. He also
served as Chief Executive Officer from 1990 to 1994 and as Chief Operating
Officer prior to 1990. Previously, Mr. Aronson had been Executive Vice President
of the Company. He also served as Chief Operating Officer from 1990 to 1994.
Messrs. Rutherford, Shilling and Wagner had been Vice President-Commercial, Vice
President-Technical and Vice President-Production, respectively, prior to 1994.
Mr. Kittenbrink was employed in various high level engineering management and
professional positions for over 5 years with Inland Steel Industries, Inc.
before joining the Company in 1992. Mr. Moulton was President of Jessop Steel
Company until he joined the Company upon the Company's acquisition of Jessop in
1993. Messrs. Park and Roeser had been Treasurer and Controller, respectively,
prior to 1994. Each of the other executive officers of the Company has held high
level managerial or professional positions with the Company for more than the
past five years, except as noted above.
EMPLOYEES
As of January 1, 1995, the Company had approximately 6,000 employees
(including 560 at the Company's Washington Plant) of whom approximately 2,000
were salaried employees (including approximately 70 salaried production
employees) and approximately 5,700 retirees.
Substantially all of the Company's production and maintenance employees are
covered by a four-year labor contract between the Company and the United
Steelworkers of America ("USWA") which was agreed upon in June, 1994 following a
10-week strike called by the USWA at the expiration of the Company's previous
contract with the union. Approximately 400 employees at the Company's Washington
Plant are covered by a labor contract between Jessop Steel Company and the USWA
which is effective through September 30, 1995.
7
<PAGE>
ENVIRONMENTAL, HEALTH AND SAFETY MATTERS
The Company (and the industry in which it competes) is subject to
environmental laws and regulations concerning emissions to the air, discharges
to waterways, and the generation, handling, storage, transportation, treatment
and disposal of waste materials, and is also subject to other federal and state
laws and regulations regarding health and safety matters. Each of the Company's
production facilities has permits and licenses allowing and regulating air
emissions and water discharges. The Company believes that it is in substantial
compliance with environmental laws and regulations. The Company estimates that
its capital expenditures for fiscal year 1995 will include $7.2 million for
additional or upgraded pollution control equipment.
The Company, like most corporations in the steel and metals-producing
industries, expects to spend additional funds to meet the lower levels of
emissions mandated by the Clean Air Act Amendments of 1990 (the "CAA
Amendments"). The Company continues to study the impact of the CAA Amendments on
its business and operations. The extent of the costs to the Company in meeting
the lower emissions levels is not yet known since many clarifying regulations
and standards are yet to be promulgated. The Company continues to believe that
it will be able to meet the new requirements while continuing its capital
programs.
The CAA Amendments have indirectly increased certain costs of doing
business. The provisions of the CAA Amendments dealing with acid rain have
increased electricity rates and additional increases may follow in the future.
However, many of the production improvements the Company has made and will
continue to make are designed to reduce the amount of energy consumed in its
manufacturing processes. Energy costs currently represent approximately 6% of
the Company's revenue dollars.
LIMITED PARTNERSHIP INVESTMENTS
The Company, through wholly owned subsidiaries, has made commitments to
invest as a limited partner in two Code, Hennessy & Simmons limited partnership
leveraged buyout funds and in the entities that serve as the general partners of
the funds. Investors made commitments to invest approximately $82.5 million when
the first fund was formed in 1989, including $25 million invested or to be
invested by the Company's subsidiary. Investors made commitments to invest $155
million in the second fund, which was formed in December 1993, including $30
million to be invested by the Company. Both funds were formed to originate and
lead investments in middle market companies that are undergoing an ownership
transition. The funds' portfolios include companies that design, manufacture and
distribute consumer and industrial products for a variety of end use
applications.
As of January 2, 1994, the Company's subsidiaries had invested a total of
$22.3 million in the first fund and had received total cash distributions of
$24.1 million. The subsidiaries' remaining investment in the first fund,
representing their proportionate ownership of the Fund's six portfolio company
holdings, had a valuation of $22.8 million on the Company's January 2, 1994
balance sheet. At the end of the first quarter of 1994, the Company voluntarily
contributed its limited partnership interest in the first limited partnership
fund to an irrevocable trust established for the purpose of partially funding
the retiree medical benefit obligations the Company has to its employees
represented by the United Steelworkers of America. Subsequently, the Company
voluntarily contributed investments it had made in the second limited
partnership fund, in the amount of $5.6 million, to the irrevocable trust.
Returns from investments in this trust are being recorded in accordance with
Statement of Financial Accounting Standards No. 106. The Company cannot predict
the magnitude or timing of any future gains or losses related to the
investments.
8
<PAGE>
ITEM 2. PROPERTIES
The name, location and area of each of the Company's principal
manufacturing plants together with the principal products which they are
equipped to produce as of January 1, 1995, are as follows:
<TABLE>
<CAPTION>
AREA IN
PLANT AND LOCATION SQUARE FEET PRINCIPAL PRODUCTS
<S> <C> <C>
Brackenridge Works 2,443,000 Stainless steel and specialty metals strip, sheet and plate,
Brackenridge and Natrona, silicon electrical steel strip and sheet, and other specialty
Pennsylvania steel strip and sheet.
West Leechburg Works 1,415,000 Stainless steel and specialty metals strip and sheet, silicon
West Leechburg and Bagdad, electrical steel strip and sheet, and other specialty steel
Pennsylvania strip and sheet.
Vandergrift Plant 966,000 Stainless steel strip and sheet.
Vandergrift, Pennsylvania
Washington Plant 615,000 Stainless steel and tool steel plate products.
Washington, PA
Wallingford Plant 591,000 Stainless steel and specialty metals strip and sheet and other
Wallingford and specialty steel strip and sheet.
Waterbury, Connecticut
Lockport Plant 282,000 Stainless steel and other specialty metals products.
Lockport, New York
New Castle Plant 178,000 Stainless steel sheet.
New Castle, Indiana
Claremore Plant 135,000 Stainless steel tubular products.
Claremore, Oklahoma
</TABLE>
The Brackenridge Plant utilizes four electric furnaces, an argon-oxygen
decarburization (A.O.D.) unit, a continuous caster and rolling mills in its
production. The Natrona Plant has three coreless induction furnaces, two basic
oxygen furnace vessels and ingot casting facilities. The Lockport Plant has
three electric arc furnaces, a vacuum induction melting furnace, electroslag and
vacuum arc remelting equipment, and A.O.D. and rolling facilities.
The Vandergrift, Wallingford, West Leechburg, Bagdad and New Castle Plants
have annealing, rolling and slitting facilities. The Claremore Plant utilizes
electric welding facilities in producing tubular products.
The Washington Plant which was obtained in the acquisition of Jessop Steel
has rolling, annealing and finishing facilities utilized in the production of
plate products. In 1994, the Company closed the melting facilities at the
Washington Plant.
The Company owns all of the foregoing plants, each of which, with the
exception of the Wallingford and Washington Plants, is subject to
mortgages or similar encumbrances securing borrowings under certain industrial
development authority financings. See Note 4 of the Notes to the Consolidated
Financial Statements on page 29 of the 1994 Annual Report.
While the plants have been constructed at various times over a long period,
many of the buildings have been replaced, remodeled or expanded and additional
buildings have been constructed from time to time. Much of the equipment at the
various plants has likewise been replaced or remodeled and new equipment has
been added at various times. The Company believes that the plants have been
well-maintained and are technologically advanced.
The Brackenridge primary melting and continuous slab casting facilities
have operated at high levels for the past five years. In 1995, the Company's
Brackenridge primary melt shop is operating at capacity; therefore, the melt
shops at Natrona, Pennsylvania, and Lockport, New York, recently have been
increasing operating activity. To the extent necessary, the Company believes
that it will be able to fulfill its needs by this supplemental melting and by
purchasing modest amounts of stainless steel slabs on reasonable terms and
conditions to meet the strong
9
<PAGE>
domestic sales demand. The stainless steel finishing plants have operated at
approximately 85% to 95% of capacity for the past five years. The Company has
increased stainless steel finishing capacity through process and equipment
improvements, computer-assisted scheduling plans, the installation of new
equipment at the Vandergrift Plant and the purchase of the Waterbury Plant in
August, 1990. The Company's plants that primarily produce silicon electrical
steels have operated at approximately 50% to 90% of capacity since 1980 and are
currently operating at a rate of approximately 75%.
The Company conducts its primary research activities at its Technical
Center in Natrona Heights, Pennsylvania. The facility contains state-of-the-art
equipment for a variety of testing and analytical activities relating to the
Company's products and processes. The Company owns this 139,000 sq. ft.
facility.
The Coatesville and Santa Fe Processing Centers, located near Philadelphia,
Pennsylvania and Los Angeles, California, respectively, are warehouses used in
the distribution of the Company's Jessop plate products. The Coatesville
facility is owned while the Santa Fe facility is leased from a third party.
The Company's subsidiary, ALstrip, Inc., operates stainless steel strip
distribution centers in Skokie, Illinois, Exton, Pennsylvania, and Springfield,
Tennessee. ALstrip owns all its slitting and cutting equipment and the Skokie
and Springfield facilities outright and leases its Exton facility from a third
party.
The Company's executive offices, located in Pittsburgh, Pennsylvania, and
Western Regional Sales Office, located in Schaumburg, Illinois, are leased from
third parties. The Eastern Regional Sales Office is located at the Wallingford
Plant. These facilities are modern and sufficient for the Company to carry on
its activities.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various lawsuits from time to time arising in
the ordinary course of business and otherwise. In management's opinion, the
outcome of these matters will not have a material adverse effect on the
Company's financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None during the fourth quarter of 1994.
10
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Information required by this item is incorporated by reference from "Common
Stock Data" on page 40 of the 1994 Annual Report.
ITEM 6. SELECTED FINANCIAL DATA
Information required by this item is incorporated by reference from
"Selected Financial Data" on page 39 of the 1994 Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information required by this item is incorporated by reference from
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 21 to 24 of the 1994 Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and Notes to Consolidated Financial
Statements listed in Item 14(a)(1) are incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
In addition to the information set forth under the caption "Executive
Officers of the Registrant" in Part I of this report, the information concerning
the directors of the Company required by this item is incorporated by reference
from "Nominees for Director" and "Continuing Directors" as set forth in the 1995
Proxy Statement filed by the registrant pursuant to Regulation 14A.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item is incorporated by reference from
"Compensation of Directors," "Executive Compensation and Other Information,"
"Employment Agreements with Certain Executive Officers," "Cumulative Total
Shareholder Return," and "Board Compensation Committee Report on Executive
Compensation" as set forth in the 1995 Proxy Statement filed by the registrant
pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item is incorporated by reference from
"Security Ownership" as set forth in the 1995 Proxy Statement filed by the
registrant pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is incorporated by reference from
"Certain Transactions" as set forth in the 1995 Proxy Statement filed by the
registrant pursuant to Regulation 14A.
11
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a) EXHIBITS AND FINANCIAL STATEMENT SCHEDULES:
(1) FINANCIAL STATEMENTS
The following consolidated financial statements included on pages 25
through 38 of the 1994 Annual Report are incorporated by reference:
Consolidated Statement of Income--Years Ended
January 1, 1995, January 2, 1994, and January 3, 1993
Consolidated Balance Sheets at January 1, 1995, and January 2, 1994
Consolidated Statement of Cash Flows--Years Ended
January 1, 1995, January 2, 1994, and January 3, 1993
Notes to Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Accountants
The consent to incorporate the Auditors' Report is included herein on page
14.
(2) FINANCIAL STATEMENT SCHEDULES
The following Consolidated Statement Schedule for years ended January 1,
1995, January 2, 1994 and January 3, 1993 is included herein:
PAGE NO.
II. Valuation and Qualifying Accounts.................... 15
All other schedules set forth in the applicable accounting regulations of
the Securities and Exchange Commission either are not required under the related
instructions or are not applicable and, therefore, have been omitted.
(3) EXHIBITS
A list of exhibits included in this Report or incorporated by reference is
found in the Exhibit Index beginning on page 16 of this Report and incorporated
by reference.
(b) REPORTS ON FORM 8-K FILED IN THE FOURTH FISCAL QUARTER OF 1994:
None.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, the registrant has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized.
ALLEGHENY LUDLUM CORPORATION
March 14, 1995
By /s/ A. H. ARONSON
....................................
A. H. Aronson
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the Company
and in the capacities and as of the 14th day of March, 1995.
By /s/ ARTHUR H. ARONSON
......................................
Arthur H. Aronson
President and Chief Executive Officer
and Director
By /s/ JAMES L. MURDY
......................................
James L. Murdy
Senior Vice President-Finance
and Chief Financial Officer
and Director
By /s/ RICHARD R. ROESER
......................................
Richard R. Roeser
Vice President-Controller
By /s/ ROBERT S. PARK
......................................
Robert S. Park
Vice President-Treasurer
By RICHARD P. SIMMONS
......................................
Richard P. Simmons
Chairman of the Board
and Director
By /s/ ROBERT P. BOZZONE
......................................
Robert P. Bozzone
Vice Chairman of the Board
and Director
By /s/ PAUL S. BRENTLINGER
......................................
Paul S. Brentlinger
Director
By /s/ C. FRED FETTEROLF
......................................
C. Fred Fetterolf
Director
By /s/ THOMAS MARSHALL
......................................
Thomas Marshall
Director
By /s/ W. CRAIG MCCLELLAND
......................................
W. Craig McClelland
Director
By /s/ RICHARD K. PITLER
......................................
Richard K. Pitler
Director
By /s/ CHARLES J. QUEENAN, JR.
......................................
Charles J. Queenan, Jr.
Director
By /s/ JAMES E. ROHR
......................................
James E. Rohr
Director
By /s/ GEORGE W. TIPPINS
......................................
George W. Tippins
Director
By /s/ STEVEN C. WHEELWRIGHT
......................................
Steven C. Wheelwright
Director
13
<PAGE>
CONSENT TO INCORPORATE AUDITORS' REPORT ON FINANCIAL STATEMENTS
We consent to the incorporation by reference in this Form 10-K of Allegheny
Ludlum Corporation of our report dated January 30, 1995, included in the 1994
Annual Report to Shareholders of Allegheny Ludlum Corporation.
