J&L SPECIALTY STEEL INC, 10-K, 1998-03-27

J&L SPECIALTY STEEL INC
10-K, 1998-03-27
STEEL WORKS, BLAST FURNACES & ROLLING MILLS (COKE OVENS)

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<PAGE> 1
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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 (no fee required) for the fiscal year ended
DECEMBER 31, 1997, 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 1-11126-60

J&L SPECIALTY STEEL, INC.
(Exact name of registrant as specified in its charter)

PENNSYLVANIA 25-1564186
(State of Incorporation) (IRS Employer Identification No.)

ONE PPG PLACE
P.O. BOX 3373
PITTSBURGH, PENNSYLVANIA 15230-3373
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code (412) 338-1600

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
================================================================================
Title of each class Name of exchange on which registered
------------------- ------------------------------------
Common Stock, par value $0.01 per share 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 the 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. [ ]

As of February 27, 1998, the aggregate market value of the registrant's Common
Stock held by nonaffiliates of the registrant was approximately $162,297,000.
All directors and officers of the registrant and each person who may be deemed
to own beneficially more than 5% of the registrant's Common Stock have been
deemed affiliates.

As of February 27, 1998, there were 38,763,000 shares of Common Stock
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:
Specified portions of the 1997 Annual Report to Shareholders are incorporated by
reference into Parts II and IV of this report. Specified portions of the Proxy
Statement for the 1998 Annual Meeting of Shareholders are incorporated by
reference into Part III of this report.

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<PAGE> 2

TABLE OF CONTENTS

PART I
PAGE
----
ITEM 1. BUSINESS................................................... 3

ITEM 2. PROPERTIES................................................. 7

ITEM 3. LEGAL PROCEEDINGS.......................................... 8

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........ 8

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS........................................ 9

ITEM 6. SELECTED FINANCIAL DATA.................................... 9

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS........................ 9

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................ 9

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE........................ 9

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT......... 10

ITEM 11. EXECUTIVE COMPENSATION..................................... 10

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT............................................. 10

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............. 10

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K........................................ 11

SIGNATURES ........................................................... 16

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PART I

ITEM 1. BUSINESS

OVERVIEW

J&L Specialty Steel, Inc. (the "Company") is a leading manufacturer of
flat rolled stainless steel. Stainless steel is the Company's only product line.
The Company produces both austenitic and ferritic flat rolled stainless steels;
austenitic cold rolled stainless steel is the largest part of the domestic
stainless steel market. The Company manufactures various grades of stainless
steel in the form of cold rolled stainless steel sheet and strip, hot rolled
stainless steel sheet and strip, and continuous mill plate, as well as
semifinished stainless steel slabs and coils.

The Company is a Pennsylvania corporation and successor by merger on
December 6, 1993, to Specialty Materials Corporation ("SMC") and J&L Specialty
Products Corporation ("Products"). Products was incorporated in 1986 to acquire
substantially all the assets of LTV Steel Specialty Products Company ("LTV
Specialty") in a management-led leveraged buyout. Prior to the asset acquisition
by Products, LTV Specialty was a subsidiary of LTV Steel and had manufactured
stainless steel for over 30 years. In 1987, SMC was incorporated in Delaware
pursuant to a corporate reorganization in order to hold all the Common Stock of
Products. In June 1990, Ugine s.a. ("Ugine"), a French corporation, acquired all
the stock of SMC from the management and other shareholders who held shares from
the 1986 leveraged buyout. At such time, Ugine became the sole shareholder of
SMC.

In December 1993, the Company completed an initial public offering of
17,940,000 shares of its Common Stock, which resulted in 46.4% of its
outstanding Common Stock being publicly held, and the remaining 53.6% being held
by Ugine. On December 11, 1995, pursuant to a merger, Ugine became a division of
its previous majority shareholder, Usinor. As a result of the merger, Usinor
currently holds a 53.5% ownership interest in the Company's outstanding Common
Stock, with the remaining 46.5% continuing to be publicly held.

The Company's principal executive offices are located at One PPG Place,
P. O. Box 3373, Pittsburgh, Pennsylvania 15230-3373 and its telephone number is
(412) 338-1600.

STAINLESS STEEL INDUSTRY

Stainless steel, by containing elements such as chromium, nickel and
molybdenum, not only offers carbon steel's traditional attributes of strength,
durability and formability, but also is resistant to corrosion in many working
environments, maintains its strength at high operating temperatures and provides
an attractive, easily maintained surface appearance. Relative to carbon steel,
stainless steel sells at a higher price, but has a lower life cycle cost for
many applications. It is generally manufactured in smaller quantities, and
accounts for approximately 2% of total steel consumption in the United States.

Stainless steel is manufactured in different types (or grades), but all
types contain at least 10% chromium along with other elements which are added to
develop specific properties. Stainless steel's resistance to many corrosive
conditions, such as exposure to water, air, food and alkalis, is provided by a
thin, transparent, protective chromium oxide film which forms on its surface.
When this film is scratched, nicked or otherwise penetrated, a fresh film
immediately forms to preserve the corrosion resistance.

Stainless steel is a segment of the domestic specialty steel industry,
which also consists of producers of heat-resisting steels, electric steel, tool
steel and alloy steel. Demand for stainless steel sheet and strip in the United
States has increased at an average annual rate of approximately 5.7% over the
past ten years.

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MANUFACTURING

The Company operates three production plants located in Midland,
Pennsylvania; Louisville, Ohio; and Detroit, Michigan.

The stainless steel manufacturing process begins in one of two electric
arc furnaces at the Company's Midland Plant. These furnaces are used to melt
carefully selected stainless steel and carbon steel scrap along with pure alloys
such as nickel and ferrochromium. After the scrap and alloys are melted in the
furnaces, the resulting liquid steel is transferred to an argon oxygen
decarburization ("AOD") vessel for refinement. The AOD process reduces the
carbon levels in the steel, improves the steel's cleanliness and metallurgical
consistency, and is utilized for final alloy additions. Following the refining
process, the liquid steel is cast into slabs having a thickness of 6-1/8 inches
or 7-1/2 inches using a continuous slab caster.

Because the Company does not own a hot strip mill, steel slabs are
transported from the Midland Plant to one of two independent hot strip mills
owned by carbon steel producers which toll steel for the Company. At these
mills, the slabs are rolled at very high temperatures into long, thin bands
generally less than 1/2 inch in thickness, which are then wound into a coil.

After hot rolling, coils are transported to one of the Company's
finishing facilities for further processing (some of the hot rolled coils are
shipped directly to customers). At the finishing facilities, the stainless steel
follows either a conventional processing path, or is processed on the Company's
recently completed Direct Roll Anneal and Pickle ("DRAP") Line.

In conventional processing, the stainless steel is passed through a
primary continuous annealing furnace (to increase its ductility) and pickling
line (an acid bath designed to remove surface defects or scale formed during the
heating process). The steel is then cold rolled on a Sendzimir mill or a
reversing mill. This rolling reduces the steel's thickness and forms a cold
rolled product. The resulting cold rolled steel is then processed through a cold
annealing and pickling process to recover its ductility and to clean the steel
surface. Finishing operations, such as polishing, skin passing, leveling and
slitting, are used to provide certain product characteristics. The coils or
sheets are then packaged and shipped to the customer by common carrier.

The state-of-the-art DRAP Line, located at the Company's Midland, Pa.
Plant, permits in-line processing of hot rolled stainless steel coils to a
finished coil on a continuous manufacturing line. This new line will reduce
processing time and improve quality over conventional processing by combining
several steel processing functions described above normally performed on
separate manufacturing processing units into a single continuous process.

SEGMENT AND PRODUCTS

The Company operates within a single business segment, stainless steel,
and predominantly within a single geographic area, the continental United
States. Approximately 5% of the Company's shipments were exported in 1997. The
Company manufactures various grades of stainless steel in the form of cold
rolled stainless steel sheet and strip, hot rolled stainless steel sheet and
strip, and continuous mill plate, as well as stainless steel slabs. Stainless
steel sheet represents flat rolled stainless steel sheet in widths of 24 inches
and wider, and thicknesses (or gauges) of .015 to .1875 inches (in the case of
cold rolled sheet) and .091 to .500 inches (in the case of hot rolled sheet and
plate). Stainless steel strip represents flat rolled stainless steel in widths
of less than 24 inches which may be produced by slitting stainless steel sheet.
Hot rolled stainless steel sheet and continuous mill plate are distinguished on
the basis of the gauge of the steel, with continuous mill plate being thicker.
In both cases, the final rolling operation is on a hot strip mill. Cold rolled
stainless steel sheet and strip are produced from hot rolled stainless steel
sheet through additional processing steps, principally a reduction in gauge by
processing on a cold reducing mill. Most of the Company's cold and hot rolled
sheet and strip products are sold in coil form and the balance is sold cut to
length. In addition to different grades, widths and gauges, stainless steel is
also produced in various finishes as required by specific customer applications.

The Company produces a large portion of its stainless steel in response
to specific customer orders rather than for inventory. The products manufactured
for inventory are usually in standard grades and sizes. The period from the date
of a customer order to the date of shipment is generally six to eight weeks for
cold rolled stainless steel, which requires the most processing, although in
periods of peak demand these lead times can stretch to ten to twelve weeks.
Orders which can be filled from inventory can generally be shipped in one week.
The backlog of firm orders as of December 31, 1997, was

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$113.4 million, all of which is expected to be filled within the current year,
as compared to $120.6 million at December 31, 1996.

MARKETING AND CUSTOMERS

Approximately 50% of the Company's products are sold to steel service
centers. The remainder of the Company's products are sold to stainless steel
converters, manufacturers of finished industrial and consumer products, and
exporters. Steel service centers are independent distribution outlets where
steel in a variety of grades, forms, sizes and finishes is warehoused and may be
further customized to specific orders by slitting, splitting, polishing, cutting
to length and packaging in-house, and sold in smaller order quantities than by
producers. Stainless steel converters, or rerollers, purchase products from the
Company and then further process them into thinner gauge cold rolled stainless
steel sheet and strip products prior to selling to the ultimate end-user,
manufacturer or service center.

The Company conducts its North American marketing activities through
its own personnel, who are organized into four regional districts. All sales
personnel are salaried employees. Regional sales offices are located in Atlanta,
Chicago, Los Angeles and Pittsburgh. Additional sales representatives are also
located in Detroit, Dallas, Boston and Milwaukee. The Company utilizes Uginox
Sales Corporation, a sales affiliate of Ugine, to service the export market
outside of North America. The Company believes that the terms of sales made to
and through Uginox Sales Corporation are no less favorable than the Company
could obtain in transactions with unrelated parties.

RAW MATERIALS

The principal raw materials used to produce stainless steel are
stainless steel scrap, nickel, ferrochromium, carbon steel scrap, molybdenum,
ferrosilicon, manganese and manganese alloys. The Company purchases its
stainless steel scrap and carbon steel scrap from a number of suppliers in the
United States. The Company purchases most of its nickel requirements from
producers in Canada, Russia, Australia, the Dominican Republic and Colombia.
Ferrochromium is purchased principally from producers in the United States,
Turkey and South Africa. South Africa has approximately 80% of the known
reserves of chromite ore from which ferrochromium is produced. The Company also
purchases its low phosphorous ferromanganese requirements from producers in
South Africa, which has substantially all of the known reserves.

The Company believes that it has adequate sources of raw materials to
support its business activity, although no prediction can be made as to the
continued availability of such raw materials or their cost in future periods.
Some of the sources of raw materials are located in countries which may be
subject to unstable political and economic conditions, which might disrupt
supplies or affect the prices of these raw materials. A continued interruption
in the supply of raw materials could have a material adverse effect on the
Company's financial condition and results of operations.

The Company's ultra-high-powered electric arc furnaces located at its
Midland Plant consume a large amount of electricity. The Company believes it
will continue to have an adequate supply of electricity for its current and
future needs.

COMPETITION

The Company faces vigorous competition from domestic and foreign
producers of stainless steel. Its principal United States competitors are
Allegheny Teledyne Incorporated ("ALT"); Armco, Inc.; North American Stainless
Corp., which is a majority-owned subsidiary of Acerinox, S.A. (a Spanish
stainless steel producer); and Lukens, Inc. ("Lukens"), which owns Washington
Stainless Company. Together with the Company, these companies produce
substantially all of the flat rolled stainless steel produced in the United
States. In January 1998, ALT reached an agreement with Bethlehem Steel
Corporation, party to a previously announced merger with Lukens, to purchase
certain of the melting and finishing facilities Lukens currently uses in the
manufacture of flat-rolled stainless steel. The effects of this proposed
transaction to the Company cannot be determined at this time.

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Based on statistics, the Company believes it is the third largest
manufacturer of stainless steel sheet and strip products in the United States
and the second largest United States producer of austenitic cold rolled
stainless steel, which is the largest part of the domestic stainless steel
market. Competition is based principally on price, product characteristics,
quality and service.

Major foreign producers competing in the United States market include
those located in the member countries of the European Union, Japan, Mexico,
Canada, Korea and Taiwan. The market share of imported stainless steel sheet and
strip has increased significantly over the past five years. In 1992, imports
represented 17.4% of apparent United States consumption compared to 20.8% in
1997.

In addition to competition from other stainless steel producers, the
Company faces competition from other materials which can be substituted for
stainless steel. These include plastics, composites, ceramics, aluminum and
coated carbon steel.

RESEARCH AND DEVELOPMENT

Effective October 1, 1993, the Company entered into a ten-year research
and technology agreement with Ugine that provides the Company with a broad
spectrum of patents, know-how and future research and development services
concerning the manufacturing and processing of flat rolled stainless steel
including, under certain circumstances, any commercially viable thin strip
casting technology developed by Ugine. Ugine, in partnership with Thyssen Stahl
AG, among others, is actively pursuing thin strip casting technology, which
takes liquid steel and casts it into hot rolled sheet in one step, thereby
eliminating the need for a continuous slab caster and hot strip mill. All
patents and know-how relating to this thin strip casting technology will be
provided to the Company without additional payment once the technology is ready
for commercialization, so long as Usinor (successor by merger to Ugine) owns a
majority of the voting stock of the Company at that time.

Expenditures for research and development for the years ended December
31, 1997, 1996 and 1995, were $6.0 million, $6.0 million and $4.0 million,
respectively.

PATENTS AND TRADEMARKS

Other than the trademarks Kool Line(R), Architex(R) and JL(R), the
Company does not believe any patents or trademarks it owns are material to its
business.

EMPLOYEES

As of December 31, 1997, the Company had 1,302 full-time employees, of
whom 815 were represented by the United Steelworkers of America, AFL-CIO
("USWA"). The USWA workers located at the Company's three manufacturing
facilities are covered by separate collective bargaining agreements. These three
agreements expire on July 1, 1999. The Company also has three other collective
bargaining agreements covering 49 employees. The Company believes that its
relationship with its union employees is good. The Company has profit sharing
plans for all of its union and salaried employees.

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ENVIRONMENTAL MATTERS

The Company is subject to various federal, state and local
environmental laws and regulations governing, among other things, air emissions,
waste water discharge, and solid and hazardous waste disposal. The Company
believes that its business, operations and facilities are being operated in
substantial compliance with applicable environmental laws and regulations. The
Company's expenditures relating to environmental compliance during the years
ended December 31, 1997 and 1996, amounted to $16.5 million and $23.6 million,
respectively. The 1997 amount included approximately $1.0 million of capital
expenditures. Environmental-related capital expenditures are broadly estimated
to total approximately $1.2 million and $1.6 million during 1998 and 1999,
respectively. This estimate is based on identified projects; actual expenditures
may vary as the number and scope of environmental projects are revised and could
increase if additional projects are identified or additional regulatory
requirements are imposed. This does not include any environmental capital
expenditures for a steckel mill, should the Company decide to purchase such a
mill; any such capital expenditures would likely occur in the year 1999 or 2000.

The Company anticipates that its capital expenditures in connection
with environmental matters may increase in the future as more stringent laws and
regulations are enacted or become effective. For example, the implementation of
the Great Lakes Initiative will have an impact on future water discharge
permits. Legislative reauthorization and amendments are also expected in the
next few years for the Clean Water Act and the Resource Conservation and
Recovery Act. The Company is currently unable to predict the long-term economic
effect that these new laws and regulations will have on the Company.

ITEM 2. PROPERTIES

The Company leases 26,500 square feet of office space at One PPG Place
in Pittsburgh, Pennsylvania, for its principal corporate offices under a lease
expiring in 2002. The Company owns its manufacturing and finishing facilities
located at Midland, Pennsylvania; Louisville, Ohio; and Detroit, Michigan.

The Midland Plant site consists of 364 acres with building space of
approximately 4,164,000 square feet currently in use. The Midland Plant contains
melting, conditioning and various finishing facilities. This facility was
constructed by its original owner for the manufacture of both carbon and
stainless steels. Only a portion of the available square footage at the Midland
facility is used for the manufacture of flat rolled stainless steel. The Company
does not presently intend to use other dormant areas at the Midland Plant, nor
does the Company intend to utilize any portion of the facilities for the
manufacture of carbon steel.

The Louisville Plant site consists of 270 acres containing a main
manufacturing facility and several auxiliary and office buildings totaling
644,000 square feet. It is a finishing facility and houses the Company's
computer center.

The Detroit Plant site consists of 11 acres containing a manufacturing
facility and office building totaling 371,000 square feet. It is a finishing
facility. In October 1997, the Company announced that its intention is to close
certain production facilities at its Detroit Plant. The shutdowns of affected
equipment are expected to occur gradually during the first half of 1998 as the
DRAP Line's production capabilities increase.

