<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark one)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----------------- ----------------
Commission file number 1-11126-60
J&L SPECIALTY STEEL, INC.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-1564186
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
P.O. BOX 3373
ONE PPG PLACE, PITTSBURGH, PA 15230-3373
(Address of principal executive offices) (Zip code)
412-338-1600
(Registrant's telephone number, including area code)
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 [ ]
Number of shares of Common Stock outstanding as of July 31, 1996:
38,670,000
<PAGE> 2
J&L SPECIALTY STEEL, INC.
SEC FORM 10-Q
Quarter Ended June 30, 1996
Index
<TABLE>
<CAPTION>
<S> <C> <C>
PART I. - FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Condensed Consolidated Statements of Income 3
Condensed Consolidated Balance Sheets 5
Condensed Consolidated Statements of Cash Flows 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 6. Exhibits and Reports on Form 8-K 11
Signature 12
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
J&L SPECIALTY STEEL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
------------------------
1996 1995
-------- --------
<S> <C> <C>
Trade sales, net $149,794 $224,096
Sales to affiliates, net 13,910 17,343
-------- --------
Total sales, net 163,704 241,439
Cost of products sold 136,233 173,231
Depreciation and amortization expenses 5,689 5,603
-------- --------
Gross profit 21,782 62,605
Selling, general and administrative expenses 4,675 4,783
Research and technology expense 1,561 1,033
-------- --------
Operating income 15,546 56,789
Interest income (36) (769)
Interest expense 1,022 2,386
Other expense, net 115 925
-------- --------
Income before income taxes 14,445 54,247
Income taxes 6,672 22,922
-------- --------
Net income $ 7,773 $ 31,325
======== ========
Per share data:
Net income per common share $.20 $.81
======== ========
Dividends declared per common share $.10 $.09
======== ========
Weighted average number of common
shares outstanding 38,670,000 38,670,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 4
J&L SPECIALTY STEEL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------
1996 1995
-------- --------
<S> <C> <C>
Trade sales, net $321,655 $443,706
Sales to affiliates, net 26,975 39,380
-------- --------
Total sales, net 348,630 483,086
Cost of products sold 288,278 369,269
Depreciation and amortization expenses 11,384 11,205
-------- --------
Gross profit 48,968 102,612
Selling, general and administrative expenses 9,521 9,438
Research and technology expense 3,096 1,980
-------- --------
Operating income 36,351 91,194
Interest income (194) (1,276)
Interest expense 2,235 5,287
Other expense, net 419 1,074
-------- --------
Income before income taxes 33,891 86,109
Income taxes 15,436 36,823
-------- --------
Net income $ 18,455 $ 49,286
======== ========
Per share data:
Net income per common share $ .48 $ 1.27
======== ========
Dividends declared per common share $ .20 $ .18
======== ========
Weighted average number of common
shares outstanding 38,670,000 38,670,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
J&L SPECIALTY STEEL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
June 30, Dec. 31,
ASSETS 1996 1995
----------- ---------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 75 $ 35,428
Trade receivables, less allowances of $4,373 and
$4,336, respectively 68,355 64,575
Trade receivables from affiliates 8,851 7,523
Inventories 155,214 161,787
Deferred income taxes 8,971 9,326
Prepaid expenses and other current assets 377 1,192
-------- --------
Total current assets 241,843 279,831
-------- --------
Property, plant and equipment, net 254,204 217,060
Goodwill, net of accumulated amortization of $64,630
and $61,066, respectively 241,773 245,337
Other noncurrent assets 12,697 11,590
-------- --------
Total assets $750,517 $753,818
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Common stock dividend payable $ 3,867 $ 3,480
Short-term debt 5,257 402
Trade accounts payable 70,540 86,976
Construction accounts payable 25,814 24,246
Accrued employee compensation and benefits 25,439 30,741
Accrued income taxes 1,039 3,882
Reserve for claims and allowances 7,500 9,445
Other accrued liabilities 9,419 7,635
-------- --------
Total current liabilities 148,875 166,807
-------- --------
Long-term debt 149,110 147,620
Postretirement benefits liability 48,709 46,786
Other noncurrent liabilities 12,020 12,380