Our audits also included the financial statement schedule of Allegheny
Ludlum Corporation listed in item 14(a). This schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
January 30, 1995
14
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
ALLEGHENY LUDLUM CORPORATION AND SUBSIDIARIES
(in thousands of dollars)
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS BALANCE
BEGINNING CHARGED TO COSTS CHARGED TO OTHER AT END
DESCRIPTION OF PERIOD AND EXPENSES ACCOUNTS--DESCRIBE DEDUCTIONS--DESCRIBE OF PERIOD
<S> <C> <C> <C> <C> <C>
YEAR ENDED
JANUARY 1, 1995:
Allowance for doubtful
accounts........................ $ 3,791 $ 145 -- $ (221)(2) $ 3,715
========= ========= ========= =========
YEAR ENDED
JANUARY 2, 1994:
Allowance for doubtful
accounts........................ $ 3,235 $ 696 $ 300(1) $ (440)(2) $ 3,791
========= ========= ========= =========
YEAR ENDED
JANUARY 3, 1993:
Allowance for doubtful
accounts........................ $ 3,547 $ 110 -- $ (422)(2) $ 3,235
========= ========= ========= =========
</TABLE>
---------
(1) Balance acquired with the purchase of the Jessop Steel operations.
(2) Uncollectible accounts written off, net of recoveries.
15
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION REFERENCE
<S> <C> <C>
3(a) Restated and Amended Articles of Incorporation of the Company........................... (a)
3(b) By-Laws, as amended..................................................................... (b)
4(a) Indenture dated as of March 1, 1992, between Allegheny Ludlum Corporation and The First
National Bank of Boston, as Trustee (relating to $100,000,000 5 7/8% Convertible
Subordinated Debentures due March 15, 2002)........................................... (c)
4(b) Industrial Revenue Bonds/Capitalized Leases:
(i) Allegheny County Industrial Development Authority, 1977 Series A, 6-1/4%
Pollution Control Revenue Bonds, $13,000,000, due 2/1/07 (relating to plants
in West Leechburg, Brackenridge and Natrona, Pennsylvania);................... (d)
(ii) Allegheny County Industrial Development Authority, 1978 Series A, 7.20%
Pollution Control Revenue Bonds, $1,700,000, due 12/1/03 (relating to plants
in West Leechburg, Brackenridge and Natrona, Pennsylvania);................... (d)
(iii) Niagara County Industrial Development Agency, 1984, Variable Rate Industrial
Development Revenue Bonds, $10,000,000, due 10/1/02 (relating to plant in
Lockport, New York);.......................................................... (d)
(iv) Allegheny County Industrial Development Authority, 1973 Series A, 6%
Industrial Revenue Bonds, $2,700,000, due 2/1/98 (relating to plants in
Brackenridge, Natrona, West Leechburg and Bagdad, Pennsylvania);.............. (d)
(v) Allegheny County Industrial Development Authority, 1974 Series B, 6.5%
Industrial Revenue Bonds, $1,000,000, due 2/1/98 (relating to plants in
Brackenridge, Natrona and Bagdad, Pennsylvania);.............................. (d)
(vi) Allegheny Valley Development Corporation, 1976 Series A, 4% Industrial Revenue
Bonds, $2,024,000, due 5/1/97 (relating to plant in Brackenridge,
Pennsylvania);................................................................ (d)
(vii) Claremore Industrial Development Authority, 1977 Series A, 6.3%
Industrial Development Revenue Bonds, $4,150,000, due 11/1/07 (relating to
plant in Claremore, Oklahoma);................................................ (d)
(viii) Westmoreland County Industrial Development Authority, 1986, Variable Rate
Urban Development Action Grant, $775,000, due 1991 through 1996 (relating to
plant in West Leechburg, Pennsylvania);....................................... (d)
(ix) Pennsylvania Industrial Development Authority, 1988, 3% Loan, $2,000,000, due
1989 through 2004 (relating to plant in Vandergrift, Pennsylvania);........... (d)
(x) Pennsylvania Sunny Day Fund, 1989, 3% Loan, $3,750,000, due 1989 through 2004
(relating to plant in Vandergrift, Pennsylvania);............................. (d)
(xi) Westmoreland County Industrial Development Authority, 1989, 3% Loan,
$3,000,000, due 1989 through 1999 (relating to plant in Vandergrift,
Pennsylvania);................................................................ (d)
(xii) Financing Agreement dated as of December 20, 1988 between Green River Steel
Corporation and the Commonwealth of Kentucky, acting through the State
Property and Buildings Commission and the Economic Development Cabinet
(relating to Green River Plant)............................................... (d)
10(a) Amended and Restated Credit Agreement dated December 28, 1990, as amended.................... (e)
10(b) Additional Compensation Plan (1)*............................................................ (f)
10(c) Key Man Salary Continuation Program (2)*..................................................... (f)
10(d) Benefit Restoration Plan*.................................................................... (g)
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION REFERENCE
<S> <C> <C>
10(f) 1987 Stock Option Incentive Plan (as amended and restated)*............................. (h)
10(g) Performance Share Plan (as amended and restated)*....................................... (i)
10(h) Employment Agreement between the Company and A. H. Aronson*............................. (j)
10(i) Fee Continuation Plan for Non-Employee Directors*....................................... (k)
10(j) Consulting Agreement between the Company and R. P. Bozzone*............................. (l)
10(k) Director Share Incentive Plan*.......................................................... (m)
10(l) Credit Agreement dated as of May 11, 1994............................................... (n)
10(m) Stock Acquisition and Retention Plan*................................................... (o)
13 Pages 21 through 40 inclusive of the Annual Report for the year ended
January 1, 1995 (3)................................................................... (b)
21 Subsidiaries of the Registrant.......................................................... (b)
23 Consent of Ernst & Young LLP............................................................ (b)
27 Financial Data Schedule................................................................. (b)
</TABLE>
---------
(a) A copy of this document, filed as an Exhibit to the Company's Quarterly
Report on Form 10-Q for the quarter ended July 3, 1994, is hereby
incorporated by reference.
(b) Filed herewith.
(c) A copy of this document, filed as an Exhibit to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 29, 1992, is hereby
incorporated herein by reference.
(d) Copies of these documents are not filed as an Exhibit to this Report
pursuant to Item 601(b)(4)(iii). The Company will furnish such copies to
the Commission upon request.
(e) A copy of Letter Agreement #3 dated December 29, 1994 is filed
herewith. Copies of the Credit Agreement and the First Amendment to
Credit Agreement, Second Amendment to Credit Agreement, Third Amendment
to Credit Agreement, Fourth Amendment to Credit Agreement and Fifth
Amendment to Credit Agreement filed as Exhibits to the Company's Annual
Report on Form 10-K for the year ended December 30, 1990 and the
Company's Quarterly Report on Form 10-Q for the quarter ended September
29, 1991, the Company's Annual Report on Form 10-K for the year ended
December 29, 1991, the Company's Quarterly Report on Form 10-Q for the
quarter ended June 28, 1992, the Company's Quarterly Report on Form 10-Q
for the quarter ended July 4, 1993, and the Company's Quarterly Report on
Form 10-Q for the quarter ended July 3, 1994, respectively, are hereby
incorporated herein by reference.
(f) Copies of these documents, filed as Exhibits to the Company's
Registration Statement on Form S-1 Number 33-12940 as heretofore filed
with the Securities and Exchange Commission, are incorporated by
reference, the Additional Compensation Plan being filed as Exhibit 10(c)
to such Registration Statement, and the Key Man Salary Continuation Plan
being filed as Exhibit 10(e) to such Registration Statement.
(g) A copy of this document, filed as Exhibit 10(e) to the Company's Annual
Report on Form 10-K for the year ended December 30, 1990, is hereby
incorporated by reference.
(h) A copy of this document, filed as Exhibit 10(d) to the Company's
Quarterly Report on Form 10-Q for the quarter ended July 3, 1994, is
hereby incorporated herein by reference.
(i) A copy of this document, filed as Exhibit 10(e) to the Company's
Quarterly Report on Form 10-Q for the quarter ended July 3, 1994, is
hereby incorporated herein by reference.
(j) A copy of this document, filed as Exhibit 10(h) to the Company's Annual
Report on Form 10-K for the year ended January 2, 1994, is hereby
incorporated herein by reference.
(k) A copy of this document, filed as Exhibit 10(j) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1989, is hereby
incorporated by reference.
17
<PAGE>
(l) A copy of this document, filed as Exhibit 10(c) to the Company's
Quarterly Report on Form 10-Q for the quarter ended July 3, 1994, is
hereby incorporated herein by reference.
(m) A copy of this document, filed as Exhibit 10(b) to the Company's
Quarterly Report on Form 10-Q for the quarter ended July 4, 1993, is
hereby incorporated herein by reference.
(n) A copy of this document, filed as Exhibit 10 to the Company's Quarterly
Report on Form 10-Q for the quarter ended April 3, 1994, is hereby
incorporated herein by reference.
(o) A copy of this document, filed as Exhibit 10(b) to the Company's
Quarterly Report on Form 10-Q for the quarter ended July 3, 1994, is
hereby incorporated herein by reference.
(1) Presently known as the Performance Management System Plan.
(2) Presently known as the Supplemental Pension Plan for certain key
employees of the Company.
(3) Except for those provisions specifically incorporated by reference in
this report, the 1994 Annual Report shall not be deemed to be "filed"
with the Securities and Exchange Commission.
*Management contract or compensatory plan or arrangement required to be filed as
an exhibit to this report.
18
<PAGE>
Exhibit 3(b)
BY-LAWS
OF
ALLEGHENY LUDLUM CORPORATION
Revised: 2/2/95
<PAGE>
BY-LAWS
OF
ALLEGHENY LUDLUM CORPORATION
TABLE OF CONTENTS
-----------------
ARTICLE I MEETING OF SHAREHOLDERS PAGE
--------- ----------------------- ----
Section 1 Place of Meetings 1
Section 2 Annual Meetings 1
Section 3 Special Meetings 1
Section 4 Notice of Meetings 1
Section 5 Quorum 1
Section 6 Voting 2
Section 7 Informal Action 2
Section 8 Presence at Meetings 2
ARTICLE II DIRECTORS
--------- ---------
Section 1 Number, Qualifications, Election
and Term of Office 2
Section 2 Vacancies 3
Section 3 Meetings of Directors 3
Section 4 Powers of Directors 4
Section 5 Informal Action 4
Section 6 Telephone Participation in Meetings 4
Section 7 Compensation of Directors 4
ARTICLE III COMMITTEES OF DIRECTORS
----------- -----------------------
Section 1 Appointment and Powers 4
Section 2 Appointment by Committees of
Substitute Members 5
Section 3 Procedure 5
Section 4 Telephone Participation in Meetings 5
ARTICLE IV OFFICERS
---------- --------
Section 1 Enumeration 5
Section 2 Chairman of the Board 6
Section 3 Chief Executive Officer 6
Section 4 President 6
Section 5 Vice-President 6
Section 6 Secretary 6
Section 7 Treasurer 6
Section 8 Other Officers 7
Section 9 Compensation 7
Section 10 Additional Duties of Officers 7
<PAGE>
TABLE OF CONTENTS (CONT'D)
--------------------------
ARTICLE V STOCK PAGE
--------- ----- ----
Section 1 Issuance of Stock 7
Section 2 Certificate of Stock 7
Section 3 Transfer of Stock 7
Section 4 Lost, Stolen, Destroyed or
Mutilated Certificates 8
Section 5 Regulations 8
Section 6 Holders of Record 8
Section 7 Record Date 8
ARTICLE VI LIABILITY OF DIRECTORS
---------- ----------------------
Section 1 Directors' Personal Liability 9
Section 2 Preservation of Rights 9
ARTICLE VIA INDEMNIFICATION OF DIRECTORS AND OFFICERS
----------- -----------------------------------------
Section 1 Mandatory Indemnification of
Directors and Officers 9
Section 2 Mandatory Advancement of Expenses
to Directors and Officers 9
Section 3 Permissive Indemnification and
Advancement of Expenses 10
Section 4 Scope of Indemnification 10
Section 5 Insurance 10
Section 6 Funding to Meet Indemnification
Obligations 11
Section 7 Miscellaneous 11
Section 8 Definition of Corporation 11
Section 9 Definition of Authorized
Representative 12
ARTICLE VII GENERAL PROVISIONS
----------- ------------------
Section 1 Corporate Seal 12
Section 2 Fiscal Year 12
Section 3 Authorization 12
Section 4 Inapplicability of Subchapter 25E 12
Section 5 Inapplicability of Subchapter 25F 12
Section 6 Inapplicability of Subchapter 25G 13
Section 7 Inapplicability of Subchapter 25H 13
ARTICLE VIII AMENDMENTS
------------ ----------
<PAGE>
BY-LAWS
OF
ALLEGHENY LUDLUM CORPORATION
ARTICLE I
MEETING OF SHAREHOLDERS
Section 1. Place of Meetings. Meetings of the
------------------
shareholders shall be held at the registered office of the
Corporation, or at such other place within or without the
Commonwealth of Pennsylvania as shall be fixed by the Board of
Directors or the person or persons calling the meeting.
Section 2. Annual Meetings. The annual meetings of
----------------
the shareholders for the election of directors and the
transaction of such other business as may properly come before
the same shall be held within one hundred fifty (150) days
following the close of the Corporation's fiscal year at such date
and time as shall be designated by the Board of Directors.
Section 3. Special Meetings. Special meetings may be
-----------------
called at any time by the Chairman of the Board, the Chief
Executive Officer, or the Board of Directors, or the holders of
not less than one-fifth (1/5) of all the outstanding shares
entitled to vote at such meeting.
Section 4. Notice of Meetings. A written notice
-------------------
stating the place, day and hour of any meeting and, in the case
of a special meeting, the purpose or purposes for which the
meeting is called shall be delivered or mailed by the Secretary,
or by the officer or person calling the meeting, to each
shareholder of record entitled to vote at such meeting, at such
address as appears upon the records of the Corporation, at least
ten (10) days and not more than ninety (90) days before the date
of the meeting. When a meeting is adjourned, it shall not be
necessary to give any notice of the adjourned meeting or of the
business to be transacted at an adjourned meeting other than the
announcement at the meeting at which such adjournment is taken.
If the adjournment is for more than thirty (30) days, or if after
the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each
shareholder of record entitled to vote at the meeting.
Section 5. Quorum. The presence, in person or by
-------
proxy, of the majority of the outstanding shares entitled to vote
shall constitute a quorum. The shareholders present at a duly
authorized meeting can continue to do business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave
less than a quorum. If a meeting cannot be organized because a
quorum has not attended, those present may, except as otherwise
<PAGE>
provided by statute, adjourn the meeting to such time and place
as they may determine; but in the case of any meeting called for
the election of directors, those who attend the second of such
adjourned meetings, although less than quorum, shall nevertheless
constitute a quorum for the purpose of electing the directors.