The Company believes that its facilities and equipment are adequate and
suitable for, and are in a condition which will permit them to serve, the
Company's present needs. The Company has largely completed a major capital
program designed to expand and improve its facilities to increase capacity and
lower operating costs. The key project in this program is the DRAP Line at the
Midland Plant. The Company's utilization of its production capacity varies from
month to month. For 1997, the Company's utilization of its production capacity,
excluding the DRAP Line, was approximately 85%, up 5% from the prior year.

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ITEM 3. LEGAL PROCEEDINGS

On March 1, 1996, the United States filed a civil complaint against the
Company at the request of the Environmental Protection Agency ("EPA") alleging
eight claims of violations of the Clean Water Act at the Company's Louisville
Plant. The action was filed in Federal District Court in the Northern District
of Ohio and concerns various alleged violations under each claim occurring from
1990 through 1994. In March 1998, the Company executed a Consent Decree with the
EPA settling such action, which provides, among other things, for the payment of
a $200,000 fine. This Consent Decree has not yet received final court approval.
The Company is not a party to any other pending legal proceedings other than
routine litigation incidental to its business. The Company believes that the
ultimate resolution of these proceedings will not have a material adverse effect
on the Company's financial condition and results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

EXECUTIVE OFFICERS OF THE REGISTRANT

The names of the executive officers of the Company, and certain other
information relating to them, is set forth below.

<TABLE>
<CAPTION>
NAME AGE POSITIONS HELD
---- --- --------------

<S> <C> <C>
Eugene A. Salvadore 49 Director, President and Chief Executive Officer
Kirk F. Vincent 49 Executive Vice President, Finance and Administration
and Chief Financial Officer
Daryl K. Fox 48 Vice President-Human Resources
Geoffrey S. Gibson 53 Vice President-Commercial
Paul J. Grandy 52 Vice President-Engineering
Gerald L. Kosko 56 Vice President-Purchasing and Traffic
Michael F. McGuire 52 Vice President-Technology
John A. Wallace 55 Vice President-Operations
</TABLE>

Eugene A. Salvadore was appointed President and Chief Executive Officer
of the Company on January 1, 1998. Prior thereto, Mr. Salvadore served as
President and Chief Operating Officer from July 1, 1995 until his recent
promotion. From April 1993 through June 1995, Mr. Salvadore served as Vice
President-Operations. From June 1992 to April 1993, Mr. Salvadore was General
Manager-Operations of the Company.

Kirk F. Vincent was appointed Executive Vice President, Finance and
Administration and Chief Financial Officer on January 1, 1998. From December
1991 until this promotion, Mr. Vincent was Vice President-Finance and Law of the
Company. Prior thereto, Mr. Vincent was Vice President, Secretary and General
Counsel of the Company.

Daryl K. Fox has been Vice President-Human Resources of the Company
since June 1993. From June 1991 to May 1993, Mr. Fox was General Manager,
Industrial Relations at LTV Steel Railroads, a division of LTV Steel.

Geoffrey S. Gibson has been Vice President-Commercial of the Company
since June 1993. Prior thereto, Mr. Gibson was General Manager-Sales of the
Company.

Paul J. Grandy has been Vice President-Engineering of the Company since
June 1996. Prior thereto, Mr. Grandy was Vice President - Engineering at Lukens,
Inc. Mr. Grandy was Director-Engineering of the Company from 1986 to 1992, when
he left to join Lukens.

Gerald L. Kosko has been Vice President-Purchasing and Traffic of the
Company since 1986.

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Michael F. McGuire has been Vice President-Technology since 1995. Prior
thereto, Mr. McGuire was Director-Technology of the Company since 1986.

John A. Wallace has been Vice President-Operations since 1995. Prior
thereto, Mr. Wallace was Plant Manager of the Company's Midland Plant since
1986.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS

The information required by this item is included herein by reference
from "Stock Exchange Listing" and "Common Stock Data" on page 31 of the
Company's 1997 Annual Report.

ITEM 6. SELECTED FINANCIAL DATA

The information required by this item is included herein by reference
from the "Selected Financial Data" on page 27 of the Company's 1997 Annual
Report.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The information required by this item is incorporated herein by
reference from "Management's Discussion and Analysis of Financial Condition and
Results of Operations" on pages 5 through 8 of the Company's 1997 Annual Report.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and supplementary data required by this item
are incorporated herein by reference from the Company's 1997 Annual Report and
are listed in Item 14(a) 1. and 2. of "Exhibits, Financial Statement Schedules,
and Reports on Form 8-K" hereof.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE

None.

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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

In addition to the information reported in Part I of this Form 10-K
under the caption "Executive Officers of the Registrant," the information
required by this item is incorporated by reference from the caption "Election of
Directors" in the Company's Proxy Statement relating to its 1998 Annual Meeting
of Shareholders.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated herein by
reference from the caption "Executive Compensation" in the Company's Proxy
Statement relating to its 1998 Annual Meeting of Shareholders.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

The information required by this item is incorporated herein by
reference from the caption "Beneficial Ownership of Common Stock" in the
Company's Proxy Statement relating to its 1998 Annual Meeting of Shareholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated herein by
reference from the caption "Certain Relationships and Related Transactions" in
the Company's Proxy Statement relating to its 1998 Annual Meeting of
Shareholders.

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PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K

(a) Documents filed as part of the Form 10-K report:

1. Financial Statements
The consolidated balance sheets as of December 31, 1997 and 1996, and
the consolidated statements of income, cash flows and shareholders'
equity for each of the three years in the period ended December 31,
1997, together with the report of Arthur Andersen LLP, independent
public accountants, dated January 21, 1998, on pages 9 through 25 of
the Company's 1997 Annual Report are incorporated herein by reference.

2. Financial Statement Schedules
The financial statement schedule shown below should be read in
conjunction with the financial statements contained in the Company's
1997 Annual Report.

<TABLE>
<CAPTION>
Page No. of
This Form 10-K Report
---------------------

<S> <C>
a. Independent Public Accountants' Report 17

b. Financial Statement Schedule:

II - Valuation and Qualifying Accounts for the period 18
January 1, 1995 through December 31, 1997
</TABLE>

3. Exhibits

The exhibits listed below are filed as a part of this Form 10-K.

EXHIBIT NO. DESCRIPTION
----------- -----------

2.1 Merger Agreement, dated March 13, 1990, as amended as of
June 14, 1990, among Specialty Materials Corporation, SMC
Acquisition Corporation of Delaware and Ugine s.a. (formerly
Ugine Aciers de Chatillon et Gueugnon, S.A.). Incorporated by
reference to Exhibit 2.3 to the Company's Form S-1,
Registration No. 33-69370.

2.2 Agreement and Plan of Merger dated December 6, 1993 by and
between Products and Specialty Materials Corporation and by
and between Specialty Materials Corporation and J&L Specialty
Steel, Inc. Incorporated by reference to Exhibit 2.4 to the
Company's Form 10-K for the fiscal year ended December 31,
1993.

3.1 Articles of Incorporation of the Company. Incorporated by
reference to Exhibit 3.2 to the Company's Form 10-Q for the
fiscal quarter ended June 30, 1996.

3.2 By-laws of the Company. Incorporated by reference to Exhibit
3.2 to the Company's Form 10-Q for the fiscal quarter ended
September 30, 1994.

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4.1 Agreements to furnish a copy of certain instruments which
relate to long-term debt not registered. Incorporated by
reference to Exhibit 4.8 to the Company's Report on Form 10-K
for the fiscal year ended September 30, 1988, to Exhibit 4.5
to the Company's Report on Form 10-K for the fiscal year
ended September 30, 1989, and to Exhibit 4.4 to the Company's
Amendment No. 2 to Form S-1, Registration No. 33-29398.

10.1 Employment Agreement, dated April 28, 1986, between Claude F.
Kronk and Products. Incorporated by reference to Exhibit 10.1
to the Company's Post-Effective Amendment No. 2 to Form S-1,
Registration No. 33-10474 and to Exhibit 10.1 to the
Company's Report on Form 10-Q for the fiscal quarter ended
June 30, 1987.*

10.2 Agreement Amending Employment Agreement, dated July 13, 1987,
between Claude F. Kronk and Products. Incorporated by
reference to Exhibit 10.7 to the Company's Report on Form
10-Q for the fiscal quarter ended June 30, 1987.*

10.3 Amendment to Employment Agreement, dated as of October 1,
1989, among Products, Specialty Materials Corporation and
Claude F. Kronk. Incorporated by reference to Exhibit 10.2 of
the Company's Report on Form 10-K for the fiscal year ended
September 30, 1989.*

10.4 Third Amendment to Employment Agreement, dated as of November
1, 1990, between Products and Claude F. Kronk. Incorporated
by reference to Exhibit 10.4 to the Company's Form S-1,
Registration No. 33-69370.*

10.5 Second Agreement Amending Employment Agreement, dated as of
October 1, 1991, among Products, Specialty Materials
Corporation and Claude F. Kronk. Incorporated by reference to
Exhibit 10.5 to the Company's Form S-1, Registration No.
33-69370.*

10.6 Fourth Amendment to Employment Agreement, dated as of October
1, 1992, between Products and Claude F. Kronk. Incorporated
by reference to Exhibit 10.6 to the Company's Form S-1,
Registration No. 33-69370.*

10.7 Fifth Amendment to Employment Agreement, dated as of December
29, 1992, between Products and Claude F. Kronk. Incorporated
by reference to Exhibit 10.7 to the Company's Form S-1,
Registration No. 33-69370.*

10.8 Agreement, dated July 13, 1987, between Claude F. Kronk and
Products. Incorporated by reference to Exhibit 10.7 to the
Company's Report on Form 10-Q for the fiscal quarter ended
June 30, 1987.*

10.9 Amendment to Agreement, dated as of October 5, 1989, between
Products and Claude F. Kronk. Incorporated by reference to
Exhibit 10.14 to the Company's Report on Form 10-K for the
fiscal year ended September 30, 1989.*

10.10 Letter Agreement dated September 28, 1995, between the
Company and Eugene A. Salvadore. Incorporated by reference to
Exhibit 10.2 of the Company's Form 10-Q for the fiscal
quarter ended September 30, 1995.*

10.11 Employment Agreement, effective January 1, 1998, between the
Company and Eugene A. Salvadore. Filed herewith.*

10.12 Employment Agreement, effective January 1, 1998, between the
Company and Kirk F. Vincent. Filed herewith.*

10.13 Company's Pension Plan, as amended and restated, effective
January 1, 1993. Incorporated by reference to Exhibit 10.8 to
the Company's Form S-1, Registration No. 33-69370.*

12
<PAGE> 13

10.14 Company's Salaried Employees' Pension Plan, as amended and
restated, effective January 1, 1989. Incorporated by
reference to Exhibit 10.28 to the Company's Post-Effective
Amendment No. 1 to Form S-1, Registration No. 33-29398.*

10.15 Company's First Amendment to the Pension Plan, effective as
of the dates noted therein, executed December 12, 1994.
Incorporated by reference to Exhibit 10.2 of the Company's
Form 10-Q for the fiscal quarter ended June 30, 1995.*

10.16 Company's Salaried Employees' Pension Plan, as amended and
restated effective January 1, 1989, as amended by amendment
executed June 9, 1995. Incorporated by reference to Exhibit
10.3 of the Company's Form 10-Q for the fiscal quarter ended
June 30, 1995.*

10.17 Company's Executive Benefit Plan, as amended and restated,
effective May 1, 1992. Incorporated by reference to Exhibit
10.10 to the Company's Form S-1, Registration No. 33-69370.*

10.18 Company's Amendment to the Executive Benefit Plan, effective
January 1, 1998. Filed herewith.*

10.19 Trust Agreement, dated July 21, 1987, between Products and
Pittsburgh National Bank for Claude F. Kronk, with a schedule
identifying other documents omitted and setting forth the
material details in which such omitted documents differ from
the document, a copy of which is filed. Incorporated by
reference to Exhibit 10.13 to the Company's Report on Form
10-Q for the fiscal quarter ended June 30, 1987.*

10.20 Company's Capital Accumulation Plan, as amended and restated
effective July 1, 1990, as amended by amendment executed July
10, 1995. Incorporated by reference to Exhibit 10.1 of the
Company's Form 10-Q for the fiscal quarter ended June 30,
1995.*

10.21 Company's Amendment to Capital Accumulation Plan, effective
as of January 1, 1997. Incorporated by reference to Exhibit
10.18 of the Company's Form 10-K filed on March 27, 1997.*

10.22 Company's Amended and Restated Senior Management Incentive
Plan, dated January 1, 1992, as amended by amendment dated
January 1, 1993. Incorporated by reference to Exhibit 10.13
to the Company's Form S-1, Registration No. 33-69370.
Incorporated by reference to Exhibit 10.18 of the Company's
Form 10-K filed on March 27, 1997.*

10.23 Company's Second Amendment to Senior Management Incentive
Plan, effective as of January 1, 1996. Incorporated by
reference to Exhibit 10.19 of the Company's Form 10-K filed
on March 28, 1996.*

10.24 Company's Third Amendment to Senior Management Incentive
Plan, effective as of January 1, 1997. Incorporated by
reference to Exhibit 10.21 of the Company's Form 10-K filed
on March 27, 1997.*

10.25 Company's Fourth Amendment to Senior Management Incentive
Plan, effective January 1, 1998. Filed herewith.*

10.26 Settlement Agreement, made as of June 1, 1988, as amended as
of August 15, 1988, by and among LTV Steel Tubular Products
Company, LTV Steel Company, Inc., The LTV Corporation, The
Monongahela Connecting Railroad Company, Products and
Specialty Materials Corporation, including Tolling Agreement
attached thereto as Exhibit B. Incorporated by reference to
Exhibits 10.27 and 10.28 to the Company's Form 8-K filed on
October 20, 1988.

13
<PAGE> 14

10.27 Indemnity Trust Agreement, dated September 30, 1986, between
Products and Pittsburgh National Bank. Incorporated by
reference to Exhibit 10.27 to the Company's Post-Effective
Amendment No. 2 to Form S-1, Registration No. 33-10474.

10.28 Form of Indemnification Agreement (including signature pages)
among the Company and certain directors, officers and
employees. Incorporated by reference to Exhibit 10.28 to the
Company's Post-Effective Amendment No. 2 to Form S-1,
Registration No. 33-10474, to Exhibit 10.28 to the Company's
Report on Form 10-K for the fiscal year ended September 30,
1987, and to Exhibits 10.24 and 10.31 to the Company's
Post-Effective Amendment No. 1 to Form S-1, Registration No.
33-29398.

10.29 Amended and Restated 1993 Stock Incentive Plan of the
Company, effective June 10, 1987. Incorporated by reference
to Exhibit 10.3 to the Company's Form 10-Q filed for the
fiscal quarter ended June 30, 1997.*

10.30 Lease Agreement, dated September 1, 1992, between Beaver
County Industrial Development Authority and Products, with
respect to the 6.6% pollution control revenue bonds.
Incorporated by reference to Exhibit 10.24 to the Company's
Form S-1, Registration No. 33-69370.

10.31 Agreement of Sale, dated June 1, 1978, between Beaver County
Industrial Development Authority and Products (as successor
to Colt Industries, Inc.), with respect to the 7% pollution
control revenue bonds. Incorporated by reference to Exhibit
10.25 to the Company's Form S-1, Registration No. 33-69370.

10.32 $100,000,000 Credit Agreement dated July 14, 1995, among the
Company, various banks, Mellon Bank, N.A., as agent and
Credit Lyonnais, Cayman Island Branch and Morgan Guaranty
Trust of New York, as co-agents. Incorporated by reference to
Exhibit 10.4 of the Company's Form 10-Q for the fiscal
quarter ended June 30, 1995.

10.33 Amendment No. 1 to Credit Agreement dated as of December 10,
1995, among the Company, various banks, Mellon Bank, N.A. as
agent and Credit Lyonnais, Cayman Island Branch and Morgan
Guaranty Trust of New York, as co-agents. Incorporated by
reference to Exhibit 10.29 to the Company's Form 10-K filed
on March 28, 1996.

10.34 $125,000,000 Term Loan Agreement dated July 14, 1995, among
the Company, various banks, Mellon Bank, N.A., as agent and
Credit Lyonnais, Cayman Island Branch and Morgan Guaranty
Trust of New York, as co-agents. Incorporated by reference to
Exhibit 10.5 of the Company's Form 10-Q filed on June 30,
1995.

10.35 Amendment No. 1 to Term Loan Agreement, dated as of December
10, 1995, among the Company, various banks, Mellon Bank, N.A.
as agent and Credit Lyonnais, Cayman Island Branch and Morgan
Guaranty Trust of New York, as co-agents. Incorporated by
reference to Exhibit 10.31 to the Company's Form 10-K filed
on March 28, 1996.

10.36 $125 Million Credit Agreement dated June 30, 1997, among the
Company, various banks, Mellon Bank, N.A., as agent.
Incorporated by reference to Exhibit 10.1 to the Company's
Form 10-Q for the fiscal quarter ended June 30, 1997.

10.37 $125 Million Term Loan Agreement dated June 30, 1997, among
the Company, various banks, Mellon Bank, N.A., as agent.
Incorporated by reference to Exhibit 10.2 to the company's
Form 10-Q for the fiscal quarter ended June 30, 1997.