Shareholders' equity:
Preferred stock (par value $.01 per share; 2,000,000 shares authorized, no
shares issued and outstanding) -- --
Common stock (par value $.01 per share; 100,000,000 shares
authorized, 38,670,000 shares issued and outstanding) 387 387
Additional paid-in capital 307,519 306,662
Retained earnings 83,897 73,176
-------- --------
Total shareholders' equity 391,803 380,225
-------- --------
Total liabilities and shareholders' equity $750,517 $753,818
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
J&L SPECIALTY STEEL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1995
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net cash provided by operating activities $ 10,529 $102,596
-------- --------
Cash flows from investing activities:
Capital expenditures (44,880) (46,572)
-------- --------
Net cash used by investing activities (44,880) (46,572)
-------- --------
Cash flows from financing activities:
Borrowings on lines of credit, net 4,800 --
Borrowings of industrial development notes, net 1,545 (30)
Repayment of long-term bank loan -- (20,000)
Common stock dividends paid (7,347) (6,960)
-------- --------
Net cash used by financing activities (1,002) (26,990)
-------- --------
Net (decrease) increase in cash and cash equivalents (35,353) 29,034
-------- --------
Cash and cash equivalents at beginning of period 35,428 28,219
-------- --------
Cash and cash equivalents at end of period $ 75 $ 57,253
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 4,639 $ 5,959
Income taxes 18,186 36,945
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 7
J&L SPECIALTY STEEL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
NOTE 1 FINANCIAL STATEMENTS
The information contained in these financial statements and notes for the
quarter ended June 30, 1996 should be read in conjunction with the audited
financial statements and notes contained in the J&L Specialty Steel, Inc.
Annual Report and Form 10-K for the year ended December 31, 1995. The
accompanying unaudited Condensed Consolidated Financial Statements have been
prepared in accordance with generally accepted accounting principles and the
rules and regulations of the Securities and Exchange Commission. The condensed
interim statements do not include all of the information and footnotes required
for complete financial statements. It is management's opinion that all
adjustments (including all normal recurring adjustments) considered necessary
for a fair presentation have been made; however, results for the interim period
are not necessarily indicative of results to be expected for the full year.
Certain amounts in the prior year financial statements have been reclassified
to conform to the current year presentation.
NOTE 2 INVENTORIES
Inventories are stated at the lower of cost or market. Raw materials in all
levels of inventory are valued using the Last-In, First-Out (LIFO) method. The
remaining costs of work-in-process and finished goods inventories are valued
using the specific identification cost method.
<TABLE>
<CAPTION>
June 30, December 31,
Inventories consisted of the following: 1996 1995
- --------------------------------------- -------- ------------
<S> <C> <C>
Raw materials $ 11,251 $ 29,559
Work-in-process 130,678 157,236
Finished goods 39,716 22,426
-------- --------
Total inventories at current cost 181,645 209,221
Less allowance to reduce current cost
values to LIFO basis (26,431) (47,434)
-------- --------
Total inventories $155,214 $161,787
======== ========
</TABLE>
NOTE 3 FINANCIAL INSTRUMENTS
On June 28, 1996, the Company entered into interest rate swap agreements with
two major financial institutions. The swap agreements began on July 12, 1996,
expire on October 14, 1997 and convert $62,375 of variable rate debt to a fixed
rate of 6.15%. Cash settlement of the interest rate swap agreements will occur
on a quarterly basis with the Company either paying or receiving the difference
between three-month LIBOR and 6.15%, as applied to the notional amount of the
interest rate swap agreement for the period.
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following management's discussion and analysis of financial condition
provides information with respect to the results of operations of the Company
for the three- and six-month periods ended June 30, 1996 and 1995,
respectively. This discussion should be read in connection with the
information in the Condensed Consolidated Financial Statements and the notes
pertaining thereto.