Section 6. Voting. Except as otherwise provided by
-------
law or the Articles of Incorporation, every shareholder of record
shall have the right at every shareholders' meeting to one (1)
vote for every share standing in his name on the books of the
Corporation. In each election of directors, every shareholder
entitled to vote shall have the right, in person or by proxy, to
multiply the number of votes to which he may be entitled by the
total number of directors to be elected in the same election by
the holders of the class or classes of shares of which his shares
are a part; and he may cast the whole number of such votes for
one (1) candidate or he may distribute them among any two (2) or
more candidates. A majority of the votes cast shall decide every
question or matter submitted to the shareholders unless otherwise
provided by law or the Articles of Incorporation. The vote upon
any matter submitted to the shareholders may be taken viva voce;
provided, however, that the vote upon any question shall be by
ballot if demand for the same is made by any shareholder or is
directed by the chairman of the meeting.
Section 7. Informal Action. Whenever the vote of the
----------------
shareholders at a meeting thereof is required or permitted to be
taken in connection with any corporate action by any provision of
law or of the Corporation's Articles of Incorporation, the
meeting, notice and vote of shareholders may be dispensed with,
if a consent in writing, setting forth the action so taken, shall
be signed by the holders of all the outstanding shares.
Section 8. Presence at Meetings. A shareholder may
---------------------
participate in a meeting of the shareholders only if the
shareholder or the shareholder's duly authorized proxy is
physically present in person at the meeting. A shareholder or a
proxy may not participate in a meeting of the shareholders by
means of conference telephone or similar communications
equipment.
ARTICLE II
DIRECTORS
Section 1. Number, Qualifications, Election and Term
-----------------------------------------
of Office. The number of directors to manage and control the
---------
affairs of the Corporation shall be as determined by the Board of
Directors from time to time, but shall not be less than
three (3). Directors need not be shareholders of the Corporation
or residents of the Commonwealth of Pennsylvania. No person may
serve as a director of the Company after such person becomes
2
<PAGE>
seventy-one years of age provided, however, that a person who
becomes seventy-one years of age may complete the term for which
such person was elected before such person became seventy-one
years of age. Directors shall be elected by the shareholders at
the annual meeting or any special meeting called for such
purpose. Each director shall be elected to serve until the next
annual meeting of the shareholders and until his successor is
duly elected and qualified.
The directors of the Corporation shall be divided into
three classes: Class I, Class II and Class III. Each class
shall consist, as nearly as may be possible, of one-third of the
whole number of the Board of Directors. The Class I directors
shall be elected to hold office for a term to expire at the first
annual meeting of the shareholders thereafter; the Class II
directors shall be elected to hold office for a term to expire at
the second annual meeting of the shareholders thereafter; and the
Class III directors shall be elected to hold office for a term to
expire at the third annual meeting of the shareholders
thereafter, and in the case of each class, until their respective
successors are duly elected and qualified. At each annual
election the directors elected to succeed those whose terms
expire shall be identified as being of the same class as the
directors they succeed and shall be elected to hold office for a
term to expire at the third annual meeting of the shareholders
after their election, and until their respective successors are
duly elected and qualified. If the number of directors is
changed, any increase or decrease in directors shall be
apportioned among the classes so as to maintain all classes as
equal in number as possible, and any additional director elected
to any class shall hold office for a term which shall coincide
with the terms of the other directors in such class and until his
successor is duly elected and qualified.
Subject to the rights of holders of any series of
Preferred Stock then outstanding, in the case of any increase in
the number of directors of the Corporation the additional
director or directors shall be elected by the Board of Directors.
No decrease in the number of directors of the Corporation shall
shorten the term of any incumbent director.
Section 2. Vacancies. Vacancies in the Board of
---------
Directors caused by death, resignation, increase in the number of
directors or otherwise shall be filled by a majority vote of the
remaining member or members of the Board; and each director so
elected shall hold office for the unexpired portion of the term
of the director whose place shall be vacant and until his
successor is duly elected and qualified.
Section 3. Meetings of Directors. Regular meetings of
---------------------
the Board of Directors shall be held at such times and places as
the Board of Directors may from time to time by resolution
3
<PAGE>
appoint; and no notice shall be required to be given of any such
regular meeting. A special meeting of the Board of Directors may
be called by the Chairman of the Board, the Chief Executive
Officer or any three (3) directors (or, if less, a majority of
the directors in office), by giving three (3) days' notice to
each director by letter or telegram; but the presence of all
directors at any special meeting shall ipso facto constitute a
waiver of notice to be given of such meeting. No minimum number
of special meetings and no more than one regular meeting of the
Board of Directors need be called in any year. A majority of the
directors in office shall constitute a quorum for the transaction
of business, and actions may be taken by a majority of the
members present at any meeting at which a quorum is present.
Section 4. Powers of Directors. The directors shall
-------------------
manage the business and affairs of the Corporation.
Section 5. Informal Action. Any action which may be
---------------
taken at a meeting of the directors may be taken without a
meeting, if a consent or consents in writing setting forth the
action so taken shall be signed by all of the directors and shall
be filed with the minutes of proceedings of the Board.
Section 6. Telephone Participation in Meetings. Any
-----------------------------------
one or more directors may participate in a meeting of the Board
of Directors by means of a conference telephone or similar
communications equipment by means of which all persons
participating in the meeting can hear each other.
Section 7. Compensation of Directors. Each director
-------------------------
of the Corporation who is not a salaried officer or employee of
the Corporation or of a subsidiary of the Corporation, shall
receive such allowances for serving as a director and such fees
for attendance at meetings of the Board of Directors or any
committee appointed by the Board as the Board may from time to
time determine.
ARTICLE III
COMMITTEES OF DIRECTORS
Section 1. Appointment and Powers. The Board of
----------------------
Directors may, by resolution adopted by a majority of the
directors in office, establish one or more committees, each of
which shall consist of one or more of the directors of the
Corporation. To the extent provided in the resolution
establishing any committee, such committee shall have and may
exercise all of the powers and authority of the Board of
Directors; provided, however, that no such committee shall have
any power or authority as to the following:
4
<PAGE>
(i) The submission to the shareholders of the Company
of any action requiring approval of the shareholders under the
Pennsylvania Business Corporation Law of 1988;
(ii) The creation or filling of vacancies in the Board
of Directors;
(iii) The adoption, amendment or repeal of the
By-laws;
(iv) The amendment or repeal of any resolution of the
Board that by its terms is amendable or repealable only by the
Board; or
(v) Action on matters committed by the By-laws or
resolution of the Board of Directors to another committee of the
Board.
Section 2. Appointment by Committees of Substitute
---------------------------------------
Members. In the absence or disqualification of any member of any
-------
such committee, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may by unanimous action appoint another
director to act at the meeting in the place of any such absent or
disqualified member.
Section 3. Procedure. The Board of Directors may
---------
establish reasonable rules and regulations for the conduct of the
proceedings of any such committee and may appoint a chairman of the
committee who shall be a member thereof and a secretary of
the committee who need not be a member thereof. To the extent
that the Board of Directors shall not exercise such powers, they
may be exercised by the Committee.
Section 4. Telephone Participation in Meetings. Any
-----------------------------------
one or more committee members may participate in a meeting of a
committee of the Board of Directors by means of a conference
telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other.
ARTICLE IV
OFFICERS
Section 1. Enumeration. The officers of the
-----------
Corporation shall consist of a Chairman of the Board, a Chief
Executive Officer, a President, one or more Vice-Presidents, a
Secretary, a Treasurer and, in the discretion of the Board of
Directors, such other officers as shall from time to time be
chosen and appointed by the Board of Directors. Any two (2) or
5
<PAGE>
more offices may be held by one (1) person. Every officer of the
Corporation shall hold his position at the will of the Board of
Directors.
Section 2. Chairman of the Board. The Chairman of the
---------------------
Board shall preside at meetings of the Board of Directors and
meetings of the shareholders, and he shall perform such other
duties as shall be from time to time specified by the Board of
Directors.
Section 3. Chief Executive Officer. The Chief
-----------------------
Executive Officer shall have general charge and control over the
affairs of the Corporation, subject to the Board of Directors.
The Chief Executive Officer shall sign certificates for shares of
the capital stock of the Corporation and may, together with the
Secretary, execute on behalf of the Corporation any contract
which has been authorized by the Board of Directors. In the
absence of the Chairman of the Board, the Chief Executive Officer
shall preside at meetings of the shareholders.
Section 4. President. The President shall be the
---------
Chief Executive Officer of the Corporation and shall report to
the Board of Directors. The President shall, in the absence or
disability of the Chairman of the Board, perform the duties and
exercise the powers of the Chairman of the Board.
Section 5. Vice President. The Vice President, or, if
--------------
there shall be more than one, the Vice Presidents, in the order
determined by the Board of Directors, shall, in the absence or
disability of the President, perform the duties and exercise the
powers of the President and shall perform such other duties and
have such other powers as the Board of Directors may from time to
time prescribe.
Section 6. Secretary. The Secretary shall keep a
---------
record of the minutes of the proceedings of meetings of
shareholders and directors and shall give notice as required by
statute or these By-laws of all such meetings. The Secretary
shall have custody of the seal of the Corporation and of all the
books, records and papers of the Corporation, except such as
shall be in the charge of the Treasurer or of some other person
authorized to have custody and be in possession thereof by
resolution of the Board of Directors. The Secretary shall sign
certificates for shares of the capital stock of the Corporation.
The Secretary may, together with the Chief Executive Officer,
execute on behalf of the Corporation any contract which has been
authorized by the Board of Directors.
Section 7. Treasurer. The Treasurer shall keep
---------
accounts of all moneys of the Corporation received and disbursed,
and shall deposit all moneys and valuables of this Corporation in
6
<PAGE>
its name and to its credit in such banks and depositories as the
Board of Directors shall designate.
Section 8. Other Officers. The duties and powers of
--------------
other officers who may from time to time be chosen by the Board
of Directors shall be as specified by the Board of Directors at
the time of the appointment of such other officers.
Section 9. Compensation. The salaries of all officers
------------
listed in Sections 2 through 8 of this Article shall be fixed by
the Board of Directors.
Section 10. Additional Duties of Officers. The Board
-----------------------------
of Directors may from time to time by resolution increase or add
to the duties of the Chairman of the Board, the Chief Executive
Officer, President, one or more Vice-Presidents, Secretary,
Treasurer or any other officer chosen and appointed under the
provisions of Section 8 of this Article IV.
ARTICLE V
STOCK
Section 1. Issuance of Stock. Shares of capital stock
-----------------
of any class now or hereafter authorized, securities convertible
into such shares or options or other rights to purchase such
shares or securities may be issued or granted only in accordance
with the authority granted by the Board of Directors.
Section 2. Certificate of Stock. Certificates for
--------------------
shares of the capital stock of the Corporation shall be in the
form adopted by the Board of Directors, shall be signed by the
Chief Executive Officer or the President or a Vice President and
the Secretary or an Assistant Secretary, and shall be sealed with
the seal of the Corporation. Where any such certificate is
signed by a registrar other than the Corporation or its employee,
the signatures thereon of any officer of the Corporation and,
where authorized by the Board of Directors, any transfer agent,
may be facsimiles. All such certificates shall be numbered
consecutively; and the name of the person owning the shares and
the date of issue shall be entered on the books of the
Corporation. In case any officer, transfer agent or registrar
who has executed, by facsimile or otherwise, any share
certificate shall have ceased to be such officer, transfer agent
or registrar by reason of death, resignation or otherwise, before
the certificate is issued, it may be issued by the Corporation
with the same effect as if the officer, transfer agent or
registrar had not ceased to be such at the date of its issue.
Section 3. Transfer of Stock. Shares of capital stock
-----------------
of the Corporation shall be transferred only on the books of the
Corporation by the holder thereof in person or by his duly
7
<PAGE>
authorized attorney. All stock certificates transferred by
endorsement thereon shall be surrendered for cancellation and new
certificates issued to the transferee.
Section 4. Lost, Stolen, Destroyed or Mutilated
------------------------------------
Certificates. New certificates of stock may be issued to replace
------------
certificates of stock lost, stolen, destroyed or mutilated, upon
such terms and conditions, including proof of loss or
destruction, and the giving of a satisfactory bond of indemnity,
as the Board of Directors from time to time may determine.
Section 5. Regulations. The Board of Directors shall
-----------
have power and authority to make all such rules and regulations
not inconsistent with the By-laws as it may deem expedient
concerning the issue, transfer and registration of certificates
of stock of the Corporation. The Board of Directors may appoint
one or more transfer agents or assistant transfer agents and one
or more registrars of transfers, and may require all stock
certificates to bear the signature of a transfer agent or
assistant transfer agent and a registrar of transfers. The Board
of Directors may at any time terminate the appointment of any
transfer agent or any assistant transfer agent or any registrar
of transfers.
Section 6. Holders of Record. The Corporation shall
-----------------
be entitled to treat the holder of record of any stock of the
Corporation as the holder and owner in fact thereof for all
purposes and shall not be bound to recognize any equitable or
other claim to, or right, title or interest in, such stock on the
part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of
Pennsylvania.
Section 7. Record Date. The Board of Directors may
-----------
fix a time prior to the date of any meeting of shareholders a
record date for the determination of the shareholders entitled to
notice of, or to vote at, the meeting, which time, except in the
case of an adjourned meeting, shall be not more than 90 days
prior to the date of the meeting of shareholders. Only
shareholders of record on the date fixed shall be so entitled
notwithstanding any transfer of shares on the books of the
Company after any record date fixed as provided herein. The
Board of Directors may similarly fix a record date for the
determination of shareholders of record for any other purpose.
When a determination of shareholders of record has been made as
provided herein for purposes of a meeting, the determination
shall apply to any adjournment thereof unless the Board fixes a
new record date for the adjourned meeting.
8
<PAGE>
ARTICLE VI
LIABILITY OF DIRECTORS
Section 1. Directors' Personal Liability. A director
-----------------------------
of the Corporation shall not be personally liable for monetary
damages for any action taken, or any failure to take any action,
provided however, that this provision shall not eliminate or
limit the liability of a director to the extent that such
elimination or limitation of liability is expressly prohibited by
the act of November 28, 1986 (P.L. ___ No. 145) known as the
Directors' Liability Act as in effect at the time of the alleged
action or failure to take action by such director.
Section 2. Preservation of Rights. Any repeal or
----------------------
modification of this Article by the shareholders of the
Corporation shall not adversely affect any right or protection
existing at the time of such repeal or modification to which any
director or former director may be entitled under this Article.
The rights conferred by this Article shall continue as to any
person who has ceased to be a director of the Corporation and
shall inure to the benefit of the heirs, executors and
administrators of such person.