10.38 Research and Technology Agreement, dated as of October 1,
1993, between the Company and Usinor Sacilor (successor by
merger to Ugine s.a.). Incorporated by reference to Exhibit
10.26 to the Company's Form 10-K for the fiscal year ended
December 31, 1993.

14
<PAGE> 15

10.39 Indemnification Agreement dated August 1, 1995 between the
Company and John A. Wallace. Incorporated by reference to
Exhibit 10.4 of the Company's Form 10-Q filed on September
30, 1995.

10.40 Form of Indemnification Agreement between the Company and
each of Pierre F. de Ravel d'Esclapon, Michael J. Hiemstra
and Jennings R. Lambeth. Incorporated by reference to Exhibit
10.32 to the Company's Form S-1, Registration No. 33-69370.

13.1 The following portion of the 1997 Annual Report to
Shareholders: pages 5 through 27 inclusive, and the sections
entitled "Common Stock Data" and "Stock Exchange Listing" on
page 31. Such Annual Report, except for those portions
thereof which are expressly incorporated in this Form 10-K by
reference, is not deemed "filed" with the Securities and
Exchange Commission.

22.1 List of Subsidiaries. Incorporated by reference to Exhibit
22.1 to the Company's Form 10-K filed on March 27, 1997.

23.2 Consent of Arthur Andersen LLP. Filed herewith.

27.1 Financial Data Schedule. Filed herewith.

* Management contract or compensatory plan, contract or arrangement
required to be filed by Item 601(b)(10)(iii) of Regulation S-K.

The Company agrees to furnish to the Commission upon request copies of
all instruments not listed above which define the rights of holders of long-term
debt of the Company and its subsidiaries.

Copies of the exhibits filed as part of this Form 10-K are available at
a cost of $.20 a page to any shareholder of record upon written request to the
Assistant Treasurer, J&L Specialty Steel, Inc., One PPG Place, P.O. Box 3373,
Pittsburgh, Pennsylvania 15230-3373.

(b) The following report on Form 8-K was filed:

None

15
<PAGE> 16

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized as of March 27, 1998.

J&L SPECIALTY STEEL, INC.

/s/ EUGENE A. SALVADORE
-------------------------------------
Eugene A. Salvadore
President and Chief Executive Officer

Pursuant to requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated as of March 27, 1998.

/s/ GUY R. DOLLE /s/ JENNINGS R. LAMBETH
- ----------------------------------- ---------------------------------
Guy R. Dolle Jennings R. Lambeth
Chairman, Board of Directors Director

/s/ EUGENE A. SALVADORE /s/ MICHEL LE PAGE
- ----------------------------------- ---------------------------------
Eugene A. Salvadore Michel Le Page
President, Chief Executive Officer Director
and Director

/s/ CLAUDE F. KRONK
- ----------------------------------- ---------------------------------
Claude F. Kronk Michel J. Longchampt
Vice Chairman, Board of Directors Director

/s/ KIRK F. VINCENT /s/ GERARD MARTEL
- ----------------------------------- ---------------------------------
Kirk F. Vincent Gerard Martel
Executive Vice President, Finance and Director
Administration and Chief Financial Officer

/s/ JOSEPH F. BROZICK /s/ FRANCIS MER
- ----------------------------------- ---------------------------------
Joseph F. Brozick Francis Mer
Controller and Chief Accounting Officer Director

/s/ GERARD PICARD
- ----------------------------------- ---------------------------------
Jean Didier Dujardin Gerard Picard
Director Director

/s/ ROBERT HUDRY /s/ PIERRE F. DE RAVEL D'ESCLAPON
- ----------------------------------- ---------------------------------
Robert Hudry Pierre F. de Ravel d'Esclapon
Director Director

/s/ JOHN J. SHEEHAN
---------------------------------
John J. Sheehan
Director

16
<PAGE> 17

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

ON FINANCIAL STATEMENT SCHEDULE

To the Board of Directors of
J&L Specialty Steel, Inc:

We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements included in J&L Specialty Steel, Inc.'s 1997
Annual Report incorporated by reference in this Form 10-K, and have issued our
report thereon dated January 21, 1998. Our audits were made for the purpose of
forming an opinion on those basic financial statements taken as a whole. The
schedule listed in the index in Item 14(a)2 of the Form 10-K is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not a part
of the basic financial statements. The schedule has been subjected to the
auditing procedures applied in the audits of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.

/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP

Pittsburgh, Pennsylvania,
January 21, 1998

17
<PAGE> 18

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
J&L SPECIALTY STEEL, INC.
FOR THE PERIOD JANUARY 1, 1995 THROUGH DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
ADDITIONS
--------------------------------
BALANCE BALANCE
AT CHARGED CHARGED AT
BEGINNING TO TO OTHER END OF
DESCRIPTION OF PERIOD EXPENSE ACCOUNTS (A) DEDUCTIONS (B) PERIOD
- -------------------------------------------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995:
Allowances for accounts receivable $4,779 $ 500 $1,416 $2,359 $4,336
====== ===== ====== ====== ======
Year ended December 31, 1996:
Allowances for accounts receivable $4,336 $ -- $1,316 $1,783 $3,869
====== ===== ====== ====== ======
Year ended December 31, 1997:
Allowances for accounts receivable $3,869 $ -- $1,268 $1,254 $3,883
====== ===== ====== ====== ======
</TABLE>

(A) Allowance for cash discounts charged against sales.
(B) Includes cash discounts taken and uncollectible accounts written off.

18
<PAGE> 19
EXHIBIT INDEX
-------------

EXHIBIT NO. DESCRIPTION
----------- -----------

2.1 Merger Agreement, dated March 13, 1990, as amended as of June
14, 1990, among Specialty Materials Corporation, SMC
Acquisition Corporation of Delaware and Ugine s.a. (formerly
Ugine Aciers de Chatillon et Gueugnon, S.A.). Incorporated by
reference to Exhibit 2.3 to the Company's Form S-1,
Registration No. 33-69370.*

3.1 Articles of Incorporation of the Company. Incorporated by
reference to Exhibit 3.2 to the Company's Form 10-Q for the
fiscal quarter ended June 30, 1996.*

3.2 By-laws of the Company. Incorporated by reference to Exhibit
3.2 to the Company's Form 10-Q for the fiscal quarter ended
September 30, 1994.*

<PAGE> 20

10.8 Agreement, dated July 13, 1987, between Claude F. Kronk and
Products. Incorporated by reference to Exhibit 10.7 to the
Company's Report on Form 10-Q for the fiscal quarter ended
June 30, 1987.*

10.11 Employment Agreement, effective January 1, 1998, between the
Company and Eugene A. Salvadore. Filed herewith.

10.12 Employment Agreement, effective January 1, 1998, between the
Company and Kirk F. Vincent. Filed herewith.

10.13 Company's Pension Plan, as amended and restated, effective
January 1, 1993. Incorporated by reference to Exhibit 10.8 to
the Company's Form S-1, Registration No. 33-69370.*

<PAGE> 21

10.17 Company's Executive Benefit Plan, as amended and restated,
effective May 1, 1992. Incorporated by reference to Exhibit
10.10 to the Company's Form S-1, Registration No.
33-69370.*

10.18 Company's Amendment to the Executive Benefit Plan, effective
January 1, 1998. Filed herewith.

10.21 Company's Amendment to Capital Accumulation Plan, effective
as of January 1, 1997. Incorporated by reference to Exhibit
10.18 of the Company's Form 10-K filed on March 27, 1997.*

<PAGE> 22

10.23 Company's Second Amendment to Senior Management Incentive
Plan, effective as of January 1, 1996. Incorporated by
reference to Exhibit 10.19 of the Company's Form 10-K filed
on March 28, 1996.*

10.24 Company's Third Amendment to Senior Management Incentive
Plan, effective as of January 1, 1997. Incorporated by
reference to Exhibit 10.21 of the Company's Form 10-K filed
on March 27, 1997.*

10.25 Company's Fourth Amendment to Senior Management Incentive
Plan, effective January 1, 1998. Filed herewith.

<PAGE> 23

<PAGE> 24

10.39 Indemnification Agreement dated August 1, 1995 between the
Company and John A. Wallace. Incorporated by reference to
Exhibit 10.4 of the Company's Form 10-Q filed on September
30, 1995.*

22.1 List of Subsidiaries. Incorporated by reference to Exhibit
22.1 to the Company's Form 10-K filed on March 27, 1997.*

23.2 Consent of Arthur Andersen LLP. Filed herewith.

27.1 Financial Data Schedule. Filed herewith.

*Incorporated by reference.

<PAGE> 1
EXHIBIT 10.11

EMPLOYMENT AGREEMENT

This AGREEMENT, made effective as of January 1, 1998 (the "Effective
Date"), by and between J&L Specialty Steel, Inc., a Pennsylvania corporation
(the "Company") and Eugene A. Salvadore (the "Employee").

WITNESSETH:

WHEREAS, the Company desires to employ Employee and Employee desires to
be employed by the Company upon the terms and conditions set forth herein,

NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is hereby agreed as follows:

1. EMPLOYMENT.

(a) Effective January 1, 1998, the Company hereby agrees
to employ Employee as President and Chief Executive
Officer of the Company, and agrees to nominate
Employee as a member of the Board of Directors
("Board") of the Company. Employee shall report
directly to the Chairman of the Board and shall
perform such duties as are customarily performed by a
person holding the position of President and Chief
Executive Officer in businesses as that engaged in by
the Company and shall, in addition, render such other
services as may be assigned to him from time to time
by the Board.

(b) Employee hereby agrees to be employed as President
and Chief Executive Officer of the Company and to
serve as a member of its Board. Employee agrees that
he shall at all times faithfully and to the best of
his ability, perform all of the duties that may be
required of him pursuant to the terms of this
Agreement.

(c) As long as the principal offices of the Company are
located in Pittsburgh, Pennsylvania, the Employee's
principal place of employment shall be at the
principal offices of the Company, with appropriate
secretarial support, at the Company's expense.

(d) The Company represents and warrants to Employee that
this Agreement has been duly and validly authorized
and executed by and on behalf of the Company in
accordance with its Articles of Incorporation and
bylaws and that it constitutes the lawful and valid
obligation of the Company.

(e) The Employee represents and warrants to the Company
that he is free to accept employment hereunder and
that he has no prior or other obligations

<PAGE> 2

or commitments of any kind that would in any way
hinder or interfere with his acceptance of, or the
full performance of, such employment.

(f) The letter agreement date September 28, 1995 by and
between Employee and the Company is hereby terminated
as of the Effective Date.

2. TERM. Unless earlier terminated in accordance with the
provisions of Paragraph 4 below, this Agreement shall continue
for an initial period beginning as of the Effective Date and
ending five (5) years from the Effective Date ("the Initial
Term"). After expiration of the Initial Term, and subject to
the termination provisions herein contained, this Agreement
will be automatically renewed for successive one (1) year
terms, provided neither of the parties has given written
notice to the other party of its or his intent not to renew at
least sixty (60) days prior to the respective renewal date.

3. COMPENSATION AND RELATED MATTERS.

(a) Base Salary. During the Employee's employment
hereunder, the Company shall pay to the Employee an
annual base salary effective January 1, 1998 of
$400,000 and Employee shall receive such amount less
such deductions as are required by law or that
Employee may elect in accordance with Company policy
and procedure. For each contract year after 1998, the
Board shall set Employee's annual base salary prior
to the beginning of such year, provided that such
annual base salary may not be lower than the previous
year's annual base salary.

The following amounts are indicative of future base
salaries that Employee and the Board of Directors
deem may be appropriate:

Effective January 1, 1999 -- $430,000
Effective January 1, 2000 -- $465,000
Effective January 1, 2001 -- $505,000
Effective January 1, 2002 -- $550,000

The base salary shall be payable in equal periodic
installments in accordance with the Company's salary
practices. The base salary payments hereunder shall
not in any way limit or reduce any other obligation
of the Company hereunder, and no other compensation,
benefit or payment hereunder shall in any way limit
or reduce the obligation of the Company to pay the
Employee's base salary hereunder.

(b) Restricted Shares. The Company shall reserve as an
equity performance bonus up to one hundred thousand
(100,000) restricted shares of the Company's common
stock, (the "Shares"), in accordance with the terms
and conditions of the Company's 1993 Stock Incentive
Plan, or successor plan, and pursuant to such other
terms and conditions as may be established by the
Incentive Based Compensation Committee of the

2
<PAGE> 3

Company's Board of Directors. The Company shall
recommend to the Incentive Based Compensation
Committee that shares be awarded to Employee on or
before the dates and in the amounts set forth below:

January 1, 1998 - 30,000 shares
January 1, 1999 - 30,000 shares
January 1, 2000 - 40,000 shares

(c) Profit Sharing. During the term of this Agreement,
Employee shall be designated a participant in the
Senior Management Incentive Plan (the "Incentive
Plan") at a new Incentive Award Schedule A, Position
Level A (100% maximum award potential) with
performance levels (Threshold, Targets and Maximum
performance levels) consistent with other performance
levels set forth in the Incentive Plan, as the same
may be amended from time to time.

(d) Supplemental Retirement Plan. Employee shall be
deemed a participant in the Company's Executive
Benefit Plan whose participation began prior to May
1, 1992, and on the Effective Date shall be credited
with Years of Service under such Plan beginning on
January 1, 1972. Employee's supplemental benefit
shall be paid to him in accordance with the terms of
the Executive Benefit Plan or in a lump sum
(calculated in accordance with the terms of the
Executive Benefit Plan) within thirty (30) days
following termination of this Agreement by the
Company without Cause or by the Employee with Good
Reason.

(e) Memberships. During the term of Employee's employment
hereunder Employee shall receive reimbursement from
the Company for membership and club dues of the
Employee at a downtown luncheon club, a health club
and a country club of his choice, and for such other
memberships and club dues as the Chairman of the
Board determines are reasonable and necessary for the
purpose of promoting and maintaining the business of
the Company. It is further agreed that if Employee's
employment under the Agreement terminates because of
Employee's election to retire under the provisions of
any of the Company's qualified or non-qualified
pension plans, Company shall, to the extent it has
the right to do so under applicable club rules and
membership contracts, assign to Employee (or, in the
case of Employee's death, to his spouse at the time
of his death, if any, otherwise to his heirs) such
existing memberships in such clubs.

(f) Estate and Tax Planning. For each calendar year from
and including 1998 during any part of which the
Employee is employed under this Agreement, Employee
shall receive reimbursement from the Company for an
amount equal to the Professional Expense
Reimbursement for such calendar year. The
"Professional Expense Reimbursement" for any calendar
year shall be determined as follows: Determine the
amount equal to the lesser of (a)

3
<PAGE> 4

Employee's out-of-pocket costs on account of personal
legal, estate and tax planning services incurred by
Employee from time to time during such calendar year,
or (b) the amount equal to the sum of (A) $5,000
("Base Amount"), and (B) any portion of the Base
Amounts from previous calendar years from and
including 1998 not used in calculating the
Professional Expense Reimbursement for any previous
calendar year.

(g) Legal Fees. The Company shall reimburse Employee for
Employee's reasonable out-of-pocket costs on account
of fees and expenses of lawyers retained by Employee
in connection with any action, suit, arbitration or
proceeding between the Company and Employee in which
Employee is the prevailing party as determined by a
final non-appealable decision arising in connection
with this Agreement, as amended from time to time.

(h) Expenses. During the term of the Employee's
employment hereunder, the Employee shall receive
reimbursement from the Company for all reasonable
expenses incurred by the Employee in performing
services hereunder, including, without limitation,
all expenses of travel and living expenses while away
from home on business at the request of or in the
service of the Company, provided that such expenses
are incurred and accounted for in accordance with the
standard policies and procedures established by the
Company for reimbursement of expenses.

(i) Vacation. In addition to all holidays provided other
employees of the Company, Employee shall be entitled
to vacation in accordance with standard Corporate
policy.

(j) Automobile. During the term of this Agreement, the
Company shall make available to the Employee, at his
request and for his use (without personal mileage
reimbursement), an automobile registered and owned by
the Corporation of a class at least comparable to the
car now provided to Employee by the Company.

(k) Other Benefits. The Employee shall be entitled to
participate in the same manner as other executives of
the Company in such life insurance, medical, dental,
disability, pension and retirement plans and other
programs as may be approved from time to time by the
Company for the benefit of its executives, except any
other such plan or program with respect to which
Employee voluntarily executes a legally effective
waiver. Except as provided in Paragraph 3(m) hereof,
nothing herein shall affect the Company's right to
amend, modify or terminate any retirement or other
benefit plan at any time for any reason.

(l) Gross-Up. The reimbursements and benefits provided
under Paragraphs 4(e), (f), (g) and (j) shall be
grossed-up for federal, state and local income taxes
actually payable thereon by Employee, such that after
giving effect

4
<PAGE> 5

to such taxes the Employee will retain an amount
equal to such pre-tax reimbursement.

(m) Amendment. Despite authority to amend and terminate
the Incentive Plan, the 1993 Stock Incentive Plan and
the Executive Benefit Plan contained in those plans,
the Company agrees that it will not, at least until
December 31, 2002 (unless the Agreement, as amended,
is sooner terminated pursuant to Paragraph 4
thereof), either terminate any of those plans, or
amend them in any way that would reduce the benefits
to which the Employee would otherwise become entitled
thereunder without the prior written consent of
Employee. The Employee hereby consents to the
amendment of the Incentive Plan to add a new
Incentive Award Schedule A, Position Level A, as
described in Paragraph 3(c) hereof.