RESULTS OF OPERATIONS
Net sales decreased 32.2% to $163.7 million in the second quarter of 1996
compared with $241.4 million in the second quarter of 1995. Net sales in the
first six months of 1996 decreased 27.8% to $348.6 million compared with the
$483.1 in the 1995 period. The decreases in net sales were due to lower selling
prices and lower shipments. Selling prices decreased in the second quarter of
1996 versus the prior year quarter as a result of an increased level of
low-priced, imported flat rolled stainless steel. Imports of stainless steel
sheet and strip increased by 13% in the first five months of 1996 compared to
the 1995 period. Import-related pricing pressure was the main reason the Company
rescinded a 5% price increase scheduled for May 6, 1996. Selling prices were
also lower from the year ago period due to declining raw material surcharges.
Selling prices continue to weaken in the third quarter as a result of increased
competition from imported material.
Shipments totaling 76,540 tons in the second quarter of 1996 were 22.5% lower
than in the 1995 quarter. Shipments in the six-month period were 159,973 tons,
or 23.8% lower than in the record 1995 six-month period. The lower shipments in
both periods were the result of lower demand and increased competition from
imported flat rolled stainless steel.
Cost of products sold as a percentage of net sales increased from 71.7% in the
1995 second quarter to 83.2% in the 1996 second quarter. Cost of products sold
as a percentage of net sales increased from 76.4% in the 1995 six-month period
to 82.7% in the 1996 six-month period. The higher cost of products sold as a
percentage of net sales in both the three- and six- month periods was largely
due to lower selling prices realized during the second quarter of 1996. Included
in the second quarter of 1996 was the cost of a planned 16-day continuous caster
maintenance outage, lower overall raw material costs and lower maintenance
project costs. Included in the second quarter of 1995 was a $2.5 million
insurance recovery.
Overall, selling, general and administrative expenses in the 1996 periods were
comparable with 1995. However, a significant reduction in the stock
appreciation rights accrued liability was offset by higher engineering and other
employee compensation costs.
<PAGE> 9
Research and technology expense increased $.5 million and $1.1 million in the
respective 1996 periods. These increases were due to a scheduled increase in
the cost of services provided under a Research and Technology Agreement with
Ugine, a division of Usinor Sacilor.
The significant decreases in interest income in both of the 1996 periods versus
the comparable periods of 1995 were the result of lower cash balances
available for investment.
Interest rates decreased moderately while both short term and long term debt
increased during the first half of 1996; however, second quarter and six-month
1996 interest expense decreased by 57.2% and 57.7%, respectively. The overall
decrease was due primarily to the capitalization of $1.3 million and $2.4
million of interest related to capital projects in the second quarter and first
six months of 1996, respectively. Capitalized interest was $.4 million for
both the second quarter and first half of 1995.
Other expense for the second quarter and first six months of 1996 was $.1
million and $.4 million, respectively, a decrease of $.8 million and $.7
million, respectively, from the comparable 1995 periods. The decrease in expense
was due to a reduction in demolition and disposal projects relating to the
non-operating facilities at the Midland Plant.
The effective income tax rates for the second quarter of 1996 and 1995 were
46.2% and 42.3%, respectively. The effective income tax rates for the six
months ended June 30, 1996 and 1995 were 45.5% and 42.8%, respectively. The
1996 effective income tax rates were higher than the rates in the 1995 periods
due to the fact that the amortization of the purchase accounting adjustment,
primarily goodwill, which is not deductible for income tax purposes, was a
larger component of pre-tax income in the 1996 periods.
Due to the items described above, net income for the second quarter of 1996
decreased 75.2% to $7.8 million, or $.20 per share. For the first six months of
1996, net income decreased 62.6% to $18.5 million, or $.48 per share, from
$49.3 million, or $1.27 per share, in the 1995 period.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased $35.4 million during the first six months of
1996 primarily due to capital expenditures of $44.9 million, which were slightly
less than in the comparable period of 1995. Working capital decreased by $20.0
million from the prior year end to $93.0 million as of June 30, 1996, mainly as
a result of this decrease in cash. During 1996, the Company has been utilizing
established short-term lines of credit as a supplemental source of working
capital. As of June 30, 1996, $4.8 million was outstanding under such short-term
lines of credit.
The majority of the capital expenditures for the first six months of 1996 were
related to the Direct Roll Anneal and Pickle line and other finishing mill
equipment included in the Company's five year capital plan. The Company believes
that cash flow provided by operating activities and amounts available under its
financing sources will enable it to satisfy planned capital expenditures and
other cash requirements for the foreseeable future.