ARTICLE VIA
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1. Mandatory Indemnification of Directors and
------------------------------------------
Officers. The Corporation shall indemnify, to the fullest extent
--------
now or hereafter permitted by law (including but not limited to
the indemnification provided by Section 8365 of the act of
November 28, 1986 (P.L. ____ No. 145) known as the Directors'
Liability Act), each director or officer (including each former
director or officer) of the Corporation who was or is made a
party to or a witness in or is threatened to be made a party to
or a witness in any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was an
authorized representative of the Corporation, against all
expenses (including attorneys' fees and disbursements),
judgments, fines (including excise taxes and penalties) and
amounts paid in settlement actually and reasonably incurred by
him in connection with such action, suit or proceeding.
Section 2. Mandatory Advancement of Expenses to
------------------------------------
Directors and Officers. The Corporation shall pay expenses
----------------------
(including attorneys' fees and disbursements) incurred by a
director or officer of the Corporation referred to in Section 1
hereof in defending or appearing as a witness in any civil or
criminal action, suit or proceeding described in Section 1 hereof
in advance of the final disposition of such action, suit or
9
<PAGE>
proceeding. The expenses incurred by such director or officer
shall be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding only upon receipt
of an undertaking by or on behalf of such director or officer to
repay all amounts advanced if it shall ultimately be determined
that he is not entitled to be indemnified by the Corporation as
provided in Section 4 hereof.
Section 3. Permissive Indemnification and Advancement
------------------------------------------
of Expenses. The Corporation may, as determined by the Board of
-----------
Directors from time to time, indemnify to the fullest extent now
or hereafter permitted by law, any person who was or is a party
to or a witness in or is threatened to be made party to or a
witness in, or is otherwise involved in, any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he is
or was an authorized representative of the Corporation, both as
to action in his official capacity and as to action in another
capacity while holding such office or position, against all
expenses (including attorneys' fees and disbursements),
judgments, fines (including excise taxes and penalties), and
amounts paid in settlement actually and reasonably incurred by
him in connection with such action, suit or proceeding. The
Corporation may, as determined by the Board of Directors from
time to time, pay expenses incurred by any such person by reason
of his participation in an action, suit or proceeding referred to
in this Section 3 in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or
on behalf of such person to repay such amount if it shall
ultimately be determined that he is not entitled to be
indemnified by the Corporation as provided in Section 4 hereof.
Section 4. Scope of Indemnification. Indemnification
------------------------
under this Article shall not be made by the Corporation in any
case where a court determines that the alleged act or failure to
act giving rise to the claim for indemnification is expressly
prohibited by the act of November 28, 1986 (P.L. ___ No. 145)
known as the Directors' Liability Act or any successor statute as
in effect at the time of such alleged action or failure to take
action.
Section 5. Insurance. The Corporation shall purchase
---------
and maintain insurance on behalf of each director and officer
against any liability asserted against or incurred by such
director or officer in any capacity, or arising out of such
director's or officer's status as such, whether or not the
Corporation would have the power to indemnify such director or
officer against such liability under the provisions of this
Article. The Corporation shall not be required to maintain such
insurance if it is not available on terms satisfactory to the
Board of Directors, or if, in the business judgment of the Board
of Directors, either (i) the premium cost for such insurance is
10
<PAGE>
substantially disproportionate to the amount of coverage, or
(ii) the coverage provided by such insurance is so limited by
exclusions that there is insufficient benefit from such
insurance. The Corporation may purchase and maintain insurance
on behalf of any person referred to in Section 3 hereof against
any liability asserted against or incurred by such person in any
capacity, whether or not the Corporation would have the power to
indemnify such person against such liability under the provisions
of this Article.
Section 6. Funding to Meet Indemnification
-------------------------------
Obligations. The Board of Directors, without approval of the
-----------
shareholders, shall have the power to borrow money on behalf of
the Corporation, including the power to pledge the assets of the
Corporation, from time to time discharge the Corporation's
obligations with respect to indemnification, the advancement and
reimbursement of expenses, and the purchase and maintenance of
insurance referred to in this Article. The Corporation may, in
lieu of or in addition to the purchase and maintenance of
insurance referred to in Section 5 hereof, establish and maintain
a fund of any nature or otherwise secure or insure in any manner
its indemnification obligations, whether arising under or
pursuant to this Article or otherwise.
Section 7. Miscellaneous. Each director and officer
-------------
of the Corporation shall be deemed to act in such capacity in
reliance upon such rights of indemnification and advancement of
expenses as are provided in this Article. The rights of
indemnification and advancement of expenses provided by this
Article shall not be deemed exclusive of any other rights to
which any person seeking indemnification or advancement of
expenses may be entitled under any agreement, vote of
shareholders or disinterested directors, statute or otherwise,
both as to action in such person's official capacity and as to
action in another capacity while holding such office or position,
and shall continue as to a person who has ceased to be an
authorized representative of the Corporation and shall inure to
the benefit of the heirs, executors and administrators of such
person. Indemnification and advancement of expenses under this
Article shall be provided whether or not the indemnified
liability arises or arose from any threatened, pending or
completed action by or in the right of the Corporation. Any
repeal or modification of this Article by the shareholders or the
Board of Directors of the Corporation shall not adversely affect
any right or protection existing at the time of such repeal or
modification to which any person may be entitled under this
Article.
Section 8. Definition of Corporation. For purposes of
-------------------------
this Article, references to "the Corporation" shall include, in
addition to the resulting Corporation, any constituent
Corporation (including any constituent of a constituent) absorbed
11
<PAGE>
in a consolidation or merger which, if its separate existence had
continued, would have had power and authority to indemnify its
authorized representatives so that any person who is or was an
authorized representative of such constituent Corporation shall
stand in the same position under this Article with respect to the
resulting or surviving Corporation as he would have with respect
to such constituent Corporation if its separate existence had
continued.
Section 9. Definition of Authorized Representative.
---------------------------------------
For the purposes of this Article, the term "authorized
representative" shall mean a director, officer, employee or agent
of the Corporation or of any subsidiary of the Corporation, or a
trustee, custodian, administrator, committeeman or fiduciary of
any employee benefit plan established and maintained by the
Corporation or by any subsidiary of the Corporation, or a person
serving another corporation, partnership, joint venture, trust or
other enterprise in any of the foregoing capacities at the
request of the Corporation.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Corporate Seal. The Corporate seal of the
--------------
Corporation shall be a circular seal with the name of the
Corporation and state of incorporation around the border or a
seal in such form as the Board of Directors shall from time to
time determine.
Section 2. Fiscal Year. The fiscal year of the
-----------
Corporation shall be as designated by the Board of Directors.
Section 3. Authorization. All checks, notes,
-------------
vouchers, warrants, drafts, acceptances and other orders for the
payment of moneys of the Corporation shall be signed by such
officer or officers or such other person or persons as the Board
of Directors may from time to time designate.
Section 4. Inapplicability of Subchapter 25E.
---------------------------------
Subchapter E of Chapter 25 of the Pennsylvania Business
Corporation Law of 1988, as amended (former Section 910 of the
Pennsylvania Business Corporation Law of 1933, as amended), shall
not be applicable to the Corporation.
Section 5. Inapplicability of Subchapter 25F.
---------------------------------
Subchapter F of Chapter 25 of the Pennsylvania Business
Corporation Law of 1988, as amended (former Section 911 of the
Pennsylvania Business Corporation Law of 1933, as amended), shall
not be applicable to the Corporation.
12
<PAGE>
Section 6. Inapplicability of Subchapter 25G.
---------------------------------
Subchapter G of Chapter 25 of the Pennsylvania Business
Corporation Law of 1988, as amended, shall not be applicable to
the Corporation.
Section 7. Inapplicability of Subchapter 25H.
---------------------------------
Subchapter H of Chapter 25 of the Pennsylvania Business
Corporation Law of 1988, as amended, shall not be applicable to
the Corporation.
ARTICLE VIII
AMENDMENTS
These By-laws may be amended by the affirmative vote of
the holders of a majority of the shares of common stock of the
Corporation or by the affirmative vote of a majority of the Board
of Directors at any regular or special meeting of the directors,
provided that notice of the proposed amendment shall have been
included in the notice of the meeting of the shareholders or
directors, as the case may be.
13
<PAGE>
PNC Bank, N.A.
Pittsburgh, PA 15265
Exhibit 10(a)
[LOGO OF PNC BANK]
December 29, 1994
Allegheny Ludlum Corporation
1000 Six PPG Place
Pittsburgh, Pennsylvania 15222
Attention: Robert S. Park
Treasurer
LETTER AMENDMENT #3 TO AMENDED AND RESTATED CREDIT AGREEMENT
Gentlemen:
Reference is hereby made to that certain Amended and Restated Credit
Agreement dated as of December 28, 1990 by and among ALLEGHENY LUDLUM
CORPORATION, a corporation organized and existing under the laws of the
Commonwealth of Pennsylvania (the "Company"), PNC BANK, NATIONAL ASSOCIATION
(formerly Pittsburgh National Bank), BANK OF AMERICA ILLINOIS (formerly
Continental Bank and Continental Bank N.A.), MELLON BANK, N.A., THE CHASE
MANHATTAN BANK (NATIONAL ASSOCIATION), INTEGRA BANK/PITTSBURGH (formerly Integra
National Bank/Pittsburgh and The Union National Bank of Pittsburgh) and THE
FIRST NATIONAL BANK OF BOSTON, as the Banks party thereto (the "Banks"), and PNC
BANK, NATIONAL ASSOCIATION (formerly Pittsburgh National Bank), as the agent
thereunder (the "Agent") (the "Original Agreement"), as amended or otherwise
modified by that certain First Amendment to Amended and Restated Credit
Agreement dated as of June 30, 1991 (the "First Amendment"), that certain Second
Amendment to Amended and Restated Credit Agreement dated as of October 31, 1991
(the "Second Amendment"), that certain letter amendment dated December 17, 1991
(the "Letter Amendment"), that certain Third Amendment to Amended and Restated
Credit Agreement dated as of June 30, 1992 (the "Third Amendment"), that certain
Consent #1 to Amended and Restated Credit Agreement dated May 28, 1993 (the
"Consent #1"), that certain Fourth Amendment to Amended and Restated Credit
Agreement dated as of June 30, 1993 (the "Fourth Amendment"), that certain
letter amendment dated November 11, 1993 (the "Letter Amendment #2") and that
certain Fifth Amendment to Amended and Restated Credit Agreement dated as of
June 30, 1994 (the "Fifth Amendment") (the Original Agreement, the First
Amendment, the Second Amendment, the Letter Amendment, the Third Amendment, the
Consent #1, the Letter Amendment #2, the Fourth Amendment and the Fifth
Amendment together with all further amendments and modifications thereto and
thereof shall hereinafter be referred to as the "Existing Agreement"). Each
capitalized term used in this Letter Amendment #3 as a defined term, which is
not defined herein but which is defined in the Existing Agreement, shall have
the meaning given it in the Existing Agreement.
<PAGE>
Allegheny Ludlum Corporation
December 29, 1994
Page 2
Except as set forth in either Section 6.2 of the Existing Agreement or in
Consent #1, the Company and each of its Subsidiaries are prohibited from,
directly or indirectly, suffering, entering, assuming or incurring any
Guarantee. In connection with the continued growth of the Company, the Company
has requested that the Banks agree to increase the basket of additional
Guarantees which the Company and its Subsidiaries are permitted to incur
pursuant to the term of Subsection 6.2(vii) of the Existing Agreement to an
aggregate amount not to exceed $20,000,000 at any one time outstanding.
In response to your request, we wish to inform you that such of the Banks
as comprise the Requisite Banks have agreed to amend the Existing Agreement as
follows:
Section 6.2 of the Existing Agreement is hereby amended and
restated in its entirety to read as follows:
6.2 Guarantees and Contingent Liabilities. Directly or
-------------------------------------
indirectly, suffer to exist, enter into, assume or incur, or permit any
Subsidiary to suffer to exist, enter into, assume or incur, any Guarantee
except (i) the endorsement in the ordinary course of business of negotiable
instruments for collection; (ii) Guarantees issued to support tax exempt
financings, each such existing Guarantee described on Schedule 6.2 (ii)
hereto; (iii) Guarantees of the obligations of Consolidated Subsidiaries of
the type described in items (i) and (ii) above; (iv) the Guarantees of
Athlone and its subsidiaries in an amount not to exceed $75,000,000 in the
aggregate at any one time outstanding relating to the CIT Indebtedness; (v)
the Guarantees set forth on Schedule 6.2(v) hereto for which the
obligations of Athlone and its subsidiaries shall not exceed $5,000,000 in
the aggregate at any one time outstanding; (vi) Guarantees of the
obligations of Persons other than Consolidated Subsidiaries in which the
Company has an ownership interest; provided (A) the Guarantee of each
such Person's obligations is limited to a percentage of such obligation no
greater than the percentage ownership interest of the Company in such
Person and (B) each other Person having an ownership interest in such
Person has issued a similar Guarantee or made a financial contribution to
such Person of equivalent value and (vii) Guarantees of the obligations of
the Company, its Consolidated Subsidiaries and other Persons of the type
not described in items (i) through (vi) above, inclusively, in an aggregate
amount not to exceed $20,000,000 at any one time outstanding.
<PAGE>
Allegheny Ludlum Corporation
December 29, 1994
Page 3
Except as expressly amended by this Letter Amendment #3, the Existing
Agreement and each and every representation, warranty, covenant, term and
condition contained therein is specifically ratified and confirmed.
If the foregoing meets with your approval, please sign and return the
enclosed copy of this Letter Amendment #3 . This Letter Amendment #3 may be
executed in multiple counterparts, any one of which need not contain the
signatures of more than one party but all of which together shall constitute one
instrument.
Very truly yours,
PNC BANK, NATIONAL ASSOCIATION
(formerly Pittsburgh National
Bank)
By: /s/ R. H. Friend
_______________________________
Name: Robert H. Friend
Title: Assistant Vice President
Intending to be legally bound
hereby, the undersigned, by its
duly authorized officer, hereby
consents to and accepts the foregoing
Letter Amendment #3 as of the 30th day
of December, 1994.