4. TERMINATION OF EMPLOYMENT.

This Agreement and the Employee's employment hereunder may be
terminated without any breach of this Agreement only under the
following circumstances during the term of this Agreement:

(a) Termination by Employee. Employee may terminate his
employment with the Company for Good Reason or for
any other reason by giving the Company not less than
thirty (30) days prior written notice of the
termination of his employment. For purposes of this
Agreement, "Good Reason" shall mean any failure by
the Company to comply with any material provision of
this Agreement.

(b) Death. The Employee's employment hereunder shall
terminate upon his death.

(c) Disability. If (i) the Employee is deemed disabled
under the Company's Disability Benefit Plan, or any
successor plan in which Employee participates, and
the Employee shall have been absent from his duties
hereunder, with the approval of a physician selected
or approved by the Company, for a period of six (6)
consecutive months during the term of this Agreement,
and (ii) within thirty (30) days after written notice
of termination is given by the Company to the
Employee (which may occur at or after the end of such
six (6) month period) the Employee shall not have
returned to the performance of his duties hereunder
on a full-time basis; then the Company may terminate
the Employee's employment hereunder.

5
<PAGE> 6

hereunder (other than any such failure resulting from
Employee's incapacity due to physical or mental
illness) after demand for such substantial
performance is delivered by Company specifically
identifying the manner in which the Company believes
Employee has not substantially performed his duties,
(ii) his conviction of or plea of guilty or nolo
contendere to a felony or other crime involving moral
turpitude or misappropriation of funds, (iii) the
willful engaging by the Employee in misconduct which
is materially injurious to the Company, monetarily or
otherwise.

(e) Effect of Termination. Any termination of this
Agreement will automatically act as a resignation of
Employee from the Company's Board, effective as of
the date of termination.

5. COMPENSATION UPON TERMINATION OF EMPLOYMENT.

(a) Disability. During any period that the Employee is
deemed disabled under the Company's Disability
Benefit Plan or any successor plan in which Employee
participates ("Disability Period"), the Employee
shall continue to receive his full base salary,
profit sharing bonuses and restricted stock awards,
together with the benefits and participation rights
stated above, at the rate then in effect for such
period until the expiration of the Initial Term or if
the Initial Term has ended, until the expiration of
any one year renewal periods. Payments so made to the
Employee during the Disability Period shall be
reduced by the sum of the amounts, if any, payable to
the Employee under any disability benefit plans of
the Company. After expiration of the Initial Term or
any one year extension periods, Employee may be
entitled to receive any disability benefits provided
by the Company as well as any other benefits payable
under any Company welfare, pension or benefit plans
in which Employee participates, but Employee shall
not be entitled to receive the Severance Payment (as
hereinafter defined).

(b) Death, Termination for Cause or Termination Without
Good Reason. If the Employee's employment shall be
terminated as a result of Employee's death under
Paragraph 4(b) hereof or for Cause under Paragraph
4(d) hereof, or by Employee under Paragraph 4(a)
hereof for any reason other than Good Reason, the
Company shall pay the Employee his full base salary
through the date of termination at the rate in effect
at the time a notice of termination is given plus all
accrued and unpaid benefits (including all life
insurance, profit sharing bonus, pension, health and
welfare benefits in which the Employee was a
participant in accordance with the terms of such
plans) and the Company shall have no further
obligations whatsoever under this Agreement except as
expressly provided otherwise in this Agreement or
under any plan or benefit stated above.

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<PAGE> 7

(c) Termination Other Than for Cause; Termination for
Good Reason. If the Employee's employment is
terminated by the Company other than for Cause, or if
Employee shall terminate his employment for Good
Reason, then Employee shall be entitled to receive,
within thirty (30) days of termination, a lump sum
payment equal to the sum of his annualized base
salary in the year of termination and profit sharing
bonus (as calculated below) for the greater of (i)
the balance of the Initial Term, or (ii) for three
(3) years, plus all accrued and unpaid benefits
(including the awarding of any shares of restricted
stock that have not yet been awarded under Paragraph
3(b) hereof) that Employee would have earned or
accrued during such period had his employment not
been so terminated (including years of service and
participation for such period under the Executive
Benefit Plan) to the extent permitted by law or under
the terms of any qualified welfare or pension plan
(collectively, the "Severance Payment"). The
Employee's profit sharing bonus for purposes of this
Paragraph 5(c) shall be calculated by applying the
average of the two highest percentages used to
calculate the amounts earned by Employee under the
Incentive Plan in any of the five (5) immediately
preceding years.

(d) Failure to Renew. In the event the Company elects not
to renew this Agreement after the Initial Term or any
one year extension period, the Employee may elect to
receive the Severance Payment, in which case he will
be bound by the provisions of Paragraphs 8 and 9
hereof. Alternatively, the Employee may elect not to
receive the Severance Payment, in which case he will
not be bound by the provisions of Paragraphs 8 and 9
hereof. Such election must be made no later than
thirty (30) days after expiration of the Initial Term
or any one year extension period.

(e) Retirement. In no event shall Employee be entitled to
receive the Severance Payment if this Agreement
terminates as a result of Employee's election to
retire under the provisions of any of the Company's
qualified or non-qualified pension plans.

Notwithstanding any provision in the Executive
Benefit Plan to the contrary and regardless of
whether Employee is vested under such plan, in the
event of termination as described in Paragraphs 5(c)
or 5(d), the Employee's retirement benefit payable
under the Executive Benefit Plan shall be paid to the
Employee in a single lump-sum payment as soon as
practical following the occurrence of the event which
gives rise to the right to payment. Such lump-sum
payment shall be calculated in accordance with the
terms of the Executive Benefit Plan and this
Agreement and shall be in full satisfaction of any
right the Employee may have to payment of a
retirement benefit under the Executive Benefit Plan.
To the full extent necessary to carry out the intent
of the foregoing, this Agreement shall also be deemed
to have amended the Executive Benefit Plan, effective
as of the effective date of this Agreement.

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<PAGE> 8

6. CORPORATE BOARDS AND OTHER MEMBERSHIPS.

As long as the Employee is President and Chief Executive
Officer of the Company, any corporate boards of directors on
which the Employee wishes to serve must have the prior
approval of the Chairman of the Board. At such time as the
Employee ceases to act as President and Chief Executive
Officer of the Company, the Employee may serve on additional
boards of directors subject to the terms of this Agreement,
including Paragraph 8 hereof.

7. NON-DISCLOSURE OF INFORMATION.

(a) Employee shall not, directly or indirectly, disclose
to any person or entity for any reason, or use for
his own personal benefit, any Confidential
Information (as defined below) either during his
employment with the Company or at any time
thereafter.

(b) Employee shall, at all times take all precautions
necessary to protect from loss or disclosure by him
of any and all documents or other information
containing, referring to or relating to such
Confidential Information. Upon termination of his
employment with the Company the Employee shall
promptly return to the Company any and all documents
or other tangible property containing, referring to
or relating to such Confidential Information, whether
prepared by him or others.

(c) Notwithstanding any provision to the contrary in this
Paragraph 7, this paragraph shall not apply to
information which the Employee is legally required to
disclose or to information which must be disclosed in
connection with the performance of Employee's duties
hereunder or to information which has become part of
the public domain or is otherwise publicly disclosed
through no fault or action of the Employee. If
Employee has reason to believe that he may be legally
required to disclose Confidential Information, he
shall give the Company reasonable notice prior to
disclosure so that it may seek to protect the
confidentiality of such information.

(d) For purposes of this Agreement "Confidential
Information" means any information relating in any
way to the business of the Company disclosed to or
known to the Employee as a consequence of, result of,
or through the Employee's employment by the Company
which consists of technical and non-technical
information about the Company's products, processes,
programs, strategic plans, concepts, forms, business
methods, data, any and all financial and accounting
data, marketing, customers, customer lists, and
services and information corresponding thereto
acquired by the Employee during the term of the
Employee's employment by the Company. Confidential
Information shall not include any of such items which
are published or are otherwise part of the public
domain, or freely available from trade sources or
otherwise.

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<PAGE> 9

8. RESTRICTIONS ON COMPETITION.

In consideration of the receipt of the Severance Payment under
Paragraphs 5(a), (c) or (d), if applicable, hereof, or in the
event of Employee's retirement under Paragraph 5(e) hereof,
Employee covenants and agrees that for a period of three (3)
years (or one (1) year in the case of retirement under
Paragraph 5(e) hereof) following the termination of Employee's
employment under Paragraphs 5(a), (c), (d), if applicable, or
(e) hereof, Employee shall not, directly or indirectly engage
in, participate in or assist, as principal or agent, officer,
director, employee, franchisee, consultant, shareholder, or
otherwise, alone or in association with any other person,
corporation or other entity, any business whose activities,
services or products are directly or indirectly competitive
with the activities, services or products of the Company or
its subsidiaries anywhere in the United States; provided,
however, that the foregoing restriction shall not apply in the
case of ownership of the stock of a company which is traded
either on a national or a regional stock exchange or
over-the-counter, where Employee directly or indirectly owns
less than 5% of the stock of such company.

9. RESTRICTIONS ON SOLICITATION.

(a) Employee agrees that during his employment with the
Company he shall not, directly or indirectly, solicit
the trade of or trade with, or otherwise do business
with, any customer or prospective customer of the
Company for any direct or indirect competitor of the
Company. In consideration of the receipt of the
Severance Payment under Paragraphs 5(a), (c) or (d),
if applicable, hereof, or in the event of Employee's
retirement under Paragraph 5(e) hereof, Employee
further agrees that for three (3) years (or one (1)
year in the case of retirement under Paragraph 5(e)
hereof) following the termination of his employment
under Paragraphs 5(a), (c) or (d), if applicable, or
(e) hereof, Employee shall not, directly or
indirectly, solicit the trade of or trade with, any
customer or prospective customer of the Company on
behalf or for the benefit of any direct or indirect
competitor of the Company, or directly or indirectly,
solicit or induce, or attempt to solicit or induce,
any employee of the Company to leave the Company for
any reason whatsoever or hire any employee of the
Company.

(b) During his employment with the Company, Employee
shall not take any action which might divert from the
Company any opportunity which would be within the
scope of any present or contemplated future business
of the Company.

10. SURVIVAL AND ENFORCEMENT.

(a) The provisions set forth in Paragraphs 7, 8 and 9 of
this Agreement shall survive the termination of
Employee's employment with the Company, or

9
<PAGE> 10

the expiration of this Agreement, as the case may be,
and shall continue to be binding upon Employee in
accordance with their respective terms.

(b) Employee recognizes and acknowledges that the
services to be rendered by him hereunder are of a
special and unique character and that the
restrictions on Employee's activities contained in
this Agreement are required for the Company's
reasonable protection. Employee agrees that if he
shall breach Paragraphs 7, 8 or 9 of this Agreement,
the Company will be entitled, if it so elects, to
institute and prosecute proceedings at law or in
equity to obtain damages with respect to such breach
or to enforce the specific performance of this
Agreement by Employee or to enjoin Employee from
engaging in any activity in violation hereof.

(c) Notwithstanding Paragraph 13 of this Agreement, the
parties hereto agree that any actions to enforce
Paragraphs 7, 8 or 9 of this Agreement shall be
brought before the Court of Common Pleas of Allegheny
County, and the parties hereto hereby consent to the
jurisdiction of such court. If any provision or
provisions of Paragraphs 7, 8 or 9 shall be deemed
invalid or unenforceable, either in whole or in part,
this Agreement shall be deemed amended to delete or
modify, as necessary, the offending provision or
provisions and to alter the bounds thereof in order
to render it valid and enforceable.

11. NOTICES.

For the purpose of this Agreement, notices, demands and all
other communications provided for in the Agreement shall be in
writing and shall be deemed to have been duly given when
delivered or, unless otherwise specified, mailed by United
States certified mail, return receipt requested, postage
prepaid, addressed as follows:

If to the Employee: Eugene A. Salvadore
233 Ash Court
Wexford, PA 15090

If to the Company: J&L Specialty Steel, Inc.
c/o Corporate Secretary
One PPG Place, 18th Floor
Pittsburgh, PA 15222

or to such other address as any party may have furnished to
the others in writing in accordance herewith, except that
notices of change of address shall be effective only upon
receipt.

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<PAGE> 11

12. KEY MAN LIFE INSURANCE.

During the Initial Term and any extension of the Initial Term,
Employee agrees to be subject to physical examinations for the
purpose of determining his insurability for life insurance for
the benefit of the Company. Employee further agrees to execute
and deliver any documents that may be necessary for the
Company to obtain any such insurance on Employee.
Notwithstanding the foregoing provisions, Employee understands
and agrees that the Company shall have no obligation to
purchase or maintain any key man life insurance on Employee.

13. ARBITRATION.

Except as otherwise provided in Paragraph 10 hereof, any claim
or controversy arising out of or relating to this Agreement or
any breach thereof shall be settled by arbitration, in
accordance with the then current rules of the American
Arbitration Association before a panel of three arbitrators.
Any such arbitration shall take place in Pittsburgh, PA.
Judgment upon the written award rendered by a majority of the
arbitrators may be entered in the court having jurisdiction
thereof. The written decision of a majority of the arbitrators
shall be valid, binding and final, and shall be a condition
precedent to any legal action that any party may contemplate
against the other, except to compel arbitration pursuant
hereto.

14. VALIDITY.

The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which
shall remain in full force and effect.

15. COUNTERPARTS.

This Agreement may be executed in one or more counterparts
each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.

16. MODIFICATION.

This Agreement sets forth the entire agreement and
understanding of the parties concerning the subject matter
hereof and supersedes all prior agreements, arrangements and
understandings between the parties hereto. No representation,
promise, inducement or statement of intention has been made by
or on behalf of either party hereto that is not set forth in
this Agreement. This Agreement may not be amended or modified
except by written instrument executed by the parties hereto.

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<PAGE> 12

17. BINDING EFFECT ON AND ASSIGNMENT BY EMPLOYEE.

The terms and provisions of this Agreement shall be binding on
and inure to the benefit of the Employee, his heirs at law,
legatees, distributees, executors, administrators and other
legal representatives. Neither this Agreement nor any of the
Employee's interests, rights or obligations hereunder shall be
assignable by the Employee.

18. ATTACHMENT.

Except as required by law, the right to receive payments under
this Agreement shall not be subject to anticipation, sale,
pledge, encumbrance, charge, levy, or similar process or
assignment, and any attempt to do so shall be null and void.

19. BINDING EFFECT ON AND ASSIGNMENT BY COMPANY.

The terms and provisions of this Agreement shall inure to the
benefit of and be binding upon the Company and any corporate
or other successor of the Company which shall acquire,
directly or indirectly, by merger, acquisition, consolidation,
purchase, or otherwise, all or substantially all of the equity
or assets of the Company. Nothing in the Agreement shall
preclude the Company from consolidating or merging into or
with or transferring all or substantially all of its equity or
assets to another person or entity. The Company may freely
assign this Agreement and any portion of its rights and
interests herein. In such event, such other person or entity
shall assume this Agreement and all obligations of the Company
hereunder. Upon such consolidation, merger, or transfer of
equity or assets and assumption, the term the "Company" as
used herein, shall mean such other person and this Agreement
shall continue in full force and effect.

20. WAIVERS.

Any waiver by a party of any breach of this Agreement by any
other party shall not be construed as a continuing waiver or
as a consent to any subsequent breach by any other party.
Except as otherwise expressly set forth herein, no failure on
the part of any party hereto to exercise and no delay in
exercising any right, power or remedy hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise
of any right, power or remedy hereunder preclude any other or
further exercise thereof or the exercise of any other right,
power or remedy.

21. HEADINGS.

The headings of the paragraphs of this Agreement have been
inserted for convenience of reference only and shall in no way
restrict or modify any of the terms or provisions hereof.

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<PAGE> 13

22. GOVERNING LAW.

This Agreement shall be governed and construed and the legal
relationship of the parties determined in accordance with the
laws of applicable to contracts executed and to be performed
solely in Pennsylvania.

IN WITNESS WHEREOF, the parties have executed the Agreement as of the
9th day of December, 1997.

EMPLOYEE J&L SPECIALTY STEEL, INC.

/s/ EUGENE A. SALVADORE By: /s/ GUY R. DOLLE
- ----------------------------- -------------------------
Name: Eugene A. Salvadore Name: Guy R. Dolle
Title: Chairman

<PAGE> 1
EXHIBIT 10.12

EMPLOYMENT AGREEMENT

This AGREEMENT, made effective as of January 1, 1998 (the "Effective
Date"), by and between J&L Specialty Steel, Inc., a Pennsylvania corporation
(the "Company") and Kirk F. Vincent (the "Employee").

WITNESSETH:

WHEREAS, the Company desires to employ Employee and Employee desires to
be employed by the Company upon the terms and conditions set forth herein,

NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is hereby agreed as follows:

1. EMPLOYMENT.
(a) Effective January 1, 1998, the Company hereby agrees
to employ Employee as Executive Vice President,
Finance and Administration and Chief Financial
Officer, Secretary of the Company. Employee shall
report directly to the President and Chief Executive
Officer of the Company and shall perform such duties
as are customarily performed by a person holding the
position of Chief Financial Officer in businesses as
that engaged in by the Company. In addition, the
Purchasing and Traffic, Human Resources and Law
Departments of the Company, or areas of comparable
responsibility, shall report directly to Employee and
Employee should render such other services as may be
assigned to him from time to time by the Board or the
Chief Executive Officer.