<PAGE> 10
The Company paid dividends to its shareholders of $7.3 million during the first
half of 1996. On June 6, 1996, the Company declared a quarterly cash dividend
of $.10 per share payable on July 24, 1996 to shareholders of record as of the
close of business on July 10, 1996.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's 1996 annual meeting of shareholders was held on June 6, 1996. At
that meeting, the shareholders voted on and approved the amendment of the
Articles of Incorporation to increase the maximum number of members of the
Board of Directors to fifteen. The number of votes cast for approval was
32,607,296, against was 152,539 and the number abstaining was 42,689. The
number of votes for approval, other than those cast by Usinor Sacilor, was
11,877,296, against was 152,539 and abstaining was 42,689.
The seven nominees named in the proxy statement for the meeting were elected as
Directors of the Company. The number of votes for each nominee was:
<TABLE>
<CAPTION>
VOTES FOR VOTES WITHHELD
--------- --------------
<S> <C> <C>
Terms expiring in 1999:
Philippe Choppin de Janvry 31,945,386 857,138
Michael J. Hiemstra 32,043,786 758,738
Francis Mer 31,256,786 1,545,738
Eugene A. Salvadore 31,931,286 871,238
Terms expiring in 1998:
Michel Le Page 31,895,586 906,938
Gerard Martel 31,946,086 856,438
Terms expiring in 1997:
John J. Sheehan 32,037,686 764,838
</TABLE>
In addition to the above directors elected at the meeting, Jean Didier Dujardin,
Claude F. Kronk, Jennings R. Lambeth, Pierre F. de Ravel d'Escalapon, Robert
Hudry and Michel J. Longchampt are continuing as directors of the Company.
The shareholders also voted on and approved the ratification of the appointment
of Arthur Andersen LLP as independent auditors of the Company for fiscal year
1996. The number of votes cast for approval was 32,737,916, against was 34,665
and the number abstaining was 29,943.
There were no broker non-votes in connection with any of the matters voted on at
the meeting.
<PAGE> 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
<TABLE>
<CAPTION>
No. Description
--- -----------
<S> <C>
3.1 Amendment to Articles of Incorporation filed June 6, 1996.
3.2 Articles of Incorporation, as amended.
27.1 Financial Data Schedule
</TABLE>
(b) REPORTS ON FORM 8-K
None
<PAGE> 12
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
J&L SPECIALTY STEEL, INC.
(Registrant)
August 14, 1996 /s/ KIRK F. VINCENT
-------------------------------------
Kirk F. Vincent
Vice President - Finance and Law
(Principal financial officer and duly
authorized signatory)
<PAGE> 13
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
3.1 Amendment to Articles of Incorporation filed
June 6, 1996.
3.2 Articles of Incorporation, as amended.
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 3.1
AMENDMENT TO ARTICLES OF INCORPORATION
The second sentence of Article X Section (a) is hereby amended
and restated to read in its entirety as follows:
Thereafter, the Board of Directors shall consist of
such number of persons as the Board of Directors may from time to
time determine, which number shall not be less than five nor more
than fifteen.
<PAGE> 1
EXHIBIT 3.2
ARTICLES OF INCORPORATION
of
J&L SPECIALTY STEEL, INC.
ARTICLE I. CORPORATE NAME. The name of the Corporation is J&L
Specialty Steel, Inc.
ARTICLE II. REGISTERED OFFICE. The location and post office
address of the initial registered office of the Corporation in this
Commonwealth is P.O. Box 3373, One PPG Place, Pittsburgh, Allegheny County,
Pennsylvania 15230-3373.
ARTICLE III. BUSINESS CORPORATION LAW OF 1988. The
Corporation is incorporated under the provisions of the Business Corporation
Law of 1988 (the "BCL").
ARTICLE IV. EFFECTIVE DATE. These Articles of Incorporation
shall become effective upon filing with the Department of State.
ARTICLE V. STOCK.