ALLEGHENY LUDLUM CORPORATION
By: /s/ R. S. Park
---------------------------------
Name: R. S. Park
-------------------------------
Title: Vice President, Treasurer
-------------------------------
b&f 21858:1
12/06/94:1
000011-001304
<PAGE>
Exhibit 13
FINANCIAL REVIEW
Management's Discussion and Analysis of Financial
Condition and Results of Operations
FINANCIAL OVERVIEW
The United Steelworkers of America (USWA) called a strike at most of the
Company's plants on April 1, 1994 upon the expiration of its contract with
the Company. A new 4-year agreement was reached and employees began returning
to work on June 9, 1994. The strike had a significant adverse impact on the
Company's sales and earnings and caused the first quarterly operating loss in
its history in the second quarter of 1994. Since the conclusion of the
strike, the Company has recovered almost all of its customers with a few
notable exceptions related to lower value products. The Company's level of
operations continued to improve throughout the second half of 1994. The
Company's fourth quarter shipments and sales were at record levels compared
to historical fourth quarters. The Company expects the current strong market
demand to continue into the second quarter of 1995.
Financial results for 1993 and 1994 include the results of Jessop Steel
Company since its acquisition on November 10, 1993.
This financial review covers certain developments during the past three
years relating to the results of operations and financial condition of the
Company.
RESULTS OF OPERATIONS
Net sales by product line were as follows:
<TABLE>
<CAPTION>
Fiscal Year (dollars in millions) 1994 % 1993 % 1992 %
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Stainless Steel $ 834.0 77.5 $ 892.3 81.1 $ 831.4 80.2
Silicon Electrical Steel 141.5 13.1 156.0 14.2 161.1 15.6
Other Specialty Alloys 101.4 9.4 51.9 4.7 43.5 4.2
--------------------------------------------------------------------------------------------------------------------------------
Total Net Sales $1,076.9 100.0 $1,100.2 100.0 $1,036.0 100.0
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
FISCAL YEAR 1994 COMPARED WITH FISCAL YEAR 1993
NET SALES
Net sales dollars decreased 2% in 1994, while shipments decreased 5% to
490,400 tons compared to 518,000 tons in 1993. The labor strike called by the
USWA caused the decrease in sales which was partially offset by the inclusion
of sales from the Washington Plant (Jessop Steel) which was acquired in the
fourth quarter of 1993. The Washington Plant, which has a separate USWA labor
agreement expiring September 30, 1995, continued to produce and ship plate
mill plate products during the 1994 strike.
Stainless steel sales decreased 6% in 1994. The decreases caused by the
strike were only partially offset by sales from the Washington Plant. Sales
also benefited from price increases that became effective on September 5,
1994. The United States domestic stainless steel industry experienced a
record performance in shipments in 1994. Total shipments of U.S. domestic
stainless sheet and strip, the Company's principal product lines, increased
approximately 15% to 1,240,000 tons. The Company believes that the record
U.S. consumption of stainless steel sheet, strip and plate products was the
principal cause of this increase.
Silicon electrical steel sales decreased 9% in 1994 as a direct result
of the strike. Over the past four years, silicon sales have declined due to
lower demand and increased imports. In the first quarter of 1995, silicon
sales continue to be slow.
Other specialty alloy sales increased 95% in 1994 due to the inclusion
of tool steels and other alloy sales from the Washington Plant for the full
year, as compared to the inclusion of such sales for only two months in 1993.
Other specialty alloy sales also benefited from price increases that became
effective in the fourth quarter of 1994.
Export sales decreased to $73 million in 1994 from $79 million in 1993.
The sales decline was primarily due to lower shipments caused by the strike
and was partially offset by increased sales of higher priced Precision Rolled
Strip(Trademark) stainless steel and plate mill plate products.
OTHER EVENTS
The Company's primary melt shop at Brackenridge, PA, is currently operating
at capacity; therefore, the melt shops at Natrona, PA, and Lockport, NY,
recently have been increasing operating activity. To the extent necessary,
the Company believes that it will be able to fulfill its needs by this
supplemental melting and by purchasing modest amounts of stainless steel
slabs on reasonable terms and conditions to meet the strong domestic sales
demand.
21
<PAGE>
During late 1994 and early 1995, the Company experienced rising raw
material and other costs which caused the Company to institute several price
increases and selling price surcharges. Selling prices for stainless steel
sheet, strip and continuous mill plate were increased approximately 5% and
silicon electrical steel products were increased approximately 6%, both
effective January 2, 1995. On the same date, the Company implemented
molybdenum selling price surcharges to cover rapidly rising costs of this raw
material. Selling prices for high technology alloys, a type of other
specialty alloy, were increased 3 to 4% effective February 1, 1995. On March
6, 1995, the Company implemented selling price surcharges for nickel and
ferrochromium to cover the rising costs of these raw materials. The Company
has announced a price increase of approximately 5% for stainless steel sheet,
strip and plate products effective with May 1, 1995 shipments.
As a result of successful trade cases by the Company and others,
beginning in 1994, importers of silicon electrical steel from Italy and Japan
were required to post either cash or bonds of 85% and 31%, respectively, of
the value of these products. Imports of stainless steel increased and imports
of silicon steel remained at high levels in fiscal year 1994. The Company
intends to consider whether other foreign producers are selling below cost
and/or are being subsidized and will file additional trade cases as
appropriate.
COST AND EXPENSES
COST OF PRODUCTS SOLD includes raw material costs, labor costs, energy costs
(primarily electricity and natural gas), and other operating and support
costs related to the manufacturing process. Cost of products sold as a
percentage of sales increased 5 percentage points in 1994 compared to 1993.
The increase was primarily caused by raw material price increases, reduced
sales due to the strike and continuing fixed costs, the expense of the hourly
signing bonus resulting from the new labor contract with the USWA and a bonus
for salaried employees.
Raw material costs are the major component of cost of products sold and
include expenditures for carbon and alloy scrap, nickel and nickel alloys,
ferrochromium, ferrosilicon, molybdenum and molybdenum alloys, manganese and
manganese alloys and other alloying materials. Raw material costs increased
23% in 1994 compared to 1993 on a per net ton shipped basis, primarily due to
higher scrap and nickel prices. During the first quarter of 1995, market
prices for ferrochromium, nickel and molybdenum have increased substantially.
The Company expects that its costs of ferrochromium, nickel and molybdenum
will increase during the first half of 1995.
Labor costs per net ton shipped increased 11% in 1994 compared to 1993
primarily as a result of the hourly signing bonus and contractual increases
resulting from the July 1, 1994 labor contract and a shift in mix to higher
cost products. The significant economic terms of the new labor contract
provide for hourly base pay increases in each of the four years of the
contract, an increase in future pensions, a signing bonus of $3,000 per
employee in 1994, benefit increases and increased profit sharing. Excluding
the signing bonus, the Company expects that the annual cost increase of this
4-year contract will average approximately 3%. The Company believes that the
economic terms of the contract are competitive with the agreements that the
USWA has negotiated with other steel companies.
Energy costs per net ton shipped increased 4.5% in 1994 compared to
1993 primarily as a result of higher unit prices for electricity.
Depreciation and amortization increased due to capital additions and
the inclusion of the assets of the Washington Plant and a full year's
amortization expense for cost in excess of net assets acquired in the 1993
acquisition.
RESEARCH, DEVELOPMENT AND TECHNOLOGY COSTS relate to efforts to develop
new products and product applications, improved or new manufacturing methods,
process improvements, quality assurance methods and cost reductions. The
decrease in 1994 was primarily due to the strike which resulted in lower
technical support of manufacturing processes and lower expense for profit-
related compensation plans. The Company's continued control over spending also
contributed to the decrease in the 1994 fiscal year.
COMMERCIAL AND ADMINISTRATIVE EXPENSES include salaries and benefits of
sales, executive and other non-manufacturing administrative personnel and
related corporate support expenditures. These costs remained flat in 1994
compared to 1993 as the additional costs of the Washington Plant were offset
by lower expense for profit-related compensation plans and the Company's
continued control over spending during the 1994 fiscal year.
INTEREST EXPENSE-NET increased in 1994 as a result of lower interest
income due to lower cash balances available resulting from the use of cash
reserves during the strike.
LOSS OR GAIN FROM THE LIMITED PARTNERSHIP investment reflected the
recording of equity valuation decreases or increases for the partnership
investment. At the end of the first quarter of 1994, the Company voluntarily
contributed an investment in the limited partnership fund to an irrevocable
trust established for the purpose of partially funding the retiree medical
benefits obligation the Company has to its employees represented by the USWA.
The Company has also contributed $5 million in cash and investments it had
made in a second limited partnership fund, in the amount of $5.6 million, to
the trust. Returns from investments in this trust are being recorded in
accordance with FAS No. 106.
OTHER INCOME-NET was particularly significant in 1993 due to the
inclusion of a cash payment the Company received in 1993 in settlement of a
lawsuit for patent infringement against Nippon Steel.
22
<PAGE>
The EFFECTIVE TAX RATE of 44.7% for 1994 compares to 40.5% for 1993.
The increase was primarily a result of a decrease in the Pennsylvania
corporate net income tax rate from 12.25% to 9.99% over the years 1994
through 1997 and the full year's amortization of cost in excess of net assets
acquired which is not tax deductible. Since the Company has a deferred tax
asset, the change in rate reduced the previously recorded deferred tax
benefits and required the Company to record a one-time charge for additional
tax expense of approximately $1 million in the second quarter of 1994.
FISCAL YEAR 1993 COMPARED WITH FISCAL YEAR 1992
NET SALES
Net sales increased 6% in 1993 while shipments increased 8% to 518,000 tons
in 1993 from 479,100 tons in 1992. The increases were due to increased
shipments of stainless steel and specialty alloy products which were
partially offset by slightly lower shipments of silicon electrical steel
products. Sales price pressures were encountered in 1993, particularly in
commodity stainless steel products in the fourth quarter of the year.
Stainless steel sales increased 7% in 1993 due to higher demand,
especially for emission control stainless steel for the automotive industry,
and the inclusion of sales from the Washington Plant (Jessop Steel) beginning
in November 1993.
Silicon electrical steel sales decreased 3% in 1993 due to lower
domestic demand and increased imports, which were partially offset by
increased shipments of finished export products.
Other specialty alloy sales increased 19% primarily as a result of
including sales of Jessop(Trademark) tool steels beginning in November 1993.
Export sales increased to $79 million in 1993 compared to $69 million
in 1992 due primarily to increased shipments of finished stainless steel and
finished silicon electrical steel products.
COST AND EXPENSES
Cost of products sold as a percentage of sales decreased 2.3 percentage
points in 1993 compared to 1992 reflecting lower raw material costs, lower
per net ton labor costs, and lower energy costs. These improvements were
partially offset by additional costs related to the planned production
outages at certain of the Company's Pennsylvania locations to upgrade certain
melting and hot rolling facilities.
Raw material costs decreased 12% in 1993 compared to 1992 on a per net
ton shipped basis, primarily due to lower nickel costs.
Labor costs per net ton shipped decreased 3% in 1993 compared to 1992.
The decrease in labor costs reflected productivity improvements which were
partially offset by scheduled contractual wage increases.
Energy costs per net ton shipped decreased 5% in 1993 compared to 1992
primarily as a result of decreased usage which offset higher energy prices.
Depreciation and amortization increased due to the Company's capital
project additions and the addition of the assets of the Washington Plant and
costs in excess of net assets acquired as a result of the November 1993
acquisition.
Research, development and technology costs increased slightly in 1993
primarily due to increased technical support of manufacturing processes,
increased expense for compensation plans related to Company financial results
or common stock values, and expenses for certain projects under development.
Commercial and administrative expenses increased in 1993 compared to
1992 reflecting the inclusion of Washington Plant expenditures, normal salary
increases and higher benefit costs, and increased expense for compensation
plans related to Company financial results or common stock values.
Interest expense-net decreased in 1993 primarily due to increased interest
income from higher cash balances which partially offset increased interest
expense resulting from the full year impact of the $100 million of convertible
subordinated debentures issued in March of 1992.
Gain from limited partnership was the result of recording equity income
from a subsidiary's investment in Code, Hennessy & Simmons, a limited
partnership fund. The fund distributed $22.8 million in cash to the subsidiary
in 1993.
Other income-net increased significantly due to the favorable settlement
of the patent infringement lawsuit against Nippon Steel Corporation.
FINANCIAL CONDITION
In 1994 cash from operations of $39.0 million and cash on hand and short-term
investments from the prior year of $98.6 million were used to invest $52.7
million in capital equipment, pay $25 million of debt incurred by the parent of
Jessop Steel prior to its acquisition, repay $6.9 million of long-term debt, buy
$10.9 million of treasury stock and pay $34.0 million in dividends.
Working capital of $225.4 million at January 1, 1995 compares to $258.9
million at the end of 1993. The current ratios for 1994 and 1993 were 2.3 and
2.2, respectively. The debt to capitalization ratio was 27% in 1994 compared to
26% in 1993.
23
<PAGE>
Capital expenditures for 1995 are expected to approximate $30 million
including $7.2 million for pollution abatement equipment. Many of the final
regulations have not been issued under the Clean Air Act Amendments of 1990.
When issued, such regulations may affect the Company's operations and plans for
capital expenditures in the future. The Company continues to believe that it
will be able to meet the new requirements while continuing its commitment to
capital reinvestment.
In addition to the capital expenditure program, the Company has committed
to invest $30 million in a second Code, Hennessy and Simmons limited partnership
fund over a five year period. At January 1, 1995, $5.6 million of this
commitment had been invested. In 1994, the Company contributed this $5.6 million
investment to an irrevocable trust of the Company established for the purpose of
partially funding certain retiree medical obligations.
Internally generated funds, the availability of borrowings from existing
credit arrangements and current cash on hand should be adequate to meet
foreseeable needs.
The Company expects its deferred tax assets to be realized in future
periods due to the reversal of other offsetting temporary tax differences and
the favorable profitability outlook.
Assets held for sale include assets net of liabilities acquired and
valuation reserves of Green River Steel Corporation and Reynolds Fasteners, Inc.
acquired in 1993. These businesses do not meet the Company's strategic
objectives, and therefore are held for sale. The results of these businesses
will be included as a separate line item in the Company's results of operations
beginning in fiscal 1995 until sold. The net income of these businesses in the
amount of $3.6 million, which resulted from the Company's successful efforts to
improve their productivity and reduce their costs, was excluded from the
Company's 1994 results.
In 1994, the Company increased the discount rates used in the estimates of
its liabilities related to pensions and postretirement benefits from 7.5% to
8.0%. This change did not affect the cash flow of the Company and is not
expected to have a material effect on operating results.
As a result of plan amendments in settlement of the union contract, in
1994, the Company increased its pension liability, recorded an intangible asset
which is included in other assets and recorded an equity adjustment, net of
taxes, related to the minimum pension liability. In addition, as part of the
contract settlement, the amount recorded as postretirement benefit liability
increased, but this increase had no impact on the Company's balance sheet. The
decline in postretirement benefit liability compared to 1993 resulted primarily
from the contributions the Company made to the irrevocable trust mentioned
above.