(b) Employee hereby agrees to be employed as Executive
Vice President, Finance and Administration and Chief
Financial Officer, Secretary of the Company. Employee
agrees that he shall at all times faithfully and to
the best of his ability, perform all of the duties
that may be required of him pursuant to the terms of
this Agreement.

(e) The Employee represents and warrants to the Company
that he is free to accept employment hereunder and
that he has no prior or other obligations

<PAGE> 2

or commitments of any kind that would in any way
hinder or interfere with his acceptance of, or the
full performance of, such employment.

2. TERM.

Unless earlier terminated in accordance with the provisions of
Paragraph 4 below, this Agreement shall continue for an
initial period beginning as of the Effective Date and ending
three (3) years from the Effective Date ("the Initial Term").

3. COMPENSATION AND RELATED MATTERS.

(a) Base Salary. During the Employee's employment
hereunder, the Company shall pay to the Employee an
annual base salary effective January 1, 1998 of
$240,000 and Employee shall receive such amount less
such deductions as are required by law or that
Employee may elect in accordance with Company policy
and procedure. For each contract year after 1998, the
Board shall set Employee's annual base salary prior
to the beginning of such year, provided that such
annual base salary may not be lower than the previous
year's annual base salary.

(b) Restricted Shares. The Company shall reserve as an
equity performance bonus up to thirty six thousand
(36,000) restricted shares of the Company's common
stock, (the "Shares"), in accordance with the terms
and conditions of the Company's 1993 Stock Incentive
Plan, or successor plan, and pursuant to such other
terms and conditions as may be established by the
Incentive Based Compensation Committee of the
Company's Board of Directors. The Company shall
recommend to the Incentive Based Compensation
Committee that shares be awarded to Employee on or
before the dates and in the amounts set forth below:

January 1, 1998 - 18,000 shares
January 1, 1999 - 18,000 shares

(c) Profit Sharing. During the term of this Agreement,
Employee shall be designated a participant in the
Senior Management Incentive Plan (the "Incentive
Plan") at a new Incentive Award Schedule A, Position
Level B (80% maximum award potential) with
performance levels (Threshold, Targets and Maximum
performance levels) consistent with other performance
levels set forth in the Incentive Plan, as the same
may be amended from time to time.

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<PAGE> 3

(d) Supplemental Retirement Plan. Employee shall be
deemed a participant in the Company's Executive
Benefit Plan whose participation began prior to May
1, 1992, and on the Effective Date shall be credited
with Years of Service under such Plan beginning on
December 1, 1979. Employee's supplemental benefit
shall be paid to him in accordance with the terms of
the Executive Benefit Plan or in a lump sum
(calculated in accordance with the terms of the
Executive Benefit Plan) within thirty (30) days
following termination of this Agreement by the
Company without Cause or by the Employee with Good
Reason.

(e) Memberships. During the term of Employee's employment
hereunder Employee shall receive reimbursement from
the Company for membership and club dues of the
Employee at a downtown luncheon club, a health club
and a country club of his choice, and for such other
memberships and club dues as the Chief Executive
Officer of the Board determines are reasonable and
necessary for the purpose of promoting and
maintaining the business of the Company. It is
further agreed that if Employee's employment under
the Agreement terminates because of Employee's
election to retire under the provisions of any of the
Company's qualified or non-qualified pension plans,
Company shall, to the extent it has the right to do
so under applicable club rules and membership
contracts, assign to Employee (or, in the case of
Employee's death, to his spouse at the time of his
death, if any, otherwise to his heirs) such existing
memberships in such clubs.

(f) Expenses. During the term of the Employee's
employment hereunder, the Employee shall receive
reimbursement from the Company for all reasonable
expenses incurred by the Employee in performing
services hereunder, including, without limitation,
all expenses of travel and living expenses while away
from home on business at the request of or in the
service of the Company, provided that such expenses
are incurred and accounted for in accordance with the
standard policies and procedures established by the
Company for reimbursement of expenses.

(g) Vacation. In addition to all holidays provided other
employees of the Company, Employee shall be entitled
to vacation in accordance with standard Corporate
policy.

(h) Automobile. During the term of this Agreement, the
Company shall make available to the Employee, at his
request and for his use (without personal mileage
reimbursement), an automobile registered and owned by
the Corporation of a class at least comparable to the
car now provided to Employee by the Company.

(i) Other Benefits. The Employee shall be entitled to
participate in the same manner as other executives of
the Company in such life insurance,

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<PAGE> 4

medical, dental, disability, pension and retirement
plans and other programs as may be approved from time
to time by the Company for the benefit of its
executives, except any other such plan or program
with respect to which Employee voluntarily executes a
legally effective waiver. Except as provided in
Paragraph 3(k) hereof, nothing herein shall affect
the Company's right to amend, modify or terminate any
retirement or other benefit plan at any time for any
reason.

(j) Gross-Up. The reimbursements and benefits provided
under Paragraphs 4(e) and (h) shall be grossed-up for
federal, state and local income taxes actually
payable thereon by Employee, such that after giving
effect to such taxes the Employee will retain an
amount equal to such pre-tax reimbursement.

(k) Amendment. Despite authority to amend and terminate
the Incentive Plan, the 1993 Stock Incentive Plan and
the Executive Benefit Plan contained in those plans,
the Company agrees that it will not, at least until
December 31, 2000 (unless the Agreement, as amended,
is sooner terminated pursuant to Paragraph 4
thereof), either terminate any of those plans, or
amend them in any way that would reduce the benefits
to which the Employee would otherwise become entitled
thereunder without the prior written consent of
Employee.

4. TERMINATION OF EMPLOYMENT.

This Agreement and the Employee's employment hereunder may be
terminated without any breach of this Agreement only under the
following circumstances during the term of this Agreement:

(b) Death. The Employee's employment hereunder shall
terminate upon his death.

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<PAGE> 5

have returned to the performance of the duties
hereunder on a full-time basis; then the Company may
terminate the Employee's employment hereunder.

(d) Termination by Company. The Company may immediately
terminate the Employee's employment hereunder for
Cause or for any reason other than for Cause by
giving Employee not less than thirty (30) days prior
written notice. For purposes of this Agreement,
"Cause" shall mean (i) the willful and continued
failure by Employee to substantially perform his
duties hereunder (other than any such failure
resulting from Employee's incapacity due to physical
or mental illness) after demand for such substantial
performance is delivered by Company specifically
identifying the manner in which the Company believes
Employee has not substantially performed his duties,
(ii) his conviction of or plea of guilty or nolo
contendere to a felony or other crime involving moral
turpitude or misappropriation of funds, (iii) the
willful engaging by the Employee in misconduct which
is materially injurious to the Company, monetarily or
otherwise.

(e) Effect of Termination. If Employee is appointed to
the Company's Board of Directors, any termination of
this Agreement will automatically act as a
resignation of Employee from the Company's Board,
effective as of the date of termination.

5. COMPENSATION UPON TERMINATION OF EMPLOYMENT.

(a) Disability. During any period that the Employee is
deemed disabled under the Company's Disability
Benefit Plan or any successor plan in which Employee
participates ("Disability Period"), the Employee
shall continue to receive his full base salary,
profit sharing bonuses and restricted stock awards,
together with the benefits and participation rights
stated above, at the rate then in effect for such
period until the expiration of the Initial Term or if
the Initial Term has ended, until the expiration of
any renewal periods. Payments so made to the Employee
during the Disability Period shall be reduced by the
sum of the amounts, if any, payable to the Employee
under any disability benefit plans of the Company.
After expiration of the Initial Term or any extension
periods, Employee may be entitled to receive any
disability benefits provided by the Company as well
as any other benefits payable under any Company
welfare, pension or benefit plans in which Employee
participates, but Employee shall not be entitled to
receive the Severance Payment (as hereinafter
defined).

(b) Death, Termination by Company for Cause or
Termination by Employee Without Good Reason. If the
Employee's employment shall be terminated as a result
of Employee's death under Paragraph 4(b) hereof or
for Cause under Paragraph 4(d) hereof, or by Employee
under Paragraph 4(a) hereof for any reason other than
Good Reason, the Company shall pay the Employee his
full base salary through the date of termination at
the rate in

5
<PAGE> 6

effect at the time a notice of termination is given
plus all accrued and unpaid benefits (including all
life insurance, profit sharing bonus, pension, health
and welfare benefits in which the Employee was a
participant in accordance with the terms of such
plans) and the Company shall have no further
obligations whatsoever under this Agreement except as
expressly provided otherwise in this Agreement or
under any plan or benefit stated above.

(c) Termination by Company Other Than for Cause;
Termination by Employee for Good Reason. If the
Employee's employment is terminated by the Company
other than for Cause, or if Employee shall terminate
his employment for Good Reason, then Employee shall
be entitled to receive, within thirty (30) days of
termination, a lump sum payment equal to the sum of
his annualized base salary in the year of termination
and profit sharing bonus (as calculated below) for
the greater of (i) the balance of the Initial Term,
or (ii) for two (2) years, plus all accrued and
unpaid benefits (including the awarding of any shares
of restricted stock that have not yet been awarded
under Paragraph 3(b) hereof) that Employee would have
earned or accrued during such period had his
employment not been so terminated (including years of
service and participation for such period under the
Executive Benefit Plan) to the extent permitted by
law or under the terms of any qualified welfare or
pension plan (collectively, the "Severance Payment").
The Employee's profit sharing bonus for purposes of
this Paragraph 5(c) shall be calculated by applying
the average of the two highest percentages used to
calculate the amounts earned by Employee under the
Incentive Plan in any of the five (5) immediately
preceding years.

(d) Retirement. In no event shall Employee be entitled to
receive the Severance Payment if this Agreement
terminates as a result of Employee's election to
retire under the provisions of any of the Company's
qualified or non-qualified pension plans.

Notwithstanding any provision in the Executive
Benefit Plan to the contrary and regardless of
whether Employee is vested under such plan, in the
event of termination as described in Paragraph 5(c),
the Employee's retirement benefit payable under the
Executive Benefit Plan shall be paid to the Employee
in a single lump-sum payment as soon as practical
following the occurrence of the event which gives
rise to the right to payment. Such lump-sum payment
shall be calculated in accordance with the terms of
the Executive Benefit Plan and this Agreement and
shall be in full satisfaction of any right the
Employee may have to payment of a retirement benefit
under the Executive Benefit Plan. To the full extent
necessary to carry out the intent of the foregoing,
this Agreement shall also be deemed to have amended
the Executive Benefit Plan, effective as of the
effective date of this Agreement.

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<PAGE> 7

6. CORPORATE BOARDS AND OTHER MEMBERSHIPS.

As long as the Employee is Executive Vice President, Finance
and Administration and Chief Financial Officer, Secretary of
the Company, any corporate boards of directors on which the
Employee wishes to serve must have the prior approval of the
Chief Executive Officer of the Company. At such time as the
Employee ceases to act as Executive Vice President, Finance
and Administration and Chief Financial Officer, Secretary of
the Company, the Employee may serve on additional boards of
directors subject to the terms of this Agreement, including
Paragraph 8 hereof.

7. NON-DISCLOSURE OF INFORMATION.

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<PAGE> 8

Company. Confidential Information shall not include
any of such items which are published or are
otherwise part of the public domain, or freely
available from trade sources or otherwise.

8. RESTRICTIONS ON COMPETITION.

In consideration of the Company entering this Agreement,
Employee covenants and agrees that for a period of two (2)
years (or one (1) year in the case of retirement under
Paragraph 5(d) hereof) following the termination of Employee's
employment under Paragraphs 5(a), (b), or (d) hereof, Employee
shall not, directly or indirectly engage in, participate in or
assist, as principal or agent, officer, director, employee,
franchisee, consultant, shareholder, or otherwise, alone or in
association with any other person, corporation or other
entity, any business within the stainless steel industry whose
activities, services or products are directly or indirectly
competitive with the activities, services or products of the
Company or its subsidiaries anywhere in the United States;
provided, however, that the foregoing restriction shall not
apply in the case of ownership of the stock of a company which
is traded either on a national or a regional stock exchange or
over-the-counter, where Employee directly or indirectly owns
less than 5% of the stock of such company or in the case that
Employee is offered a position of President or higher with a
stainless steel sheet, strip or plate producer (and a
comparable position in title, compensation and responsibility
is not offered with Usinor or its affiliates, in the United
States or a mutually agreeable foreign country).

9. RESTRICTIONS ON SOLICITATION.

(a) Employee agrees that during his employment with the
Company he shall not, directly or indirectly, solicit
the trade of or trade with, or otherwise do business
with, any customer or prospective customer of the
Company for any direct or indirect competitor of the
Company. In consideration of the Company entering
this Agreement, Employee further agrees that during
the period, if any, in which he is bound by the
restrictions on competition set forth in Paragraph 8
hereof, Employee shall not, directly or indirectly,
solicit the trade of or trade with, any customer or
prospective customer of the Company on behalf or for
the benefit of any direct or indirect competitor of
the Company, or directly or indirectly, solicit or
induce, or attempt to solicit or induce, any employee
of the Company to leave the Company for any reason
whatsoever or hire any employee of the Company.

8
<PAGE> 9

10. SURVIVAL AND ENFORCEMENT.

(a) The provisions set forth in Paragraphs 7, 8 and 9 of
this Agreement shall survive the termination of
Employee's employment with the Company, or the
expiration of this Agreement, as the case may be, and
shall continue to be binding upon Employee in
accordance with their respective terms.

11. NOTICES.

If to the Employee: Kirk F. Vincent
617 West Drive
Sewickley, PA 15143

If to the Company: J&L Specialty Steel, Inc.
c/o Chief Executive Officer
One PPG Place, 18th Floor
Pittsburgh, PA 15222

9
<PAGE> 10

or to such other address as any party may have furnished to
the others in writing in accordance herewith, except that
notices of change of address shall be effective only upon
receipt.

12. KEY MAN LIFE INSURANCE.

13. ARBITRATION.

14. VALIDITY.

15. COUNTERPARTS.

This Agreement may be executed in one or more counterparts
each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.

16. MODIFICATION.

10
<PAGE> 11

not be amended or modified except by written instrument
executed by the parties hereto.

17. BINDING EFFECT ON AND ASSIGNMENT BY EMPLOYEE.

18. ATTACHMENT.

19. BINDING EFFECT ON AND ASSIGNMENT BY COMPANY.

20. WAIVERS.

11
<PAGE> 12

21. HEADINGS.

The headings of the paragraphs of this Agreement have been
inserted for convenience of reference only and shall in no way
restrict or modify any of the terms or provisions hereof.

22. GOVERNING LAW.

IN WITNESS WHEREOF, the parties have executed the Agreement as of the
11th day of March, 1998.

EMPLOYEE J&L SPECIALTY STEEL, INC.

/s/ KIRK F. VINCENT By: /s/ EUGENE A. SALVADORE
- ------------------------- ------------------------------
Name: Kirk F. Vincent Name: Eugene A. Salvadore
Title: President and Chief Executive Officer

<PAGE> 1
EXHIBIT 10.18

AMENDMENT TO
J&L SPECIALTY STEEL, INC.
EXECUTIVE BENEFIT PLAN

EFFECTIVE JANUARY 1, 1998

In accordance with the power reserved in Section 9.1 of the J&L
Specialty Steel, Inc. Executive Benefit Plan, effective January 1, 1998, the
above titled plan is hereby amended as follows:

1. The name of the Plan is changed from the J&L Specialty Products
Corporation Executive Benefit Plan to the J&L Specialty Steel, Inc. Executive
Benefit Plan. Section 2.1(h) and (q) shall be amended to read in their entirety
as follows:

(h) Corporation: J&L Specialty Steel, Inc., a Pennsylvania
corporation, successor by merger to J&L Specialty
Products Corporation, a Delaware corporation.

(q) Plan: The J&L Specialty Steel, Inc. Executive Benefit
Plan.

2. The following will be added at the end of Section 2.1(a):

; provided, that for Participants terminating
employment with Employer after December 31, 1997, the
1994 Group Annuity and Mortality Table will be used in
place of the 1979 George B. Buck Mortality Table.

3. The following will be added at the end of Section 4.1(a):

(3) Notwithstanding the above Sections 4.1(a)(1) and (2),
in the case of a Participant who terminates employment
with Employer after February 1, 1998 and who commenced
participation herein prior to May 1, 1992, the greater
of:

(A) 1.65% of the Participant's Average Monthly
Compensation multiplied by his Years of Service
up to 30, plus 3% of the Participant's Average
Monthly Compensation multiplied by his Years of
Service in excess of 30; or

(B) 45% of the Participant's Average Monthly
Compensation, plus 3% of such Average Monthly
Compensation for each Year of Service after the
later to occur of his 60th birthday or
completion of 10 Years of Service;

<PAGE> 2

provided that the Retirement Benefit accrued for Years
of Service after the earlier to occur of Participant's
60th birthday or completion of 30 Years of Service,
shall not exceed 21% of Participant's Average Monthly
Compensation.

(4) Notwithstanding the above Sections 4.1(a)(1) and (2),
in the case of a Participant who retires after February
1, 1998 and who commenced participation herein on or
after May 1, 1992, 1.65% of the Participant's Average
Monthly Compensation multiplied by his Years of
Service.