(a) CAPITAL STOCK. The aggregate number of shares of capital
stock which the Corporation shall have authority to issue is 102,000,000; of
such shares the number of common shares which the Corporation shall have
authority to issue is 100,000,000, par value $.01 per share (the "Common
Stock"), and the number of preferred shares which the Corporation shall have
authority to issue is 2,000,000, par value $.01 per share (the "Preferred
Stock").
(b) PREFERRED STOCK. The Board of Directors is hereby
expressly authorized, at any time or from time to time, to divide any or all of
the shares of the Preferred Stock into one or more series, and in the
resolution or resolutions establishing a particular series, before issuance of
any of the shares of the particular series, to fix and determine the number of
shares and the designation of such series, so as to distinguish it from the
shares of all other series and classes, and to fix and determine the
preferences, voting rights, qualifications, privileges, limitations, options,
conversion rights, restrictions and other special or relative rights of the
Preferred Stock or of such series, to the fullest extent now or hereafter
permitted by the laws of the Commonwealth of Pennsylvania, including, but not
limited to, variations between different series in the following respects:
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<PAGE> 2
(i) the distinctive designation of such series and the
number of shares which shall constitute such series, which
number may be increased or decreased (but not below the
number of shares of such series then outstanding) from time
to time by the Board of Directors;
(ii) the annual dividend rate for such series, the
dates in each year on which dividends on such series shall be
payable and the date or dates from which such dividends shall
commence to accrue;
(iii) the price or prices at which, and the terms and
conditions on which, the shares of such series may be made
redeemable;
(iv) the purchase or sinking fund provisions, if any,
for the purchase or redemption of shares of such series;
(v) the preferential amount or amounts payable upon
shares of such series in the event of the liquidation,
dissolution or winding up of the Corporation;
(vi) the voting rights, if any, of the holders of
shares of such series;
(vii) the terms and conditions, if any, upon which
shares of such series may be converted and the class or
classes or series of shares of the Corporation or other
securities into which such shares may be converted;
(viii) the relative seniority, parity or junior rank
of such series as to dividends or assets with respect to any
other classes or series of stock then or thereafter to be
issued; and
(ix) such other terms, qualifications, privileges,
limitations, options, restrictions, and special or relative
rights and preferences, if any, of shares of such series as
the Board of Directors may, at the time of such resolution or
resolutions, lawfully fix and determine under the laws of the
Commonwealth of Pennsylvania.
All shares of any one series shall be alike in every
particular, except with respect to the accrual of dividends prior to the date
of issuance.
-2-
<PAGE> 3
Except for and subject to those rights expressly granted to
the holders of the Preferred Stock or any series thereof by resolution or
resolutions adopted by the Board of Directors pursuant to this Article and
except as may be provided by the laws of the Commonwealth of Pennsylvania, the
holders of the Common Stock shall have exclusively all other rights of
shareholders.
No holder of Common Stock or of any other class of stock of
the Corporation shall be entitled as such, as a matter of right, to subscribe
for or purchase any part of any new or additional issue of stock of any class
or of securities convertible into any stock of any class, whether now or
hereafter authorized and whether issued for cash or other consideration or by
way of dividend, and the Corporation may issue shares, option rights or
securities having option or conversion rights without first offering them to
shareholders of any class.
ARTICLE VI. AMENDMENTS.
(a) BY-LAWS. In furtherance and not in limitation of the
power conferred upon the Board of Directors by law, the Board of Directors
shall have power to make, adopt, alter, amend and repeal, from time to time,
the By-Laws of the Corporation, subject to the right of the shareholders
entitled to vote with respect thereto to alter and repeal By-Laws made by the
Directors.
(b) ARTICLES OF INCORPORATION. Articles IX, X and XI hereof
shall not be amended unless approved by the shareholders holding (i) a majority
of the shares of Common Stock outstanding, and (ii) a majority of the shares of
Common Stock held by shareholders who are not Significant Shareholders voting
as a class.
ARTICLE VII. PERSONAL LIABILITY OF DIRECTORS.
(a) ELIMINATION OF LIABILITY. To the fullest extent that the
laws of the Commonwealth of Pennsylvania, as now in effect or as hereafter
amended, permit elimination or limitation of the liability of directors, no
director of the Corporation shall be personally liable for monetary damages as
such for any action taken, or any failure to take any action, as a director.