OTHER MATTERS
Although inflationary trends in recent years have been moderate, during the same
period certain critical raw material costs have been volatile. The Company uses
the last-in, first-out method of inventory accounting which reflects current
costs in the cost of products sold. The Company considers these costs, the
increasing costs of equipment and other costs in establishing its sales pricing
policies and, has previously and currently in 1995 instituted raw material
surcharges to the extent permitted by competitive factors in the marketplace.
The Company continues to emphasize cost containment in all aspects of its
business.
In 1992, the Company, through its Austrian joint venture partner, Voest-
Alpine Industrieanlagenbau GmbH ("VAI"), completed construction of the first
COILCAST(Trademark) commercial-size prototype thin strip direct casting machine
to produce stainless and carbon steel flat products directly from molten steel.
The results of this developmental work have proceeded more slowly than planned;
the timing and commercialization of the technology is uncertain. Trial casts
by the prototype in the United States stopped due to the strike and have not yet
resumed. Developmental activity in Austria by VAI related to the joint venture
is continuing.
HEDGING
The Company uses derivative financial instruments from time-to-time to hedge
ordinary business risks regarding foreign currencies on product sales and to
partially hedge against volatile raw material cost fluctuations. The Company
believes that adequate controls are in place to monitor these activities which
are not financially material.
ACQUISITION
On November 10, 1993, the Company completed the purchase of the stock of Athlone
Industries, Inc. See Note 11 of the Notes to the Consolidated Financial
Statements for the effect of the acquisition on the Company's financial
statements.
ACCOUNTING PRONOUNCEMENTS
FAS Statement No. 119, "Disclosure About Derivative Financial Instruments and
Fair Value of Financial Instruments," was issued in 1994 and is effective for
fiscal years ending after December 15, 1994. The statement did not have a
material impact on the Company.
24
<PAGE>
ALLEGHENY LUDLUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
(In thousands of dollars except per share amounts)
--------------------------------------------------------------------------------------------------------------------------
JANUARY 1, January 2, January 3,
Fiscal Year Ended 1995 1994 1993
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $1,076,871 $1,100,187 $1,036,029
Costs and expenses:
Cost of products sold 915,039 877,662 850,180
Research, development and technology 36,545 41,901 40,729
Commercial and administrative 45,752 46,048 41,089
Depreciation and amortization 38,167 30,708 27,578
--------------------------------------------------------------------------------------------------------------------------
1,035,503 996,319 959,576
--------------------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 41,368 103,868 76,453
Other income (expense):
Interest expense - net (6,003) (2,638) (3,774)
(Loss) gain from limited partnership (2,590) 15,740 8,808
Other income - net 167 1,996 (2,688)
--------------------------------------------------------------------------------------------------------------------------
(8,426) 15,098 2,346
--------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 32,942 118,966 78,799
INCOME TAXES 14,730 48,206 31,942
--------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 18,212 70,760 46,857
CUMULATIVE EFFECT OF ACCOUNTING CHANGE
(LESS INCOME TAX BENEFIT OF $85,596) -- -- (125,231)
--------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 18,212 $ 70,760 $ (78,374)
--------------------------------------------------------------------------------------------------------------------------
Per Common Share:
Income before cumulative effect of accounting change $ .26 $ 1.06 $ .71
Cumulative effect of accounting change -- -- (1.90)
--------------------------------------------------------------------------------------------------------------------------
Net Income (Loss) $ .26 $ 1.06 $ (1.19)
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
25
<PAGE>
ALLEGHENY LUDLUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(In thousands of dollars)
------------------------------------------------------------------------------------------------------------------------------------
JANUARY 1, January 2,
1995 1994
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 11,185 $ 48,107
Short-term investments -- 50,466
Trade receivables, less allowances for doubtful accounts of $3,715 and $3,791 141,042 110,962
Inventories 232,379 254,764
Prepaid expenses and other current assets 11,035 5,489
------------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 395,641 469,788
Properties, plants and equipment - net 464,977 447,942
Cost in excess of net assets acquired 133,862 144,132
Investment in limited partnership -- 22,764
Deferred income taxes 49,027 54,220
Assets held for sale 37,738 29,117
Other assets 13,453 6,086
------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $1,094,698 $1,174,049
------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,993 $ 3,158
Senior secured notes assumed in 1993 acquisition -- 25,000
Accounts payable 96,417 83,752
Accrued compensation and benefits 46,115 50,864
Deferred income taxes 5,527 13,472
Income taxes 1,596 7,162
Other accrued expenses 18,632 27,469
------------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 170,280 210,877
Long-term debt, less current portion 133,097 138,870
Pensions 135,758 106,227
Postretirement benefit liability 267,136 285,122
Other 26,721 29,531
------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 732,992 770,627
------------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY:
Preferred stock, par value $1: authorized--50,000,000 shares;
issued--none
Common stock, par value $.10: authorized--250,000,000 shares;
issued--72,878,242 shares 7,288 7,288
Additional capital 270,571 269,112
Retained earnings 136,027 152,258
Equity adjustment related to minimum liability for pension plans (20,682) (2,353)
Common stock in treasury at cost--2,227,671 and 1,844,381 shares (31,498) (22,883)
------------------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 361,706 403,422
------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,094,698 $1,174,049
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
26
<PAGE>
ALLEGHENY LUDLUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands of dollars)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
JANUARY 1, January 2, January 3,
Fiscal Year Ended 1995 1994 1993
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income before cumulative effect of accounting change $ 18,212 $ 70,760 $ 46,857
Adjustments to reconcile income before cumulative
effect of accounting change to cash flow from
operating activities:
Depreciation and amortization 38,167 30,708 27,578
Loss (gain) from limited partnership investment 2,590 (15,740) (8,808)
Deferred taxes 3,141 (3,143) (5,255)
Change in operating assets and liabilities:
Long-term pension liability (13,385) (10,840) (5,985)
Long-term postretirement liability 2,876 18,236 13,022
Deferred employee benefits (3,118) 4,185 1,312
Trade receivables (30,080) 359 (2,768)
Inventories 22,385 15,441 49,254
Trade payables 12,665 1,047 (19,917)
Income taxes payable (5,566) (5,191) 9,619
Net change in other current assets and current liabilities (14,036) (1,265) (1,906)
Other changes 5,181 (339) 606
---------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES 39,032 104,218 103,609
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of properties, plants and equipment (52,738) (50,446) (25,987)
Disposals of properties, plants and equipment 235 242 1,039
Sales (purchases) of short-term investments 50,466 21,649 (72,115)
Increase in limited partnership investment -- (5,437) (5,188)
Limited partnership distribution -- 22,822 1,252
Increase in notes receivable (380) (892) (414)
Payments related to the 1993 acquisition primarily debt payment (25,000) (57,800) --
---------------------------------------------------------------------------------------------------------------------------------
CASH USED BY INVESTING ACTIVITIES (27,417) (69,862) (101,413)
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in short-term debt -- -- (17,000)
Issuance of convertible subordinated debentures -- -- 100,000
Payments on long-term debt (6,938) (7,495) (7,236)
Dividends paid (33,993) (31,571) (28,960)
Purchases of treasury stock (10,910) (1,307) (1,845)
Employee stock plans 3,304 2,687 1,637
---------------------------------------------------------------------------------------------------------------------------------
CASH (USED BY) FROM FINANCING ACTIVITIES (48,537) (37,686) 46,596
---------------------------------------------------------------------------------------------------------------------------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (36,922) (3,330) 48,792
Balance of cash and cash equivalents at beginning of year 48,107 51,437 2,645
---------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 11,185 $ 48,107 $ 51,437
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
27
<PAGE>
ALLEGHENY LUDLUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. Significant intercompany accounts and transactions have been
eliminated.
Business Segment
The Company operates in a single business segment, specialty steel.
Cash and Cash Equivalents
Cash includes currency on hand and demand deposits with financial institutions.
Cash equivalents are short-term, highly liquid investments both readily
convertible to known amounts of cash and so near maturity, three months or less,
that there is insignificant risk of fluctuations in value because of changes in
interest rates and thus the carrying amounts approximate market.
Short-term Investments
Short-term investments are carried at the lower of aggregate cost or market and
include short-term to intermediate-term investments managed by a third party
portfolio manager.
Accounts Receivable
The Company markets its products to a diverse customer base, principally
throughout the United States. Trade credit is extended based upon evaluations of
each customer's ability to perform its obligations, which are updated
periodically. Credit losses are provided for in the financial statements and
have been within management's expectations.
Inventories
Inventories are valued at the lower of cost or market. Cost for most inventories
is determined by the last-in, first-out (LIFO) method. Inventories not on LIFO
(1994 -- $25,031,000; 1993 -- $55,266,000) are determined using the average cost
method.
Properties, Plants and Equipment
Properties, plants and equipment are carried at cost. Depreciation is computed
using the straight-line method at rates considered sufficient to amortize the
costs over the estimated service lives. Depreciation for income tax purposes is
computed principally using accelerated methods.
Investment in Limited Partnership
Investment in limited partnership is stated at the pro rata share of the limited
partnership's equity that was held by a subsidiary company. The limited
partnership's net income includes realized and unrealized gains and losses on
portfolio investments. In the first quarter of 1994, the Company contributed an
investment in the limited partnership fund to an irrevocable trust for the
purpose of partially funding retiree benefit obligations. The Company also
contributed investments it had made in a second limited partnership fund, in the
amount of $5.6 million, to the trust. The Chairman of the Company serves on
advisory boards of the limited partnerships.
Taxes on Income
Provisions for income taxes include deferred taxes resulting from temporary
differences in income for financial and tax purposes using the liability method.
Such temporary differences result primarily from differences in the carrying
value of assets and liabilities.
Fiscal Year-End
The Company's fiscal year ends on the Sunday nearest to December 31.
Net Income per Share of Common Stock
Net income per share is based upon the weighted average number of shares of
common stock outstanding. The weighted average number of shares was 70,827,362
for the fiscal year ended January 1, 1995, 66,614,353 for the fiscal year ended
January 2, 1994 and 65,823,496 for the fiscal year ended January 3, 1993. The
weighted average number of shares of common stock outstanding and all per share
amounts have been restated for the 2-for-1 stock split effected in July, 1993.
28
<PAGE>
NOTE 2 -- INVENTORIES
<TABLE>
<CAPTION>
JANUARY 1, January 2,
(In thousands of dollars) 1995 1994
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 52,332 $ 55,647
Work-in-process and finished products 213,282 208,648
Supplies 16,048 16,609
----------------------------------------------------------------------------------------------------------------------
Total inventories at current cost 281,662 280,904
Less allowance to reduce current cost values to LIFO basis 49,283 26,140
----------------------------------------------------------------------------------------------------------------------
TOTAL INVENTORIES $232,379 $254,764
----------------------------------------------------------------------------------------------------------------------
</TABLE>
Certain LIFO inventory quantities were reduced, resulting in a liquidation
of items carried at costs that prevailed in prior years. The effect of the
liquidations was to increase net income in 1994 by approximately $543,000 and in
1993 by approximately $1,531,000 and to decrease net income in 1992 by
approximately $4,252,000.
The Company enters into raw material (principally nickel) future contracts
from time to time to hedge its exposure to price fluctuations. Gains and losses
on hedged contracts are deferred and recognized in cost of sales upon expiration
of the hedged period. These contracts are not significant to the Company's total
raw material purchases.
NOTE 3 -- PROPERTIES, PLANTS AND EQUIPMENT
<TABLE>
<CAPTION>
JANUARY 1, January 2,
(In thousands of dollars) 1995 1994
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 8,220 $ 8,230
Buildings 64,679 62,465
Machinery and equipment 591,277 542,413
----------------------------------------------------------------------------------------------------------------------
664,176 613,108
Less allowance for depreciation and amortization 199,199 165,166
----------------------------------------------------------------------------------------------------------------------
TOTAL PROPERTIES, PLANTS AND EQUIPMENT $464,977 $447,942
----------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 4 -- CREDIT AGREEMENTS AND LONG-TERM DEBT
CREDIT AGREEMENTS
The Company's credit agreements with a group of banks provide for borrowings of
up to $150,000,000 on a revolving credit basis. Interest is payable at prime or
other alternative interest rate bases, at the Company's option. Annual
commitment fees range from 1/8% to 1/4% on the unused portion of the credit
line. The revolving credit facilities were not used in 1994.
The credit agreements have various covenants which limit the Company's
ability to purchase its own stock, dispose of properties and merge with another
corporation. The Company is also required to maintain certain financial ratios
as defined in the agreements which also limits the amount of dividend payments.
Under the most restrictive requirement, 74% of retained earnings is free of
restrictions pertaining to cash dividend distributions and/or share repurchases.
Borrowings outstanding under the credit agreements are unsecured.
DEBENTURES
In March 1992, the Company issued $100 million of 5 7/8% convertible
subordinated debentures due in a single maturity on March 15, 2002. The
debentures can be converted into the Company's common stock at a conversion
price of $20.25 per share. The debentures can be called at a premium beginning
March 15, 1995. In the first year, the redemption price is 104.11%.
OTHER
The industrial revenue bonds and capital lease obligations consist of 11
separate issues at January 1, 1995. Nine issues (aggregating $24,884,000) have
an average interest rate of 4.8%, and two issues ($10,206,000) have variable
interest rates, ranging from 1.75% to 6.3%. The average interest rate for all
outstanding issues was 4.8% in 1994, 4.6% in 1993, and 4.8% in 1992. The
variable rate obligations are subject to remarketing agreements, which provide
that the bondholder may present the bonds to a remarketing agent for purchase
prior to the stated maturity date. Bonds presented to the remarketing agent are
then resold in the bond market.
29
<PAGE>
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JANUARY 1, January 2,
(In thousands of dollars) 1995 1994
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
5 7/8% convertible subordinated debentures $100,000 $100,000
Industrial revenue bonds due 1995 through 2007 19,425 24,873
Capital lease obligations under industrial revenue bonds
due 1995 through 2007 15,665 17,155
-------------------------------------------------------------------------------------------------------------------------
135,090 142,028
Less current portion 1,993 3,158
-------------------------------------------------------------------------------------------------------------------------
TOTAL LONG-TERM DEBT $133,097 $138,870
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
Properties, plants and equipment include the following amounts for leases
that have been capitalized:
<TABLE>
JANUARY 1, January 2,
(In thousands of dollars) 1995 1994
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land and buildings $ 2,693 $ 2,693
Machinery 18,054 18,054
-------------------------------------------------------------------------------------------------------------------------
20,747 20,747
Less allowance for amortization 9,218 8,067
-------------------------------------------------------------------------------------------------------------------------
TOTAL LEASES $ 11,529 $ 12,680
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
Amortization of leased assets is included in depreciation and amortization
expense.