4. The following will be added to the end of Section 4.2(a):

(3) Notwithstanding the above Sections 4.2(a)(1) and (2),
in the case of a Participant or Former Participant who
terminates employment with Employer after February 1,
1998 and who commenced participation herein prior to
May 1, 1992, 1.65% of the Participant's or Former
Participant's Average Monthly Compensation multiplied
by his Years of Service up to 30, plus 3% of the
Participant's or Former Participant's Average Monthly
Compensation multiplied by his Years of Service in
excess of 30; provided that the Retirement Benefit
accrued for Years of Service after the earlier to occur
of the Participant's 60th birthday or completion of 30
Years of Service, shall not exceed 21% of the
Participant's Average Monthly Compensation.

(4) Notwithstanding the above Section 4.2(a)(1) and (2), in
the case of a Participant or Former Participant who
retires after February 1, 1998 and who commenced
participation herein on or after May 1, 1992, 1.65% of
the Participant's or Former Participant's Average
Monthly Compensation multiplied by his Years of
Service.

5. A new Section 5.5 shall be added to the Plan, to read in its
entirety as follows:

5.5 Limitation on Survivor Benefit. Notwithstanding any of
the provisions of Article V or the Plan, for all
Participants whose benefits commence under the Plan
after February 1, 1998, no Survivor Benefit shall be
provided in the event of Participant's marriage or
remarriage after the commencement of benefits under the
Plan; a Survivor Benefit shall only be provided if the
spouse at the time of commencement of benefit, is
Participant's spouse at the time of his death. A
Participant whose benefits commence under the Plan
after February 1, 1998 who is not married at the time
of commencement of benefits shall not be entitled to
any Survivor Benefit, regardless of Participant's
marital status at death.

2
<PAGE> 3

IN WITNESS WHEREOF, the Company has caused this Amendment to be
executed by its duly authorized officers this 23rd day of January, 1998.

ATTEST: J&L SPECIALTY STEEL, INC.

Successor by merger to
J&L Specialty Products Corporation

/s/ KIRK F. VINCENT By: /s/ GUY R. DOLLE
- -------------------------- -------------------------
Secretary Title: Chairman

<PAGE> 1
EXHIBIT 10.25

J&L SPECIALTY STEEL, INC.

FOURTH AMENDMENT TO
SENIOR MANAGEMENT INCENTIVE PLAN

DATED AS OF JANUARY 1, 1998

The J&L Specialty Steel, Inc. Senior Management Incentive Plan
as amended and restated on January 1, 1992 and as further amended as of January
1, 1993, January 1, 1996 and January 1, 1997, is hereby amended by this Fourth
Amendment effective January 1, 1998 in the following respects, pursuant to the
power to amend such plan contained in Article 5.5 thereof:

1. Section 2.1(a) shall be amended to read in its entirety as
follows:

(a) Base Salary: Represents, with respect to any Plan
year, the base salary earned from the Corporation during such
Plan year by the Participant while a Participant in this Plan.
In no event will Base Salary include other compensation such as
amounts payable under any salaried profit sharing plan,
overtime payments, supplemental salary, severance pay, pay in
lieu of vacation, holiday pay, or shift differential. For
Participants who are directors of the Corporation, Base Salary
shall mean the base directors' fee received by such
Participants, as set from time to time by the Board of
Directors of the Corporation, not including any meeting fees,
expenses, consulting fees or other amounts paid by the
Corporation.

2. Section 2.1(f) and (g) of the Plan defining Net Operating
Assets and Operating Income, will be amended in their entirety to read as
follows:

2(f) Net Operating Assets: Trade receivables and
inventories, net of reserves; property, plant and equipment,
net of accumulated depreciation and including only normal
construction in progress; and capitalized software, net of
accumulated amortization, reduced by the following liabilities:
trade accounts payable, normal construction accounts

<PAGE> 2

payable, accrued employee compensation and benefits, accrued
other taxes, other current liabilities (excluding dividends
payable), post retirement benefits liability and other
noncurrent liabilities as shown on the Corporation's financial
statements. Normal construction in progress and normal
construction accounts payable will be determined by the Plan
Administrator.

(g) Operating Income: Reported operating income on the
Corporation's financial statements excluding net gains or
losses from sales or disposals of significant assets,
pre-operating and start-up expenses and extraordinary or
unusual items as defined in Accounting Principles Board Opinion
#30.

3. Section 2.1(h), defining Participant, is hereby amended to
add the following sentence:

All directors who are not employees of any
majority-owned affiliate of a Significant Shareholder (as
defined in the Corporation's Articles of Incorporation) shall
be Participants.

4. Section 4.2 of the Plan is hereby amended to read in its
entirety as follows:

4.2 The Incentive Award Schedule: There are two
Incentive Award Schedules under this Plan, each of which is
applicable to a different class of Participants, as provided in
subsections (a) and (b) below.

(a) Incentive Award Schedule A: This schedule of
awards is reserved for those Participants at the highest level
of the organization as determined by the Board of Directors.
The schedule of payments is as follows:

Schedule A
----------

<TABLE>
<CAPTION>
Performance Levels
-----------------------------------------------------------------
Threshold Target Target Maximum
--------- ------ ------ -------

<S> <C> <C> <C> <C>
Return on Assets 7% 10% 13% 24%

Position Level Maximum Award as % of Base Salary
-----------------------------------------------------------------
A 0% 39% 75% 100%
B 0% 29% 60% 80%
C 0% 24% 45% 60%
</TABLE>

<PAGE> 3

(b) Incentive Award Schedule B: This schedule is
reserved for all other Participants selected by the Board of
Directors. The schedule of payments is as follows:

Schedule B
----------

<TABLE>
<CAPTION>
Performance Levels
-----------------------------------------------------------------
Threshold Target Target Maximum
--------- ------ ------ -------

<S> <C> <C> <C> <C>
Return on Assets 7% 10% 16% 24%

Position Level Maximum Award as % of Base Salary
-----------------------------------------------------------------
I 0% 24% 37% 45%
II 0% 19.5% 30% 37.5%
III 0% 14.5% 23% 30%
</TABLE>

5. Except as expressly provided in this Fourth Amendment, and as
previously amended, all of the terms and conditions of the Plan remain in full
force and effect.

IN WITNESS WHEREOF, the Corporation has caused this Fourth
Amendment to be executed by its duly authorized officers this 4th day of
December, 1997, effective as of January 1, 1998.

ATTEST: J&L SPECIALTY STEEL, INC.

/s/ KIRK F. VINCENT /s/ GUY R. DOLLE
- ------------------------- --------------------------
Kirk F. Vincent Guy R. Dolle
Secretary Chairman

<PAGE> 1
Exhibit 13.1

- --------------------------------------------------------------------------------

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

The management's discussion and analysis that follows provides information
with respect to the results of operations of J&L Specialty Steel, Inc. (the
"Company") for the years ended December 31, 1997, 1996 and 1995.

YEAR ENDED 1997 COMPARED TO YEAR ENDED 1996

U.S. Stainless Steel Market. Apparent consumption of stainless steel sheet
and strip in the United States increased 4.9% to 1,734,651 tons in 1997 from
1,654,322 tons in 1996. In 1997, stainless steel sheet and strip imports were a
record 361,388 tons, or approximately 20.8% of the domestic market, up 7.2% from
337,068 tons in 1996. Reported domestic shipments of stainless steel sheet and
strip by the U.S. stainless steel industry (excluding exports) were 1,373,263
tons, an increase of 4.3% compared to the 1,317,254 tons in 1996.

Net Sales. Net sales for the Company decreased 4.6% to $598.9 million in
1997 from $628.0 million in 1996 despite an 8.9% increase in shipments from
306,791 tons in 1996 to 334,163 tons in 1997. The decrease in net sales was due
to continuing downward pressure on sales prices. This decrease was brought about
by very low-priced imports and by worldwide increases in stainless steel sheet
capacity. On average, selling prices fell $255 or 12.5% per ton in 1997 after
falling $315 or 13.3% per ton in 1996. This downward pressure on selling prices
is continuing to depress prices in early 1998.

Cost of Products Sold, Excluding Depreciation and Amortization Expenses.
As a percentage of net sales, cost of products sold, excluding depreciation and
amortization expenses, increased to 93.8% in 1997 compared with 84.0% in 1996.
The higher cost of products sold as a percentage of net sales in 1997 was due to
lower selling prices during 1997 and $28.7 million of Direct Roll Anneal and
Pickle ("DRAP") Line commissioning costs incurred in 1997. Excluding these
commissioning costs, average cost per ton of steel shipped decreased 7.2% in
1997 largely due to lower raw materials costs.

Depreciation and Amortization Expenses. Depreciation and amortization
expenses increased 17.1%, or $3.9 million in 1997 to $27.0 million. The increase
was due to new capital projects placed in service in 1997, specifically the DRAP
Line at the Midland plant, the new coil slitting and packaging line and bright
anneal line, both located at the Louisville plant.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 4.0%, or $.8 million, to $20.9 million in 1997
compared with $20.1 million in 1996. This increase was primarily due to the
reversal of the liability for stock appreciation rights in 1996, mitigated by
lower profit sharing costs in 1997.

Research and Technology Expense. Research and technology expense was
relatively unchanged in 1997. The majority of the expense is associated with the
Company's ten-year research and technology agreement with Ugine. The agreement
has provided the Company with a broad spectrum of patents, know-how and future
research and development services, including any commercially viable thin strip
casting technology developed by Ugine.

Unusual Items. During 1997, the Company reached settlements with
third-party vendors concerning commercial disputes relating to the quality of
certain material purchased by the Company. As a result of these settlements, the
Company recorded pretax gains of $15.9 million.

Restructuring Charge. In October 1997, the Company announced its intention
to close certain production facilities at its Detroit plant and lay off
approximately 150 hourly and salary employees. A $37.1 million restructuring
charge was recorded in the fourth quarter. Included in the charge was a $26.2
million write-down of goodwill and equipment, $7.9 million of early retirement
benefits and $3.0 million of severance benefits and other exiting costs. The
layoffs and shutdowns of affected equipment are expected to occur gradually
during the first half of 1998 as the DRAP Line's production capabilities
increase.
5
<PAGE> 2

- --------------------------------------------------------------------------------

Interest Expense. Interest expense increased by 75.5% in 1997 due to
higher amounts of outstanding debt offset somewhat by higher amounts of
capitalized interest on major projects in 1997. Three major capital projects
were completed in 1997, which ended a period of interest capitalization that
began in early 1995. In 1997, $7.4 million of interest was capitalized as
compared to $6.1 million in 1996.

Other (Income) Expense. Other (income) expense improved by $.6 million in
1997 from 1996. The improvement was primarily due to demolition and disposal
expenses related to nonoperating facilities at the Midland plant that were
incurred in 1996.

Income Tax Provision. The income tax benefit of $4.1 million on the 1997
pretax loss was significantly limited by the $19.3 million non-deductible
goodwill write-down included in the $37.1 million restructuring charge.
Additionally, the amortization of the purchase accounting adjustment, which is
primarily non-deductible goodwill, also limited the income tax benefit on the
1997 pretax loss. The 48.4% effective income tax rate for 1996 is higher than
statutory income tax rates due to the goodwill amortization and other purchase
accounting adjustments, which are not deductible for income tax purposes.

Net Income. Due to the items described above, the Company incurred a net
loss of $40.5 million in 1997, versus net income of $24.3 million in 1996.

YEAR ENDED 1996 COMPARED TO YEAR ENDED 1995

U.S. Stainless Steel Market. Apparent consumption of stainless steel sheet
and strip in the United States increased 6.5% to 1,654,322 tons in 1996 from
1,553,907 tons in 1995. In 1996, stainless steel sheet and strip imports were
337,068, up 9.0% due to a firming dollar and excess worldwide manufacturing
capacity. Reported domestic shipments of stainless steel sheet and strip by the
U.S. stainless steel industry (excluding exports) were 1,317,254, an increase of
5.8% compared to the 1,244,664 tons in 1995. Imports of stainless steel sheet
and strip comprised the remaining tons in 1996, or approximately 20.4% of the
domestic market.

Net Sales. Net sales for the Company decreased 27.6% to $628.0 million
from a record $867.0 million in 1995. The decrease in net sales was due to lower
selling prices and lower shipments. Import prices placed downward pressure on
domestic prices. Selling prices for 1996 were also negatively impacted by lower
raw material surcharges than were realized in 1995. Shipments for 1996 totaled
306,791 tons and were 16.4% lower than the 367,030 tons shipped in 1995. The
lower shipments in 1996 were the result of a decrease in exports and a decrease
in sales to the hot rolled market. Exports decreased from 8% of sales in 1995 to
4% of sales in 1996 due to low international selling prices, which the Company
elected not to meet. The lower sales to the hot rolled market were due to lower
demand in 1996 for finished goods manufactured from this product and from
increased competition.

Cost of Products Sold, Excluding Depreciation and Amortization Expenses.
As a percentage of net sales, cost of products sold, excluding depreciation and
amortization expenses, increased to 84.0% in 1996 compared with 76.7% in 1995.
The higher cost of products sold as a percentage of net sales in 1996 was
largely due to significantly lower selling prices during 1996. Lower raw
material costs partially offset the effect of these lower selling prices.
Included in 1995 was a $4,000 per union employee signing bonus under the July 1,
1995, labor agreement and the receipt of $2.5 million relating to the settlement
of an insurance claim for property damage and business interruption losses
resulting from a 1993 industrial accident at the Midland plant.

Depreciation and Amortization Expenses. Depreciation and amortization
expenses were relatively unchanged, increasing by $.2 million in 1996 to $23.0
million compared with $22.8 million in 1995.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by 1.8%, or $.4 million, to $20.1 million in
1996 compared with $19.7 million in 1995. Significantly higher engineering and
environmental consulting costs were mostly offset by reductions in the stock
appreciation right accrual.

Research and Technology Expense. Research and technology expense increased
to $6.0 million in 1996 from $4.0 million in 1995. The additional expense was
primarily due to the scheduled increase in fees paid under the Company's
ten-year research

6
<PAGE> 3

- --------------------------------------------------------------------------------

and technology agreement with Ugine. The agreement has provided the Company with
a broad spectrum of patents, know-how and future research and development
services, including any commercially viable thin strip casting technology
developed by Ugine.

Interest Income. The significant decrease in interest income in 1996 was
the result of lower cash balances available for investment.

Interest Expense. Interest expense decreased by 55.4% in 1996. The
significant decrease in interest expense was due to the capitalization of $6.1
million of interest related to capital projects in 1996 versus $2.0 million in
1995. Separately, the effect of higher average debt outstanding during 1996 was
proportionately offset by lower effective borrowing rates.

Other Expense. Other expense decreased to $.4 million in 1996 from $2.7
million in 1995. The decrease in expense was due to a reduction in demolition
and disposal projects related to nonoperating facilities at the Midland plant.

Income Tax Provision. The effective income tax rate of 48.4% for 1996 was
higher than the 42.6% rate for 1995 due to the fact that the amortization of the
purchase accounting adjustment, primarily goodwill which is not deductible for
income tax purposes, was a relatively larger component of pretax income for
1996.

Net Income. Due to the items described above, net income decreased 71.3%
to $24.3 million in 1996 from $84.4 million in 1995.

LIQUIDITY AND CAPITAL RESOURCES

Cash from operating activities of $5.6 million and net borrowings of $69.2
million were used to pay $58.7 million of capital expenditures (including $7.4
million of capitalized interest) and dividends of $15.5 million during 1997.
Included in cash from operating activities was the receipt of $15.9 million from
third-party vendors related to settlements of commercial disputes. The Company
increased its borrowings by $66.5 million under its lines of credit during 1997,
raising the Company's debt-to-total capitalization ratio to 42.2%, up from 31.1%
at December 31, 1996. Working capital was relatively unchanged, decreasing $1.1
million from the prior year end to $67.6 million as of December 31, 1997.

The majority of the capital expenditures in 1997 were related to the DRAP
Line, which was placed into service in September 1997. During the period from
1994 through 1997, the Company made capital expenditures of $264 million. Given
completion of the DRAP Line and other finishing expansion projects, total
capital expenditures for 1998 are expected to be less than $11 million. The most
significant capital project currently in process is the design and purchase of a
new temper mill for the Louisville plant. The temper mill is currently expected
to be installed in 1999.

In addition to the $15.5 million dividend mentioned previously, on December
5, 1997, the Company declared a quarterly cash dividend of $.10 per share
payable on January 21, 1997, to shareholders of record as of the close of
business on January 7, 1998.

On June 30, 1997, the Company replaced its existing $100 million revolving
credit facility with a new five-year $125 million revolving credit agreement and
replaced its existing $125 million term loan with a new seven-year term loan.
The new $125 million term loan agreement matures on June 30, 2004. The new term
loan agreement requires eight semi-annual principal payments of $15.6 million
beginning December 31, 2000. Borrowings under the two agreements are at either
the bank's base rate or the Euro-Rate (deposits in U.S. dollars offered to major
money center banks in the London interbank market) plus a variable margin based
upon the Company's financial performance. Neither agreement contains any
limitations on the Company's ability to pay dividends unless there is a
financial covenant violation or default under the agreement.

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.

7
<PAGE> 4

- --------------------------------------------------------------------------------

OTHER MATTERS

The Company utilizes software and related technologies throughout its
business that will be affected by the date change in the year 2000. The Company
has begun to modify its mainframe computer systems and anticipates all mainframe
and intermediary system modifications will be completed by the end of 1998.
Total costs for such modifications are expected not to exceed $3 million and
will be expensed as incurred. The Company is reviewing its computer controlled
manufacturing equipment for year 2000 issues. Cost estimates for any necessary
modifications to this equipment are not yet available, but it is anticipated
that any necessary modifications will also be substantially completed by the end
of 1998.