(b) NATURE AND EXTENT OF RIGHTS. The provisions of this
Article shall be deemed to be a contract with each director of the Corporation
who serves as such at any time while this Article is in effect and each such
director shall be deemed to be so serving in reliance on the provisions of this
Article. Any amendment or repeal of this Article or adoption of any By-Law or
provision of the Articles of the Corporation which has the effect of increasing
director liability shall operate prospectively only and shall not have any
effect with respect to any action taken, or any failure to act, by a director
prior thereto.
-3-
<PAGE> 4
ARTICLE VIII. INDEMNIFICATION OF AND ADVANCEMENT OF EXPENSES
TO DIRECTORS, OFFICERS AND OTHERS.
(a) RIGHT TO INDEMNIFICATION. Except as otherwise prohibited
by law, every director and officer of the Corporation and every current or
former employee of the Corporation who has been an employee of the Corporation
or its predecessors since on or prior to June 14, 1990 (a "Specified Employee")
shall be entitled as of right to be indemnified by the Corporation against
expenses and any liabilities paid or incurred by such person in connection with
any actual or threatened claim, action, suit or proceeding, civil, criminal,
administrative, investigative or other, whether brought by or in the right of
the Corporation or otherwise, in which he or she may be involved in any manner,
as a party, witness or otherwise, or is threatened to be made so involved, by
reason of such person being or having been a director or officer or Specified
Employee of the Corporation, a subsidiary of the Corporation or a constituent
corporation absorbed in a merger or consolidation, or by reason of the fact
that such person is or was serving at the request of the Corporation, a
subsidiary of the Corporation or a constituent corporation absorbed in a merger
or consolidation, as a director, officer, employee, fiduciary or other
representative of another company, partnership, joint venture, trust, employee
benefit plan (including the participants and beneficiaries thereof) or other
entity (such claim, action, suit or proceeding hereinafter being referred to as
an "Action"). Persons who are not directors or officers or Specified Employees
of the Corporation may be similarly indemnified in respect of service to the
Corporation or to another such entity at the request of the Corporation to the
extent the Board of Directors at any time denominates any of such persons as
entitled to the benefits of this Article. As used in this Article, "indemnitee"
shall include each director and officer and Specified Employee of the
Corporation, a subsidiary of the Corporation or a constituent corporation
absorbed in a merger or consolidation, and each other person denominated by the
Board of Directors as entitled to the benefits of this Article; "expenses"
shall mean all expenses actually paid and incurred, including fees and expenses
of counsel selected by an indemnitee; and "liabilities" shall mean amounts of
judgments, excise taxes (including excise taxes assessed with respect to any
employee benefit plan), fines, penalties and amounts paid in settlement.
(b) RIGHT TO ADVANCEMENT OF EXPENSES. Every indemnitee shall
be entitled as of right to have his or her expenses in defending any Action, or
in initiating and pursuing any Indemnitee Action for indemnity or advancement
of expenses under Section (c) of this Article,
-4-
<PAGE> 5
paid in advance by the Corporation prior to final disposition of such Action or
Indemnitee Action, provided that the Corporation receives a written undertaking
by or on behalf of the indemnitee to repay the amount advanced if it should
ultimately be determined that the indemnitee is not entitled to be indemnified
for such expenses.
(c) RIGHT OF INDEMNITEE TO INITIATE ACTION. If a written
claim under Section (a) or Section (b) of this Article is not paid in full by
the Corporation within sixty days after such claim has been received by the
Corporation, the indemnitee may at any time thereafter initiate an Action (an
"Indemnitee Action") to recover the unpaid amount of the claim and, if
successful in whole or in part, the indemnitee shall also be entitled to be
paid the expense of prosecuting such Indemnitee Action. The only defense to an
Indemnitee Action to recover on a claim for indemnification under Section (a)
of this Article shall be that the indemnitee's conduct was such that under
Pennsylvania law the Corporation is prohibited from indemnifying the indemnitee
for the amount claimed, but the burden of proving such defense shall be on the
Corporation. Neither the failure of the Corporation (including its board of
directors, independent legal counsel and its shareholders) to have made a
determination prior to the commencement of such Indemnitee Action that
indemnification of the indemnitee is proper in the circumstances, nor an actual
determination by the Corporation (including its board of directors, independent
legal counsel or its shareholders) that the indemnitee's conduct was such that
indemnification is prohibited by Pennsylvania law, shall be a defense to such
Indemnitee Action or create a presumption that the indemnitee's conduct was
such that indemnification is prohibited by Pennsylvania law. The only defense
to an Indemnitee Action to recover on a claim for advancement of expenses under
Section (b) of this Article shall be the indemnitee's failure to provide the
undertaking required by Section (b) of this Article.