Scheduled maturities of all long-term obligations for the five years
succeeding January 1, 1995 are $1,993,000 in 1995, $1,940,000 in 1996,
$1,914,000 in 1997, $1,974,000 in 1998 and $1,499,000 in 1999.
Interest expense was $8,515,000 in 1994, $8,668,000 in 1993 and $8,000,000
in 1992. Interest and commitment fees paid amounted to $8,448,000 in 1994,
$8,149,000 in 1993 and $6,090,000 in 1992.
NOTE 5 -- PENSION PLANS AND OTHER POSTEMPLOYMENT BENEFITS
The Company and its subsidiaries have several defined benefit pension plans and
several defined contribution plans, which cover substantially all of their
employees. Benefits under the defined benefit pension plans are generally based
on years of service and the employee's average annual compensation in the five
consecutive years of the ten years prior to retirement in which such earnings
were the highest. The Company funds at least the amount necessary to meet the
minimum funding requirements of ERISA and the Internal Revenue Code.
The following table sets forth the funded status and amount recognized for
the defined benefit pension plans in the consolidated balance sheets:
<TABLE>
<CAPTION>
JANUARY 1, January 2,
(In thousands of dollars) 1995 1994
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of accumulated benefit obligations, including
vested benefits of $507,565 in 1994 and $489,933 in 1993 $535,057 $524,008
-------------------------------------------------------------------------------------------------------------------------
Actuarial present value of projected benefit obligations for services
rendered to date 600,668 568,362
Less plan assets at fair value, primarily listed stocks, government
securities and pooled investment funds 393,048 416,790
-------------------------------------------------------------------------------------------------------------------------
PROJECTED BENEFIT OBLIGATIONS IN EXCESS OF PLAN ASSETS 207,620 151,572
Unrecognized net loss from past experience different from assumed (60,651) (34,752)
Unrecognized prior service costs (48,518) (9,468)
Additional minimal liability 44,761 5,327
-------------------------------------------------------------------------------------------------------------------------
PENSION LIABILITIES $143,212 $112,679
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE>
Pension liabilities are included in the balance sheets as follows:
<TABLE>
<CAPTION>
JANUARY 1, January 2,
(In thousands of dollars) 1995 1994
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accrued compensation and benefits $ 7,454 $ 6,452
Pensions 135,758 106,227
-------------------------------------------------------------------------------------------------------------------------------
TOTAL PENSION LIABILITIES $143,212 $112,679
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
A summary of the net pension cost for the defined benefit pension plans
is as follows:
<TABLE>
<CAPTION>
(In thousands of dollars) 1994 1993 1992
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost -- benefits earned during the period $ 7,520 $ 4,751 $ 4,271
Interest cost on projected benefit obligations 40,150 33,916 32,450
Actual return on plan assets 3,674 (28,935) (29,423)
Net amortization and deferral (35,803) 1,058 3,391
-------------------------------------------------------------------------------------------------------------------------------
NET PENSION COST $ 15,541 $ 10,790 $ 10,689
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Unrecognized prior service costs increased in 1994 as a result of the new
four year contract with the USWA.
The average discount rate used in determining the actuarial present value
of the projected benefit obligations was 8.0% in 1994 and 7.5% in 1993. The
rates of increase of future years' compensation levels ranged from 3% to 4% in
1994, 1993 and 1992. The expected long-term rate of return on plan assets was 9%
in 1994, 1993 and 1992.
On November 10, 1988, the Board of Directors amended the salaried defined
benefit pension plan to provide that no benefits would accrue thereunder on or
after January 1, 1989. At the same time, the Board also adopted, effective
January 1, 1989, a defined contribution plan. Pension costs for this plan were
$5,165,000 in 1994, $4,746,000 in 1993 and $4,407,000 in 1992.
The Company has guaranteed employees who meet certain age and service
criteria that at retirement their aggregate benefit from the salaried defined
benefit pension plan and the defined contribution plan will not be less than the
benefit which would have been payable from the salaried defined benefit pension
plan if such plan had not been amended.
Other Postretirement Benefit Plans
The Company sponsors several defined benefit postretirement plans covering most
salaried and hourly employees. The plans provide health care and life insurance
benefits for eligible retirees. The basic health care plans are noncontributory,
and the major medical options are contributory, with retiree contributions
adjusted periodically. The life insurance plans are generally noncontributory.
The Company funds postretirement benefit obligations for hourly employees
represented by the USWA based on the available funds and amounts allowable by
the Internal Revenue Code.
The following table sets forth the postretirement benefit plans' combined
funded status reconciled with the amounts recognized in the balance sheet:
<TABLE>
<CAPTION> Health Life
(In thousands of dollars) January 1, 1995 Care Insurance Total
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Accumulated postretirement benefit obligation (APBO):
Retirees $159,089 $13,731 $172,820
Fully eligible active participants 44,560 3,106 47,666
Other active participants 88,613 3,686 92,299
-------------------------------------------------------------------------------------------------------------------------
292,262 20,523 312,785
Less plan assets at fair value, primarily investment
in limited partnership funds 31,834 -- 31,834
-------------------------------------------------------------------------------------------------------------------------
Accumulated postretirement benefit obligations
in excess of plan assets 260,428 20,523 280,951
Unrecognized net gain 4,511 295 4,806
Unrecognized prior service cost (18,742) 121 (18,621)
-------------------------------------------------------------------------------------------------------------------------
Accrued postretirement benefit cost $246,197 $20,939 $267,136
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION> Health Life
(In thousands of dollars) January 2, 1994 Care Insurance Total
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Accumulated postretirement benefit obligation (APBO):
Retirees $134,386 $13,928 $148,314
Fully eligible active participants 38,032 3,075 41,107
Other active participants 97,706 3,833 101,539
--------------------------------------------------------------------------------------------------------------------
270,124 20,836 290,960
Unrecognized net loss (4,168) (1,670) (5,838)
--------------------------------------------------------------------------------------------------------------------
Accrued postretirement benefit cost $265,956 $19,166 $285,122
--------------------------------------------------------------------------------------------------------------------
</TABLE>
Unrecognized prior service costs increased in 1994 as a result of the new
four year contract with the USWA.
The discount rate used in determining the APBO was 8.0% at January 1, 1995
and 7.5% at January 2, 1994. The expected long-term rate of return on plan
assets was 15% in 1994.
Net postretirement benefit expenses included the following components:
<TABLE>
<CAPTION>
Health Life
(In thousands of dollars) 1994 Care Insurance Total
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 6,230 $ 263 $ 6,493
Interest cost 19,390 1,498 20,888
Actual return on plan assets (1,516) -- (1,516)
Net amortization and deferral 47 77 124
-------------------------------------------------------------------------------------------------------------------------------
Net periodic postretirement benefit expense $24,151 $1,838 $25,989
-------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Health Life
(In thousands of dollars) 1993 Care Insurance Total
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 4,700 $ 206 $ 4,906
Interest cost 18,679 1,424 20,103
-------------------------------------------------------------------------------------------------------------------------------
Net periodic postretirement benefit expense $23,379 $1,630 $25,009
-------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Health Life
(In thousands of dollars) 1992 Care Insurance Total
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 4,026 $ 189 $ 4,215
Interest cost 17,069 1,353 18,422
-------------------------------------------------------------------------------------------------------------------------------
Net periodic postretirement benefit expense $21,095 $1,542 $22,637
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The annual assumed rate of increase in the per capita cost of covered
benefits (the health care cost trend rate) for health care plans is 10.8% for
1995 and is assumed to decrease to 5.25% by 2002 and remain at that level
thereafter. The health care cost trend rate assumption has a significant effect
on the amounts reported. If the assumed health care cost trend rates were
increased by one percentage point in each year, this would increase the APBO for
health care plans as of January 1, 1995 by $40,607,000 and the aggregate of
service and interest cost components of net periodic postretirement benefit
expense for 1994 by $3,162,000.
The actual cash payments of retiree health care and life insurance
benefits totaled approximately $13,064,000 in 1994, $9,295,000 in 1993 and
$9,615,000 in 1992. The 1994 amount includes payments resulting from the 1993
acquisition.
32
<PAGE>
NOTE 6 -- SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Additional Retained Treasury
(In thousands of dollars except per share amounts) Stock Capital Earnings Shares
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 29, 1991 $6,772 $160,808 $220,544 $(23,635)
----------------------------------------------------------------------------------------------------------------------------
Net loss (78,374)
Dividends on common stock at $.44 per share (28,960)
Employee stock plans 68 (41) 1,607
Purchase of 123,200 treasury shares at cost (1,845)
----------------------------------------------------------------------------------------------------------------------------
BALANCE AT JANUARY 3, 1993 6,772 160,876 113,169 (23,873)
----------------------------------------------------------------------------------------------------------------------------
Net income 70,760
Dividends on common stock at $.47 per share (31,571)
Common stock issued 516 107,746
Employee stock plans 490 (100) 2,297
Purchase of 65,500 treasury shares at cost (1,307)
----------------------------------------------------------------------------------------------------------------------------
BALANCE AT JANUARY 2, 1994 7,288 269,112 152,258 (22,883)
----------------------------------------------------------------------------------------------------------------------------
Net income 18,212
Dividends on common stock at $.48 per share (33,993)
Employee stock plans 1,459 (450) 2,295
Purchase of 571,300 shares at cost (10,910)
----------------------------------------------------------------------------------------------------------------------------
BALANCE AT JANUARY 1, 1995 $7,288 $270,571 $136,027 $(31,498)
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Preferred Stock
The authorized preferred stock may be issued in one or more series, with
designations, powers and preferences as shall be designated by the Board of
Directors. At January 1, 1995, there were no shares of preferred stock issued.
Common Stock
The Board of Directors adopted and the shareholders approved the 1987 Stock
Option Incentive Plan ("Plan") in March, 1987. The Plan, which expires January
1, 1997, provides for the granting of stock options and stock appreciation
rights ("Awards") of up to 2,700,000 shares of common stock to key employees.
Awards may be granted under the Plan at a price not less than the fair
market value of the stock as determined by the Personnel and Compensation
Committee ("Committee") on the date the Awards are granted. Awards will not be
immediately exercisable and vesting of the Awards will be established at the
date of each grant but generally will not be more rapid than the rate of one-
third of the number of shares on each of the third, fourth, and fifth
anniversaries of the Award.
Transactions under the Plan are summarized as follows:
<TABLE>
<CAPTION>
Stock
Appreciation
Stock Options Rights Price Range
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 29, 1991 1,098,224 11,250
Granted 22,340 -- $16.50
Exercised (52,920) -- 8.33-11.08
Cancelled (68,492) -- 8.33-10.75
--------------------------------------------------------------------------------------------------------------------------
Balance at January 3, 1993 999,152 11,250
Granted 620,400 -- 22.94
Exercised (153,489) (11,250) 8.33-11.08
Cancelled (14,601) -- 10.75
--------------------------------------------------------------------------------------------------------------------------
Balance at January 2, 1994 1,451,462 --
Granted 33,068 -- 19.88
Exercised (119,731) -- 8.33-11.88
Cancelled (44,935) -- 10.75-22.94
--------------------------------------------------------------------------------------------------------------------------
Balance at January 1, 1995 1,319,864 --
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE>
At January 1, 1995 there were 265,507 options for shares exercisable under
the Plan.
In March 1987, the Board of Directors adopted and the shareholders
approved a Performance Share Plan for Key Employees, which provides that the
Chief Executive Officer may establish certain performance objectives for a
period established by the Board. The Committee, with the advice of the Chief
Executive Officer, may grant performance units payable in common stock and/or
cash to key employees. Up to 900,000 shares of common stock were reserved for
the Plan. Upon full or partial achievement of the performance objectives for the
period, the full or partial dollar amount and/or number of shares of common
stock credited to an employee's account will be distributed to the employee in
three equal annual installments.
A three-year award period under the Performance Share Plan began in 1991
and 97% of the performance objectives to be achieved during this award period
were achieved. Payments equal to 92.5% of the base value of awarded units began
in 1994. Forty-three participants hold an aggregate of 69,050 performance units.
The base value of each unit consists of $50 in cash and four shares of common
stock.
In February 1994, the Board of Directors established the 1994-1996 award
period under the Performance Share Plan and the performance objectives to be
achieved during that award period were set. The base value of each unit
consisted of $50 in cash and four shares of common stock. In November 1994, the
Board of Directors established the 1995-1996 award period under the Performance
Share Plan. The awards for the 1995-1996 award period replaced the units awarded
to the participants for the 1994-1996 award period. The performance objectives
to be achieved during the 1995-1996 award period have been set, and 42 employees
hold an aggregate of 79,000 performance units for the 1995-1996 award period.
The base value of each unit consists of $50 in cash and four shares of common
stock.
In 1994, the Board of Directors adopted and the shareholders approved a
Stock Acquisition and Retention Plan. The Plan provides participating officers
with an opportunity to purchase additional shares of common stock directly from
the Company and provides for the grant of one share of restricted stock for each
two shares purchased under the Plan and one share of restricted stock for each
two shares of common stock already owned by a participant that are designated as
subject to the Plan. In general, the restricted shares will vest only if the
participant retains the shares that are purchased and/or designated by the
participant as subject to the Plan for five years. The expense related to the
Plan is being recognized over the vesting period. A maximum of 1,000,000 shares
is available for issuance under the Plan. In 1994, 17,681 restricted shares of
common stock were issued under the plan.
In 1993, the Board of Directors adopted and the shareholders approved a
Director Share Incentive Plan, which provides for the annual delivery to non-
employee directors of the Company of shares of common stock (rounded to the
nearest whole share) with a fair market value equal to $5,000. A total of
200,000 shares have been reserved for the plan. Pursuant to the plan, on January
3, 1994, each of the Company's nine non-employee directors received 209 shares
of common stock and on January 3, 1995, each of the Company's eleven non-
employee directors received 268 shares of common stock.
NOTE 7 -- FAIR VALUES OF FINANCIAL INSTRUMENTS
Fair Values of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
financial instruments.
Cash and cash equivalents
The carrying amount approximates fair value because of the short maturity
of those instruments.
Short-term investments
The fair values are based on quoted market prices or other fair value
estimates as provided by third party portfolio managers.
Debentures
The fair value of the 5 7/8% convertible subordinated debentures is based
on quoted market prices.
Long-term debt
The fair values of long-term debt obligations are established from the
market value of each issue if available or from market values of similar
issues.