The forward-looking statements contained in this report involve risks and
uncertainties that could cause actual results to differ materially from those in
such forward-looking statements. Notably, actual 1998 capital expenditures may
be greater or less than anticipated, and the year 2000 issue could involve
unexpected issues and require additional costs.

8
<PAGE> 5

- --------------------------------------------------------------------------------

========================= =========================

J&L Specialty Steel, Inc.

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

ASSETS

<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 1,186 $ 499
Trade receivables, less allowances of $3,883 and $3,869,
respectively........................................... 54,250 55,153
Trade receivables from affiliates......................... 7,142 6,191
Inventories............................................... 151,115 143,576
Income taxes receivable................................... 3,743 --
Deferred income taxes..................................... 9,366 7,172
Prepaid expenses and other current assets................. 1,093 605
-------- --------
Total current assets................................. 227,895 213,196
-------- --------
Property, plant and equipment, net.......................... 338,062 304,721
Goodwill, net of accumulated amortization of $69,082
and $68,194, respectively................................. 211,932 238,209
Deferred income taxes....................................... 4,569 3,587
Other noncurrent assets..................................... 9,933 12,215
-------- --------
Total assets......................................... $792,391 $771,928
======== ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable.................................... $ 76,679 $ 72,621
Construction accounts payable............................. 15,288 22,914
Accrued employee compensation and benefits................ 21,136 19,571
Other accrued liabilities................................. 23,860 23,127
Short-term debt........................................... 23,319 6,205
-------- --------
Total current liabilities............................ 160,282 144,438
-------- --------
Long-term debt.............................................. 222,583 170,452
Postretirement benefits liability........................... 53,473 48,729
Other noncurrent liabilities................................ 19,547 17,571
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, 38,763,000 and 38,670,000 shares issued and
outstanding)........................................... 388 387
Additional paid-in capital................................ 311,823 308,378
Retained earnings......................................... 25,989 81,973
Unearned compensation..................................... (1,694) --
-------- --------
Total shareholders' equity........................... 336,506 390,738
-------- --------
Total liabilities and shareholders' equity........... $792,391 $771,928
======== ========
</TABLE>

The accompanying notes are an integral part of these financial statements.

9
<PAGE> 6

- --------------------------------------------------------------------------------

========================= =========================
J&L Specialty Steel, Inc.

CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Trade sales, net....................................... $550,615 $579,500 $797,044
Sales to affiliates, net............................... 48,316 48,522 69,978
-------- -------- --------
Total sales, net.................................. 598,931 628,022 867,022

Cost of products sold.................................. 561,992 527,805 665,040
Depreciation and amortization expenses................. 26,968 23,031 22,797
Selling, general and administrative expenses........... 20,915 20,102 19,739
Research and technology expense........................ 5,980 6,049 4,033
Unusual items.......................................... (15,907) -- --
Restructuring charge................................... 37,100 -- --
-------- -------- --------
Operating income (loss)........................... (38,117) 51,035 155,413

Interest expense....................................... 6,859 3,909 8,758
Interest income........................................ (120) (262) (2,954)
Other (income) expense, net............................ (245) 378 2,682
-------- -------- --------
Income (loss) before income taxes................. (44,611) 47,010 146,927
Income tax expense (benefit)........................... (4,095) 22,745 62,525
-------- -------- --------
Net income (loss)................................. $(40,516) $ 24,265 $ 84,402
======== ======== ========
Earnings (loss) per common share:
Basic............................................. $ (1.05) $ .63 $ 2.18
======== ======== ========
Diluted........................................... $ (1.05) $ .63 $ 2.17
======== ======== ========
</TABLE>

The accompanying notes are an integral part of these financial statements.

10
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========================= =========================
J&L Specialty Steel, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................... $ (40,516) $ 24,265 $ 84,402
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Amortization of intangibles and depreciation........ 26,968 23,031 22,797
Deferred income taxes............................... (3,176) (1,735) (3,891)
Restructuring charge................................ 37,100 -- --
Amortization of unearned compensation............... 36 -- --
Changes in certain assets and liabilities:
Trade receivables................................... (48) 10,754 25,695
Inventories......................................... (7,539) 18,211 (25,309)
Other current assets................................ (4,231) 587 (418)
Trade accounts payable.............................. 4,058 (14,355) 2,537
Construction accounts payable....................... (7,626) (1,332) 23,789
Accrued employee compensation and benefits.......... (4,955) (9,570) (265)
Other current liabilities........................... 2,449 14 (3,755)
Postretirement benefits liability................... 5,044 2,143 3,747
Other, net.......................................... (1,961) 2,820 3,447
--------- -------- ---------
Net cash provided by operating activities......... 5,603 54,833 132,776
--------- -------- ---------
Cash flows from investing activities:
Capital expenditures................................... (58,693) (103,316) (94,060)
--------- -------- ---------
Net cash used by investing activities............. (58,693) (103,316) (94,060)
--------- -------- ---------
Cash flows from financing activities:
Borrowings on lines of credit, net..................... 66,500 25,600 --
Refinancing of long-term bank loan..................... 125,000 -- 125,000
Repayment of long-term bank loan....................... (125,000) -- (145,000)
Borrowings of industrial development notes, net........ 2,745 3,035 2,414
Common stock dividends paid............................ (15,468) (15,081) (13,921)
--------- -------- ---------
Net cash provided (used) by financing
activities..................................... 53,777 13,554 (31,507)
--------- -------- ---------
Net increase (decrease) in cash and cash equivalents..... 687 (34,929) 7,209
Cash and cash equivalents at beginning of year........... 499 35,428 28,219
--------- -------- ---------
Cash and cash equivalents at end of year................. $ 1,186 $ 499 $ 35,428
========= ======== =========
</TABLE>

The accompanying notes are an integral part of these financial statements.

11
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========================= =========================
J&L Specialty Steel, Inc.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
ADDITIONAL RETAINED
COMMON PAID-IN EARNINGS/ UNEARNED
STOCK CAPITAL (DEFICIT) COMPENSATION TOTAL
------ ---------- --------- ------------ --------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994....... $387 $304,946 $ 2,695 $ -- $308,028

Net income....................... -- -- 84,402 -- 84,402
Common stock dividends paid
($.27 per share).............. -- -- (10,441) -- (10,441)
Common stock dividends payable
($.09 per share).............. -- -- (3,480) -- (3,480)
Income tax benefit from exercised
stock warrant................. -- 1,716 -- -- 1,716
---- -------- -------- ------- --------
Balance at December 31, 1995....... 387 306,662 73,176 -- 380,225

Net income....................... -- -- 24,265 -- 24,265
Common stock dividends paid
($.30 per share).............. -- -- (11,601) -- (11,601)
Common stock dividends payable
($.10 per share).............. -- -- (3,867) -- (3,867)
Income tax benefit from exercised
stock warrant................. -- 1,716 -- -- 1,716
---- -------- -------- ------- --------
Balance at December 31, 1996....... 387 308,378 81,973 -- 390,738

Net loss......................... -- -- (40,516) -- (40,516)
Common stock dividends paid
($.30 per share).............. -- -- (11,601) -- (11,601)
Common stock dividends payable
($.10 per share).............. -- -- (3,867) -- (3,867)
Issuance of restricted stock, net
of amortization............... 1 1,729 -- (1,694) 36
Income tax benefit from exercised
stock warrant................. -- 1,716 -- -- 1,716
---- -------- -------- ------- --------
Balance at December 31, 1997....... $388 $311,823 $ 25,989 $(1,694) $336,506
==== ======== ======== ======= ========
</TABLE>

The accompanying notes are an integral part of these financial statements.

12
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 1 ORGANIZATION AND NATURE OF OPERATIONS

J&L Specialty Steel, Inc. (the "Company") is a leading manufacturer of flat
rolled stainless steel. On June 14, 1990, Ugine s.a. ("Ugine"), a French
corporation, became the sole shareholder of a predecessor to the Company. On
December 6, 1993, two predecessors to the Company were merged with and into a
newly formed corporation, J&L Specialty Steel, Inc., with the Company being the
surviving entity. On December 15, 1993, the Company completed an initial public
offering of common stock. At December 31, 1997 and 1996, Usinor, successor by
merger to Ugine, owned 53.5% and 53.6%, respectively, of the Company's issued
and outstanding shares of common stock.

Flat rolled stainless steel is the Company's only product line. The Company
produces both austenitic and ferritic flat rolled stainless steels; austenitic
stainless steel represents the largest part of the domestic stainless steel
market. The Company manufactures various grades of stainless steel in the form
of cold rolled stainless steel sheet and strip, hot rolled stainless steel sheet
and strip and continuous mill plate, as well as stainless steel slabs. The
Company operates within a single business segment, stainless steel, and
predominantly within a single geographic area, the continental United States.

The principal raw materials used to produce stainless steel are stainless
steel scrap, nickel, ferrochromium, carbon steel scrap, molybdenum,
ferrosilicon, manganese and manganese alloys. Certain of these raw materials,
including the key raw materials nickel and chromite ore (which is the source of
ferrochromium), can be acquired by the Company and its competitors only from
foreign sources, some of which are located in countries which may be subject to
unstable political and economic conditions. These conditions might disrupt
supplies or affect the prices of these raw materials. In addition, the prices of
many of the Company's raw materials are cyclical as a result of being dependent
on international supply and demand relationships. A substantial increase in raw
material prices or a continued interruption in supply could have a material
adverse effect on the Company's financial condition and results of operations.

At present, an integral part of the Company's stainless steel production
process involves the use of a hot strip mill. The Company does not operate a hot
strip mill and maintains tolling arrangements with two other companies for the
use of their hot strip mills. The Company's dependence on these arrangements
could subject it to interruption in service due to strikes and other production
disruptions at the providers' facilities, which are not within the Company's
control. Should this interruption occur, it could have a material adverse effect
on the Company's financial condition and results of operations. The current
labor contract at the primary provider of such tolling services expires on
August 1, 1999.

Virtually all of the Company's hourly labor force is represented by the
United Steelworkers of America, AFL-CIO ("USWA"). The USWA workers located at
the Company's three manufacturing facilities are covered by separate collective
bargaining agreements. These three agreements expire on July 1, 1999.

The Company's stainless steel is used in a wide variety of industrial,
commercial and consumer products, including pressure vessels, chemical and
refinery equipment, environmental control equipment, cargo containers, sinks,
transportation equipment, beer kegs, fast food equipment, automated bank teller
machines, automobile trim, exhaust systems, and kitchen appliances and utensils.
Approximately 50% of the Company's products are sold to steel service centers.
The remainder of the Company's products are sold to stainless steel converters,
manufacturers of finished industrial and consumer products and exporters. The
Company's customer base has been relatively stable.

13
<PAGE> 10

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NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidation and Presentation

The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Cash Equivalents

Cash equivalents, consisting primarily of commercial paper and money market
funds, are stated at cost which approximates fair market value. For purposes of
the statements of cash flows, the Company considers all highly liquid
investments with a maturity of three months or less at acquisition to be cash
equivalents.

Inventories

Inventories are stated at the lower of cost or market. The cost of raw
materials, including raw materials in work-in-process and finished goods steel
inventories, is determined by the last-in, first-out ("LIFO") method. The
remaining cost of work-in-process and finished goods inventories are determined
by the specific identification cost method. Inventories include material, labor
and overhead costs.

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Expenditures for
additions and betterments are capitalized, while those for maintenance, repairs
and minor renewals are expensed as incurred. For financial reporting purposes,
the Company provides for depreciation on the straight-line method over the
estimated useful lives of the related assets. Accelerated depreciation methods
are utilized for federal income tax purposes. In 1997, $6,900 of equipment was
written down. See Note 12.

Intangible Assets

Goodwill is being amortized on a straight-line basis over 40 years. Other
noncurrent assets include patents and manufacturing know-how that are valued on
a continued-use basis with lives not exceeding 15 years.

The Company evaluates the recoverability of intangible assets, including
goodwill, at each balance sheet date based on forecasted future operations and
undiscounted cash flows and other subjective criteria. Based upon historical
data, management believes that the carrying amount of these intangible assets
will be realizable over their respective amortization periods. In 1997, $19,300
of goodwill, related to the partial closure of the Company's Detroit plant, was
written down. See Note 12.

Financial Instruments

The Company enters into nonleveraged interest rate swap agreements to
manage interest rate exposure. The differential to be paid or received is
accrued as interest rates change and is recognized as interest expense or income
in the current period.

Stock-Based Compensation

The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," ("SFAS
No. 123") in October 1995. This statement establishes a fair value based method
of financial accounting and related reporting standards for stock-based employee
compensation plans, such as the Company's 1993 Stock Incentive Plan. SFAS No.
123 became effective for calendar year 1996 and provides for adoption in the
income statement or through footnote disclosure only. The Company has continued
to account for its 1993 Stock Incentive Plan under APB Opinion No. 25,
"Accounting for Stock Issued to Employees," ("APB No. 25") as permitted by SFAS
No. 123, and has provided the new disclosure in Note 17.

14
<PAGE> 11

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NOTE 3 INVENTORIES

The Company values costs of raw materials in all levels of inventory using
the LIFO method in order to match current costs with current revenues.

Inventory balances as of December 31 consisted of the following:

<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Raw materials.............. $ 18,621 $ 14,567
Work-in-process............ 107,572 104,512
Finished goods............. 40,270 39,448
-------- --------
Total inventories at
current cost............. 166,463 158,527
Less allowance to reduce
current cost values to
LIFO basis............... (15,348) (14,951)
-------- --------
Total inventories.......... $151,115 $143,576
======== ========
</TABLE>

At December 31, 1997 and 1996, inventories not valued on the LIFO method
were $74,750 and $72,452, respectively. Cost of products sold was increased by
approximately $1,433 in 1996 as a result of the liquidation of LIFO inventories.

The Company enters into fixed price raw material contracts to hedge its
exposure to price fluctuations. Currently, none of these contracts are for more
than one year. The Company's requirement for raw materials is expected to
significantly exceed the amounts under contract.

NOTE 4 PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment and their related allowances for depreciation
as of December 31 were:

<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Land....................... $ 4,802 $ 3,325
Buildings.................. 41,592 21,242
Machinery and equipment.... 394,393 191,165
Construction-in-progress... 2,412 183,158
-------- --------
Total property, plant and
equipment................ 443,199 398,890
Less allowance for
depreciation............. (105,137) (94,169)
-------- --------
Property, plant and
equipment, net........... $338,062 $304,721
======== ========
</TABLE>

During 1997, the Company incurred $28.7 million of commissioning costs
related to its new Direct Roll Anneal and Pickle ("DRAP") Line at its Midland,
Pa. plant. The line was placed into service in September 1997. Interest
capitalized during 1997, 1996 and 1995 was $7,409, $6,097 and $1,996,
respectively. As of December 31, 1997 and 1996, purchase commitments for capital
expenditures were approximately $700 and $18,000, respectively.

NOTE 5 SHORT-TERM BORROWING FACILITIES

The Company has $54,400 of uncommitted, short-term lines of credit with
various banks. Borrowings under these unsecured lines of credit are used to
finance the Company's working capital requirements and for other general
corporate purposes. Interest rates are quoted by each bank on an "as offered"
basis depending on the terms of the borrowing (from one day to six months). The
Company had outstanding borrowings of $22,100 and $5,600 under these lines of
credit as of December 31, 1997 and 1996, respectively. The maximum outstanding
borrowing was $30,800 and $20,600 in 1997 and 1996, respectively. The average
amount outstanding during 1997 and 1996 was $18,014 and $10,190, respectively.
The weighted daily average interest rate was 5.9% in 1997 and 5.7% in 1996. The
maximum borrowing available under these lines of credit at December 31, 1997,
after considering the short-term borrowing limitations provided in the revolving
credit facility, was $17,900.

NOTE 6 LONG-TERM DEBT

Long-term debt as of December 31 consisted of the following:

<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Term loan.................. $125,000 $125,000
Revolving credit
facility................. 70,000 20,000
7% pollution control
revenue bonds due June 1,
1998 through June 1,
2008..................... 11,975 11,975
6.6% pollution control
revenue refunding bonds
due September 1, 2006
through September 1,
2010..................... 8,000 8,000
2%-4% industrial
development notes........ 8,827 6,082
-------- --------
223,802 171,057
Current maturities......... (1,219) (605)
-------- --------
Total long-term debt....... $222,583 $170,452
======== ========
</TABLE>

15
<PAGE> 12

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On June 30, 1997, the Company replaced its existing $125,000 term loan with
a new seven-year term loan. The new $125,000 term loan agreement matures on June
30, 2004. The term loan agreement requires eight semi-annual principal payments
of $15,600 beginning December 31, 2000. Borrowings under the term loan agreement
are at either the bank's base rate or the Euro-Rate (deposits in U.S. dollars
offered to major money center banks in the London interbank market) plus a
variable margin based upon the Company's financial performance. The weighted
average interest rate was 6.1% in 1997 and 6.0% in 1996.