(d) INSURANCE AND FUNDING. The Corporation may purchase and
maintain insurance to protect itself and any person eligible to be indemnified
hereunder against any liability or expense asserted or incurred by such person
in connection with any Action, whether or not the Corporation would have the
power to indemnify such person against such liability or expense by law or
under the provisions of this Article. The Corporation may create a trust fund,
grant a security interest, cause a letter of credit to be issued or use other
means (whether or not similar to the foregoing) to ensure the payment of such
sums as may become necessary to effect indemnification as provided herein.
(e) NON-EXCLUSIVITY; NATURE AND EXTENT OF RIGHTS. The rights
to indemnification and advancement of expenses provided for in this Article
shall (i) not be deemed exclusive of any other rights,
-5-
<PAGE> 6
whether now existing or hereafter created, to which any indemnitee may be
entitled under any agreement or by-law, charter provision, vote of shareholders
or directors or otherwise, (ii) be deemed to create contractual rights in favor
of each indemnitee, and (iii) continue as to each indemnitee who has ceased to
have the status pursuant to which he or she was entitled or was denominated as
entitled to indemnification under this Article and shall inure to the benefit
of the heirs and legal representatives of each indemnitee. Any amendment or
repeal of this Article or adoption of any By-Law or provision of the Articles
of the Corporation which has the effect of limiting in any way the rights to
indemnification or advancement of expenses provided for in this Article shall
operate prospectively only and shall not affect any action taken, or failure to
act, by an indemnitee prior to the adoption of such amendment, repeal, By-Law
or other provision.
(f) PARTIAL INDEMNITY. If an indemnitee is entitled under any
provision of this Article to indemnification by the Corporation for some or a
portion of the expenses or liabilities paid or incurred by the indemnitee in
the preparation, investigation, defense, appeal or settlement of any Action or
Indemnitee Action but not, however, for the total amount thereof, the
Corporation shall indemnify the indemnitee for the portion of such expenses or
liabilities to which the indemnitee is entitled.
(g) SEVERABILITY. If this Article or any portion thereof
shall be invalidated on any ground by an court of competent jurisdiction, then
the Corporation shall nevertheless indemnify each indemnitee as to expenses
(including fees of counsel), judgments, fines and amounts paid in settlement
with respect to any Action, whether civil, criminal, administrative or
investigative, including a grand jury proceeding in an action by the
Corporation, to the full extent permitted by any applicable portion of this
Article that shall not have been invalidated or by any other applicable law.
ARTICLE IX. CERTAIN DEFINITIONS. For the purposes of Articles
IX, X and XI, the following terms shall be defined as set forth below:
(a) "Affiliate" of a specified person shall mean (i) any
person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, the person
specified, or (ii) any officer, director, employee or agent of any such person
described in clause (i) above; provided, however, that no person shall be
deemed an Affiliate of a Significant Shareholder solely by reason of his or her
being a member of the Board of Directors of the Corporation.
-6-
<PAGE> 7
(b) "control", "controlling", "controlled by" and "under
common control with" shall mean the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of a
person, whether through the ownership of voting securities, by contract, or
otherwise.
(c) "Disinterested Director" shall mean any director who is
not an Affiliate of a Significant Shareholder.
(d) A "Material Transaction" shall mean the following:
(i) Any research and technology agreement entered into
between the Corporation and a Significant Shareholder, or any
amendment to the Research and Technology Agreement dated
October 1, 1993 between the Corporation and Ugine s.a.