34
<PAGE>
The carrying amounts and fair values of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
January 1, 1995 January 2, 1994
(In thousands of dollars) Carrying Amount Fair Value Carrying Amount Fair Value
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 11,185 $ 11,185 $ 48,107 $ 48,107
Short-term investments -- -- 50,466 50,703
5 7/8% convertible subordinated debentures 100,000 100,050 100,000 125,500
Long-term debt 35,090 34,133 42,028 42,692
Senior secured notes acquired in 1993 acquisition repaid in 1994 -- -- 25,000 25,000
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 8 -- TAXES ON INCOME
Income taxes (credits) consist of the following:
<TABLE>
<CAPTION>
(In thousands of dollars) 1994 1993 1992
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 9,411 $40,653 $28,442
State 2,178 10,696 8,755
------------------------------------------------------------------------------------------------------------------------------
Subtotal current expense 11,589 51,349 37,197
------------------------------------------------------------------------------------------------------------------------------
Deferred:
Federal 571 (1,828) (3,393)
State 2,570 (1,315) (1,862)
------------------------------------------------------------------------------------------------------------------------------
Subtotal deferred expense 3,141 (3,143) (5,255)
------------------------------------------------------------------------------------------------------------------------------
Total income tax expense $14,730 $48,206 $31,942
------------------------------------------------------------------------------------------------------------------------------
Income taxes paid $14,385 $56,649 $27,379
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following is a reconciliation of the statutory federal income tax rate
to the actual effective income tax rate:
<TABLE>
<CAPTION>
Percent of pretax income 1994 1993 1992
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal tax rate 35.0% 35.0% 34.0%
State and local income taxes, net of federal tax benefit 9.4 5.1 5.8
Amortization of cost in excess of net assets acquired 3.8 -- --
Other (3.5) 0.4 0.7
--------------------------------------------------------------------------------------------------------------------------------
Total effective income tax rate 44.7% 40.5% 40.5%
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Deferred tax assets and/or liabilities result from temporary differences
in the recognition of income and expense for financial and income tax reporting
purposes, and differences between the fair value of assets acquired in business
combinations accounted for as purchases for financial reporting purposes and
their corresponding tax bases. They represent future tax benefits or costs to be
recognized when those temporary differences reverse. The categories of assets
and liabilities which have resulted in differences in the timing of the
recognition of income and/or expense are as follows:
35
<PAGE>
<TABLE>
<CAPTION>
Deferred Tax Assets
(In thousands of dollars) 1994 1993
----------------------------------------------------------------------------------------------
<S> <C> <C>
Postretirement benefits other than pensions $107,284 $ 99,850
Deferred compensation and other benefit plans 71,604 45,209
Other items 18,524 12,800
----------------------------------------------------------------------------------------------
Total deferred tax assets 197,412 157,859
<CAPTION>
Deferred Tax Liabilities
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Basis of property, plant and equipment - net 113,212 71,358
Inventory valuation - net 28,175 32,759
Other items 12,525 12,994
-----------------------------------------------------------------------------------------------
Total deferred tax liabilities 153,912 117,111
-----------------------------------------------------------------------------------------------
Net deferred tax asset $ 43,500 $ 40,748
-----------------------------------------------------------------------------------------------
</TABLE>
NOTE 9 -- SUPPLEMENTAL OPERATING INFORMATION
Export sales were $73,000,000 in 1994, $79,000,000 in 1993 and $69,000,000 in
1992.
Direct research and development expenditures aggregated $8,238,000 in
1994, $9,170,000 in 1993 and $10,016,000 in 1992. "Research, development and
technology" in the income statement covers a broad range of activities
throughout the Company.
NOTE 10 -- LITIGATION
As previously announced, the Company is a defendant in a case filed in 1989 by
Allegheny International, Inc. in the United States District Court for the
Western District of Pennsylvania which is being pursued by Sunbeam-Oster
Company, Inc. The case involves claims for reimbursement of various alleged
insurance coverage costs and recovery of a refund received by Allegheny Ludlum
with respect to a federal income tax overpayment, in the aggregate amount of
approximately $8 million. The Company believes that Sunbeam-Oster's claims are
without merit and is defending the case vigorously.
In addition, the Company is involved in various lawsuits from time to time
arising in the ordinary course of business and otherwise. In management's
opinion, the outcome of these matters will not have a material adverse affect on
the Company's financial statements.
NOTE 11 -- ACQUISITION
On November 10, 1993, the Company completed the acquisition of the stock of
Athlone Industries, Inc. Athlone, through its subsidiary, Jessop Steel Company,
was primarily a manufacturer of specialty steels in plate form. The Company
issued 5,153,376 shares of common stock in the transaction. The transaction is
being accounted for as a purchase. The excess of the purchase price paid over
the value of net assets acquired will be amortized over 40 years on a straight-
line basis. Accumulated amortization was $4,224,000 and $668,000 at January 1,
1995 and January 2, 1994, respectively. The preliminary purchase price valuation
has been changed to reflect additional information obtained concerning certain
assets and liabilities acquired. The results of Jessop are included in the
consolidated financial statements from the date of purchase.
Pro forma results, as if the transaction were completed at the beginning
of the year, are as follows:
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Sales $1,215,039,000 $1,171,209,000
Net income before cumulative effect of accounting change 77,126,000 56,224,000
Earnings per share $1.09 $ .79
</TABLE>
The pro forma presentation is not necessarily indicative of either the
results of operations that would have occurred had the acquisition taken place
at the beginning of the period or of future results of the combined companies.
In addition to Jessop Steel, the Company acquired Green River Steel
Corporation and Reynolds Fasteners, Inc., as part of the Athlone acquisition.
The Company has determined that these businesses do not meet its strategic
objectives and, therefore, has decided that they would be held for sale. The
recorded value for assets held for sale represents management's estimate of net
realizable value and includes a reserve for estimated losses until disposition
which is not material in relation to the Company's results of operations. Net
income for these companies, in the amount of $3,603,000 which resulted from the
Company's successful efforts to improve the productivity and reduce the costs of
these businesses, was excluded from the Company's 1994 results.
Cash flows for 1994 and 1993 do not include non-cash items related to the
acquisition.
36
<PAGE>
NOTE 12 -- QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
(In thousands of dollars except per share amounts) Fiscal Quarter Ended
-----------------------------------------------------------------------------------------------------------------------------
Fiscal 1994 April 3 July 3(1) October 2 January 1
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $313,932 $172,187 $262,255 $328,497
Cost of products sold 245,717 191,283 211,720 266,319
Operating income 35,747 (49,413) 20,913 34,121
Net income 18,118 (29,179) 10,328 18,945
Net income per share:
Primary $.26 $(.41) $.14 $.27
Fully diluted $.25 $(.41) $.14 $.26
Weighted average common shares
outstanding 70,938,937 70,792,035 70,787,897 70,790,579
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The USWA called a strike in the second quarter which lasted 10 weeks.
<TABLE>
<CAPTION>
(In thousands of dollars except per share amounts) Fiscal Quarter Ended
-----------------------------------------------------------------------------------------------------------------------------
Fiscal 1993 April 4 July 4 October 3 January 2
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $289,942 $279,547 $262,323 $268,375
Cost of products sold 233,367 216,168 211,432 216,695
Operating income 26,048 34,376 22,502 20,942
Net income 18,272 18,601 16,559 17,328
Net income per share:
Primary $.28 $.28 $.25 $.25
Fully diluted $.27 $.27 $.24 $.24
Weighted average common shares
outstanding 65,829,070 65,874,150 65,834,659 68,919,532
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
37
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
BOARD OF DIRECTORS
ALLEGHENY LUDLUM CORPORATION
We have audited the accompanying consolidated balance sheets of Allegheny Ludlum
Corporation and subsidiaries as of January 1, 1995 and January 2, 1994, and the
related consolidated statements of income and cash flows for each of the three
fiscal years in the period ended January 1, 1995. These financial statements are
the responsibility of Allegheny Ludlum Corporation'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, based on our audits, the financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Allegheny Ludlum Corporation and subsidiaries at January 1, 1995 and
January 2, 1994, and the consolidated results of their operations and their cash
flows for each of the three fiscal years in the period ended January 1, 1995, in
conformity with generally accepted accounting principles.
As discussed in Note 5 to the financial statements, in 1992, the
Corporation changed its method of accounting for postretirement benefits other
than pensions.
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
January 30, 1995
38
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(In millions of dollars except
per share amounts) 1994(1) 1993 (2) 1992 1991* 1990* 1989* 1988*
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
For Fiscal Year
Income statement data:
Net sales $1,076.9 $1,100.2 $1,036.0 $1,004.6 $1,084.9 $1,180.2 $1,207.5
Operating income 41.4 103.9 76.4 73.7 111.0 208.9 175.0
Income before
cumulative effect of
accounting change 18.2 70.8 46.9 41.1 68.9 133.8 108.6
------------------------------------------------------------------------------------------------------------------------------
Cumulative effect of
accounting change -- -- (125.2) -- -- -- --
------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 18.2 $ 70.8 $ (78.3) $ 41.1 $ 68.9 $ 133.8 $ 108.6
------------------------------------------------------------------------------------------------------------------------------
Per common share:
Income before
cumulative effect of
accounting change $ .26 $ 1.06 $ .71 $ .62 $ 1.04 $ 1.98 $ 1.60
Cumulative effect of
accounting change -- -- (1.90) -- -- -- --
------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ .26 $ 1.06 $ (1.19) $ .62 $ 1.04 $ 1.98 $ 1.60
------------------------------------------------------------------------------------------------------------------------------
Dividends declared $ .48 $ .47 $ .44 $ .44 $ .43 $ .35 $ 1.37
------------------------------------------------------------------------------------------------------------------------------
At Year End
Balance sheet data:
Working capital $ 225.4 $ 258.9 $ 299.4 $ 192.9 $ 198.2 $ 237.3 $ 163.0
Total assets 1,094.7 1,174.0 871.2 764.5 793.2 784.6 703.9
Long-term debt
due after one year 133.1 138.9 138.1 48.5 52.8 67.8 76.0
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Amounts related to postretirement benefits are not comparable.
Per share amounts have been adjusted for the 3-for-2 stock split effected
in July of 1990 and for the 2-for-1 stock split effected in July of 1993.
(1) The USWA called a strike in the second quarter which lasted 10 weeks.
(2) Beginning November 10, 1993, results include acquisition of Jessop Steel
Company.
39
<PAGE>
COMMON STOCK DATA
<TABLE>
<CAPTION>
Fiscal Quarter Ended
-------------------------------------------------------------------------------------------------------------------------
Fiscal 1994 April 3 July 3 October 2 January 1
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Price range of common stock:
High $24.875 $21.25 $22.375 $21.875
Low 18.125 17.00 18.375 18.00
Dividends declared .12 .12 .12 .12
-------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Fiscal Quarter Ended
-------------------------------------------------------------------------------------------------------------------------
Fiscal 1993 April 4 July 4 October 3 January 2
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Price range of common stock:
High $21.188 $23.188 $24.25 $24.375
Low 17.00 19.875 19.25 19.625
Dividends declared .11 .12 .12 .12
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
The principal market on which the Company's common stock is traded is the
New York Stock Exchange, using the symbol ALS. As of March 1, 1995, there were
70,628,703 shares of common stock outstanding held by 2,826 shareholders of
record. The amounts in the table have been adjusted for the 2-for-1 stock split
effected in July of 1993.
MANAGEMENT'S REPORT
The accompanying consolidated financial statements of Allegheny Ludlum
Corporation and subsidiaries have been prepared in accordance with generally
accepted accounting principles and include some amounts that are based upon
Management's best estimates and judgments. Management has the primary
responsibility for the information contained in the financial statements and in
other sections of this Annual Report and for their integrity and objectivity.
The Company has a system of internal controls designed to provide
reasonable assurance that assets are safeguarded and transactions are properly
executed and recorded for the preparation of financial information. The concept
of reasonable assurance is based on the recognition that there are inherent
limitations in all systems of internal accounting control and that the cost of
such systems should not exceed the benefits to be derived.
The Company maintains a staff of professional internal auditors, who
assist in audit coverage with the independent accountants and conduct
operational and special audits. The independent accountants express their
opinion on the Company's financial statements based on procedures, including an
evaluation of internal controls, which they consider to be sufficient to form
their opinion.
The Audit and Finance Committee of the Board of Directors is composed of
four non-employee members. Among its principal duties, the Committee is
responsible for recommending the independent accountants to conduct the annual
audit of the Company's financial statements and for reviewing the financial
reporting and accounting practices.
/s/ A. H. Aronson
------------------------
A. H. Aronson
President and
Chief Executive Officer
/s/ J. L. Murdy
------------------------
J. L. Murdy
Senior Vice President --
Finance and
Chief Financial Officer
/s/ R. R. Roeser
------------------------
R. R. Roeser
Vice President, Controller
40
<PAGE>
Exhibit 21
Subsidiaries of the Registrant
Name of Subsidiary State of Incorporation
------------------ ----------------------
AII Acquisition Corp. Delaware
Jessop Steel Company Pennsylvania
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statement
Number 33-18510 on Form S-8 dated November 13, 1987, Registration Statement
Number 33-20884 on Form S-8 dated April 4, 1988, and Registration Statement
Number 33-27921 on Form S-8 dated April 10, 1989 of our reports dated January
30, 1995, with respect to the consolidated financial statements and schedule
included in the Annual Report on Form 10-K of Allegheny Ludlum Corporation for
the year ended January 1, 1995.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
March 14, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE REGISTRANT'S CONSOLIDATED STATEMENT OF INCOME FOR THE FISCAL YEAR ENDED
JANUARY 1, 1995 AND CONSOLIDATED BALANCE SHEET AS OF JANUARY 1, 1995 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-01-1995
<PERIOD-START> JAN-02-1994
<PERIOD-END> JAN-01-1995
<CASH> 11,185
<SECURITIES> 0
<RECEIVABLES> 144,757
<ALLOWANCES> 3,715
<INVENTORY> 232,379
<CURRENT-ASSETS> 395,641
<PP&E> 664,176
<DEPRECIATION> 199,199
<TOTAL-ASSETS> 1,094,698
<CURRENT-LIABILITIES> 170,280
<BONDS> 133,097
<COMMON> 7,288
0
0
<OTHER-SE> 354,418
<TOTAL-LIABILITY-AND-EQUITY> 1,094,698
<SALES> 1,076,871
<TOTAL-REVENUES> 1,076,871
<CGS> 915,039
<TOTAL-COSTS> 915,039
<OTHER-EXPENSES> 122,887
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,003
<INCOME-PRETAX> 32,942
<INCOME-TAX> 14,730
<INCOME-CONTINUING> 18,212
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,212
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
</TABLE>