(ii) Any transaction or series of related transactions
between the Corporation and a Significant Shareholder
involving $10,000,000 or more (in fair market value) in the
aggregate, other than a contract for the purchase or sale of
services or materials at prevailing market rates or prices
which, if made with a party not a Significant Shareholder,
would be in the ordinary course of business.
(e) "Significant Shareholder" shall mean (a) any shareholder
who (together with its Affiliates and other person acting in concert with it)
owns 50% or more of the outstanding shares of the Common Stock, and (b) any
Affiliate of, or other person acting in concert with, such shareholder. For
purposes of this definition shares convertible into or exchangeable for or
entitled to vote with Common Stock shall be deemed to be Common Stock and
represent that number of shares of Common Stock into which such shares are
convertible or exchangeable or the number of votes such shares are entitled to
cast (if not convertible or exchangeable).
ARTICLE X. NUMBER OF DIRECTORS; CLASSIFIED BOARD; CLASS VOTE;
REMOVAL.
(a) The first Board of Directors of the Corporation shall
consist of a single director appointed by the sole incorporator. Thereafter,
the Board of Directors shall consist of such number of persons as the Board of
Directors may from time to time determine, which number shall not be less than
five nor more than fifteen.
(b) The Board of Directors shall be classified into three
classes, as nearly equal in number as possible. If such classes of
-7-
<PAGE> 8
Directors are not equal in number, the Board of Directors, by the affirmative
vote of a majority of the Disinterested Directors then in office, shall
determine which class shall contain an unequal number of directors. At the
first meeting to be held after the adoption of these Articles of Incorporation,
one class shall be elected for a one year term, one class shall be elected for
a two year term, and one class shall be elected for a three year term.
Thereafter, at each annual meeting of shareholders, the shareholders entitled
to vote shall elect directors to the class whose term is then expiring to hold
office for a three year term. Except as expressly provided in these Articles of
Incorporation, each director shall hold office for the term for which elected
until his or her death, resignation, incapacity or until his or her successor
shall be elected and shall qualify.
(c) Whenever there are one or more Significant Shareholders,
not less than two directors shall be Disinterested Directors.
(d) The entire board of directors, any class of directors or
any director may be removed with or without cause by the holders of a majority
of the shares then entitled to vote at an election of directors.
ARTICLE XI. SPECIAL APPROVALS. A majority of the
Disinterested Directors must approve any Material Transaction.
ARTICLE XII. CHAPTER 25. The Corporation hereby expressly
elects not to be governed by the following provisions of Chapter 25 of the BCL:
Section 2538 of Subchapter 25D and all of Subchapters 25E, 25F, 25G, 25H, 25I
and 25J.
ARTICLE XIII. NO CUMULATIVE VOTING. The shareholders of the
Corporation shall not be entitled to cumulate their votes for the election of
directors.
ARTICLE XIV. INCORPORATOR. The name and post office address
of the incorporator is Carol A. Soltes, 435 Sixth Avenue, Pittsburgh,
Pennsylvania 15219.
-8-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheet at June 30, 1996 (Unaudited) and the
Condensed Consolidated Statement of Income for the Six Months Ended June 30,
1996 (Unaudited) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 75
<SECURITIES> 0
<RECEIVABLES> 72,305
<ALLOWANCES> 4,373
<INVENTORY> 155,214
<CURRENT-ASSETS> 241,843
<PP&E> 340,444
<DEPRECIATION> 86,240
<TOTAL-ASSETS> 750,517
<CURRENT-LIABILITIES> 148,875
<BONDS> 149,110
0
0
<COMMON> 387
<OTHER-SE> 391,416
<TOTAL-LIABILITY-AND-EQUITY> 750,517
<SALES> 348,630
<TOTAL-REVENUES> 348,630
<CGS> 288,278
<TOTAL-COSTS> 288,278
<OTHER-EXPENSES> 11,384
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,235
<INCOME-PRETAX> 33,891
<INCOME-TAX> 15,436
<INCOME-CONTINUING> 18,455
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,455
<EPS-PRIMARY> .48
<EPS-DILUTED> .48
</TABLE>