On June 30, 1997, the Company replaced its existing $100,000 revolving
credit facility with a new five-year $125,000 revolving credit agreement. The
credit agreement provides for borrowings at either the bank's base rate or
Euro-Rate plus a variable margin based upon the Company's financial performance.
The Company is obligated to pay a commitment fee on the unused portion of the
loan commitment. The Company had outstanding borrowings of $70,000 and $20,000
under the revolving credit facility as of December 31, 1997 and December 31,
1996, respectively. The maximum outstanding borrowing in 1997 and 1996 was
$70,000 and $20,000, respectively. The average amount outstanding during 1997
and 1996 was $51,517 and $9,745, respectively. The weighted daily average
interest rate was 6.1% in 1997 and 5.9% in 1996. The available portion of this
line was $55,000 at December 31, 1997. Borrowings under the revolving credit
facility are available to finance the Company's working capital requirements and
for other general corporate purposes.

Both the term loan and the revolving credit agreement are unsecured but
contain certain financial covenants that the Company is required to meet,
including a minimum adjusted consolidated tangible net worth covenant and a
consolidated leverage ratio covenant. The agreements also contain a put event
based on the continued ownership of a majority of the issued and outstanding
shares of common stock of the Company by Usinor or Ugine and an event of default
in certain situations if Usinor or Ugine become involved in bankruptcy or
insolvency proceedings. Neither agreement contains any limitations on the
Company's ability to pay dividends unless there is a covenant violation or
default of the agreement. The Company is in compliance with all applicable
covenants. Currently, the most restrictive provision of the agreements is the
minimum adjusted consolidated tangible net worth covenant. As of December 31,
1997, the Company's adjusted consolidated tangible net worth, as defined in the
agreement, was approximately $136,878, and the minimum required amount was
$90,000.

An $8,300 stand-by letter of credit is outstanding to secure the 6.6%
pollution control revenue refunding bonds. An additional $5,868 in letters of
credit are outstanding with several banks in support of certain other Company
obligations.

During 1997, the Company entered into two separate industrial development
loans totaling $3,500 with maturities of ten and fifteen years, respectively.
The industrial development notes are secured by certain related facilities or
equipment.

Maturities of long-term debt in each of the next five years are as follows:
1998--$1,219; 1999--$1,258; 2000--$16,940; 2001--$32,614; and 2002--$102,626.

Cash paid for interest was $13,916, $8,869, and $11,162 for the years ended
December 31, 1997, 1996, and 1995, respectively. Included in interest paid in
1995 is a loan guarantee fee of $604 paid to Usinor on a former term loan.

NOTE 7 FINANCIAL INSTRUMENTS

The Company's usage of derivative financial instruments has been limited to
nonleveraged interest rate swaps to manage well-defined interest rate risk.

16
<PAGE> 13

- --------------------------------------------------------------------------------

The following table provides information on the interest rate swaps:

<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NOTIONAL INTEREST RATE
NOTIONAL AMOUNT -----------------
CLASSIFICATION AMOUNT OUTSTANDING RECEIVED PAID
-------------- -------- ----------- --------- -----
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
SWAP................. $11,975 $11,975 7.0% 5.7%
SWAP................. 62,375 -- 5.7 6.2
YEAR ENDED DECEMBER 31, 1996
SWAP................. $11,975 $11,975 7.0% 5.6%
SWAP................. 62,375 62,375 5.7 6.2
</TABLE>

The Company entered into forward start interest rate swap agreements in
October 1997 that had the effect of converting $100,000 of variable rate debt
into a fixed rate obligation. The start date of the interest rate swap
agreements is January 1998, and the expiration date is July 1998. The cash
settlement of the transactions occurs on a quarterly basis, with the Company
either paying or receiving the difference between the fixed rate of interest and
three-month LIBOR.

The Company entered into interest rate swap agreements in July 1996 that
had the effect of converting $62,375 of variable rate debt into a fixed rate
obligation. The expiration date of the interest rate swap agreements was October
1997. The cash settlement of the transactions occurred on a quarterly basis,
with the Company either paying or receiving the difference between the fixed
rate of interest and three-month LIBOR.

An interest rate swap agreement was entered into in June 1992 that has the
effect of converting $11,975 of fixed rate borrowings into a variable rate
obligation. The expiration date of the interest rate swap agreement is June
1999. The cash settlement of the transaction occurs on a quarterly and
semiannual basis, with the Company either paying or receiving the difference
between the fixed rate of interest and the three-month LIBOR.

The effect of the interest rate swaps was to increase interest expense by
$73 in 1997 and decrease interest expense by $14 in 1996.

NOTE 8 PENSION BENEFITS

The Company provides retirement benefits under a variety of employee
benefit plans. Virtually all hourly employees are covered by a defined benefit
plan and all salaried employees, and certain hourly employees, are covered by a
defined contribution plan. A group of salaried employees also has benefits under
the qualified defined benefit plan which was frozen as of January 1, 1993.
Certain key management employees are also covered by a nonqualified, unfunded
supplemental defined benefit plan.

Periodic pension expense for the defined benefit plan is actuarially
determined utilizing the projected unit credit method. The Company funds pension
costs for the defined benefit plan in accordance with the funding requirements
of the Employee Retirement Income Security Act of 1974. Pension costs for the
salaried and hourly defined contribution plans are based upon a percentage of
compensation for salaried employees or a multiple of hours worked for hourly
employees, respectively, and are funded monthly.

The following table summarizes total pension expense for the years ended
December 31:

<TABLE>
<CAPTION>
PLAN TYPE 1997 1996 1995
--------- ------ ------ ------
<S> <C> <C> <C>
Defined benefit......... $3,696 $4,171 $4,445
Defined contribution.... 1,670 1,602 1,478
------ ------ ------
Total................... $5,366 $5,773 $5,923
====== ====== ======
</TABLE>

Net periodic pension expense for the defined benefit plans in 1997, 1996,
and 1995 was determined assuming discount rates of 7.25%, 7.0%, and 8.0%,
respectively, and an expected rate of return on plan assets of 9.0% for 1997,
1996, and 1995. Components of net periodic pension expense are as follows:

<TABLE>
<CAPTION>
1997 1996 1995
------- -------- -------
<S> <C> <C> <C>
Service cost......... $ 2,935 $ 2,930 $ 2,391
Interest cost on
projected benefit
obligation......... 6,073 5,533 5,745
Actual return on
assets............. (14,945) (8,005) (14,678)
Net amortization and
deferral........... 9,633 3,713 10,987
------- -------- -------
Net periodic pension
expense............ $ 3,696 $ 4,171 $ 4,445
======= ======== =======
</TABLE>
17
<PAGE> 14

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In addition to the 1997 net periodic pension expense above, additional
expense of $4,800 was recorded in the 1997 restructuring charge for plan
termination benefits and plan curtailment. See Note 12.

The Company's projected, accumulated and vested defined benefit pension
obligations as of December 31, 1997 and 1996, were determined assuming discount
rates of 7.0% and 7.25%, respectively. The assumed rate of salary increase was
4.0% as of December 31, 1997 and 1996. Plan assets consist primarily of
professionally-managed common stocks, fixed income securities and short-term
investments.

<TABLE>
<CAPTION>
BENEFITS 1997 1996
-------- ------- -------
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation..... $75,470 $61,491
Nonvested benefit
obligation.................. 11,076 10,299
------- -------
Accumulated benefit
obligation.................... 86,546 71,790
Additional obligation for
projected compensation
increases..................... 14,197 11,914
------- -------
Projected benefit obligation.... 100,743 83,704
Plan assets at market value..... 78,832 67,588
------- -------
Projected benefit obligation in
excess of plan assets......... 21,911 16,116
Unrecognized prior service
cost.......................... (6,862) (6,857)
Unrecognized net actuarial
gain.......................... 8,994 6,521
------- -------
Accrued pension cost............ $24,043 $15,780
======= =======
</TABLE>

NOTE 9 RETIREMENT BENEFITS OTHER THAN PENSIONS

The Company maintains unfunded postretirement health care and life
insurance benefit plans covering most hourly and salaried employees.
Substantially all of the Company's employees may become eligible for these
benefits if they retire while working for the Company. The basic hourly health
care and life insurance benefit plans are noncontributory, while the major
medical options of the health care plan are contributory. Generally, the
postretirement salaried benefit plans are contributory. In 1995, the Company
agreed to establish a Voluntary Employee Beneficiary Association Trust ("VEBA")
to prefund a portion of health care and life insurance benefits for retirees
covered under the USWA union agreement. The Company funded the VEBA with cash
contributions of $1,800 for the years ended December 31, 1997 and 1996,
respectively. Additionally, the Company is required to make minimum cash
contributions of $1,800 in each succeeding contract year of the USWA union
agreement.

Postretirement benefit expenses for 1997, 1996, and 1995 were determined
assuming discount rates of 7.25%, 7.0%, and 8.0%, respectively. Components of
postretirement benefit expense are as follows:

<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Cost of benefits earned
during the year....... $1,849 $1,865 $1,670
Interest on APBO........ 3,480 3,344 3,249
Actual return on
assets................ (607) -- --
Net amortization........ 359 2 (54)
------ ------ ------
Total postretirement
benefit expense....... $5,081 $5,211 $4,865
====== ====== ======
</TABLE>

In addition to the postretirement benefit expense above, an additional
expense of $3,100 was recorded in the 1997 restructuring charge for plan
termination benefits and plan curtailment. See Note 12.

The accumulated postretirement benefit obligation ("APBO") as of December
31 was:

<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Retirees...................... $17,031 $15,653
Fully eligible plan
participants................ 10,819 7,599
Other active plan
participants................ 30,250 27,168
------- -------
Total APBO.................... 58,100 50,420
Plan assets at market value... 4,207 1,800
------- -------
APBO in excess of plan
assets...................... 53,893 48,620
Unrecognized prior service
cost........................ (36) (42)
Unrecognized net actuarial
gain........................ 3,216 3,451
------- -------
Accrued postretirement benefit
cost........................ $57,073 $52,029
======= =======
</TABLE>

18
<PAGE> 15

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Postretirement benefit liabilities as of December 31 are reported on the
balance sheets as follows:

<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Accrued compensation and
benefits.................... $ 3,600 $ 3,300
Postretirement benefits
liability................... 53,473 48,729
------- -------
Total postretirement benefits
liability................... $57,073 $52,029
======= =======
</TABLE>

The discount rate used to determine the APBO was 7.0% at December 31, 1997
and 7.25% at December 31, 1996. The assumed medical cost trend rate at December
31, 1997, was 9.0%, grading down to an ultimate rate of 5.0% in 2007 and
remaining at that level thereafter. The assumed medical cost trend rate at
December 31, 1996, was 10.0%, grading down to an ultimate rate of 5.0% in 2007
and remaining at that level thereafter. A one percentage point increase in the
assumed health care cost trend rates for each future year increases annual
postretirement benefit expense by $1,171 and the APBO by $10,093.

Payments of postretirement benefits were $1,366, $1,271, and $1,118 in
1997, 1996 and 1995, respectively.

NOTE 10 SHAREHOLDERS' EQUITY

In 1988, The LTV Corporation ("LTV"), a former shareholder, exercised its
warrant to purchase 200,000 shares of common stock of J&L Specialty Products
Corporation, predecessor to the Company. A condition to the exercise of the
warrant was an extension of the Tolling Agreement between a subsidiary of LTV
and the Company pursuant to which LTV agreed to convert the Company's steel
slabs into hot bands. For income tax purposes, the difference between the
exercise price plus the amount paid for the warrant and the fair value of the
common stock on the date of exercise is deductible by the Company over the term
of the Tolling Agreement. Accordingly, the Company has increased additional
paid-in capital by $1,716 in 1997, 1996 and 1995 to reflect the income tax
benefit recognized for this amortization.

NOTE 11 UNUSUAL ITEMS

In the first and third quarters of 1997, the Company reached settlements
with two unrelated, third-party vendors concerning commercial disputes relating
to the quality of certain material purchased by the Company. As a result of
these settlements, the Company recorded pretax gains totalling $15,907 in 1997.

NOTE 12 RESTRUCTURING CHARGE

As a result of the difficult market conditions and the upcoming ability to
move production to the new more cost effective DRAP Line, the need for certain
production facilities at the Detroit plant was reduced. Accordingly, in October
1997 the Company announced that it intended to close certain production
facilities at its Detroit Plant during the fourth quarter of 1997 and layoff
approximately 150 hourly and salary employees. A $37,100 restructuring charge
was recorded in the fourth quarter. Included in the charge was a $26,200
write-down of goodwill and equipment, $7,900 for early retirement benefits and
$3,000 for severance benefits and other exiting costs. The layoffs and shutdowns
of affected equipment are expected to occur gradually during the first half of
1998 as the DRAP Line's production capabilities increase.

NOTE 13 INCOME TAXES

The consolidated provision for income tax expense (benefit) includes
current and deferred taxes as follows for the years ended December 31:

<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
CURRENT TAXES:
Federal............ $ (186) $21,237 $54,862
State and local.... (733) 3,243 11,554
------- ------- -------
Total............ (919) 24,480 66,416
------- ------- -------
DEFERRED TAXES:
Federal............ (3,016) (1,452) (3,196)
State and local.... (160) (283) (695)
------- ------- -------
Total............ (3,176) (1,735) (3,891)
------- ------- -------
Total current and
deferred taxes..... $(4,095) $22,745 $62,525
======= ======= =======
</TABLE>
19
<PAGE> 16

- --------------------------------------------------------------------------------

Income tax expense (benefit) varies from the amount that would be provided
by applying the federal statutory income tax rate to earnings before income
taxes as reflected below:

<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Federal statutory income
tax rate.............. (35.0)% 35.0% 35.0%
State and local income
taxes, net of federal
income tax benefit.... (3.4) 2.9 4.3
Amortization of purchase
accounting
adjustment............ 10.1 10.5 3.3
Restructuring charge.... 19.1 -- --
----- ----- -----
Effective income tax
rate.................. (9.2)% 48.4% 42.6%
===== ===== =====
</TABLE>

Net deferred income tax assets (liabilities) are composed of the following
as of December 31:

<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Deferred income
tax--current.............. $ 9,366 $ 7,172
Deferred income
tax--long-term............ 4,569 3,587
-------- --------
Net deferred income tax
assets.................... $ 13,935 $ 10,759
======== ========

Consisting of:
1996 1995
-------- --------
Financial reserves not yet
deductible................ $ 16,367 $ 13,563
Postretirement benefits
other than pensions....... 21,257 19,116
Depreciation................ (26,700) (20,161)
Other, net.................. 1,727 (1,759)
Alternative minimum tax
credit.................... 1,284 --
-------- --------
$ 13,935 $ 10,759
======== ========
</TABLE>

Cash paid for income taxes for 1997, 1996 and 1995 was $4,468, $23,287 and
$68,488, respectively.

As of December 31, 1997, the Company had state income tax net operating
loss carryforwards of approximately $1.5 to $3.0 million expiring in 2000
through 2012.

As a result of its deferred tax attributes and the pretax loss for the
year, the Company did not generate any liability for regular federal income tax
purposes for the year ended December 31, 1997. The Company, however, did
recognize alternative minimum tax of approximately $1.3 million for 1997. The
alternative minimum tax can be carried forward as a credit to offset regular
income tax in years when regular income tax exceeds alternative minimum tax.

NOTE 14 COMMITMENTS

During 1996, the Company entered into a noncancelable contract to purchase
certain manufacturing support services for the Company's DRAP Line. The
five-year contract provides the Company with per unit prices for services to be
provided under the contract plus a minimum monthly obligation related to such
contractor's fixed costs. The contract began February 1, 1997, and the Company's
annual minimum obligation under the contract is approximately $2,000 per year.

The Company leases certain property, plant and equipment under various
operating lease agreements. The total rent expense for the years ended December
31, 1997, 1996 and 1995, was $2,460, $2,362, and $2,271, respectively.

Future minimum lease payments required under noncancelable operating leases
that have initial or remaining lease terms in excess of one year as of December
31, 1997, are: 1998--$1,089; 1999--$839; 2000--$884; 2001--$707; and 2002--$422.

NOTE 15 RELATED-PARTY TRANSACTIONS

Effective October 1, 1993, the Company entered into a ten-year research and
technology agreement (the "Agreement") with Ugine that provides the Company with
a broad spectrum of patents, know-how and future research and development
services concerning the manufacturing and processing of flat rolled stainless
steel. The Company made an initial $5,000 cash payment to Ugine for the transfer
of rights to existing patents and know-how and for research and development
services provided during the first year of the Agreement. Annual fees for the
years ended December 31, 1997 and 1996, were $5,000 in each year for these
research and development services. Ongoing annual fees to be paid to Ugine for
research and development services will also be $5,000 in 1998 and each year
thereafter for the term of the Agreement.

20
<PAGE> 17

- --------------------------------------------------------------------------------

In addition to the research and technology agreement, the Company has
purchased various steel products and other services from Usinor or its
affiliates. Payments to Usinor relating to certain insurance premiums for the
Company amounted to $61, $57 and $391 in 1997, 1996 and 1995, respectively. The
payments in all three years represented coverage for a one-year period.
Purchases of steel from Usinor or its affiliates during the three-year period
were insignificant.

See also Note 6 for certain additional related-party transactions.

NOTE 16 DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107, "Disclosure About Fair
Value of Financial Instruments," defines the fair value of a financial
instrument as the amount at which the instrument could be exchanged in a current
transaction between willing parties. The following table presents the carrying
amounts and estimated fair values of the Company's financial instruments as of
December 31, 1997 and 1996:

<TABLE>
<CAPTION>
1997 1996
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and cash
equivalents...... $ 1,186 $ 1,186 $ 499 $ 499
FINANCIAL
LIABILITIES:
Interest rate
swaps............ -- (240) -- (108)
Term loan.......... 125,000 125,000 125,000 125,000
Revolving credit
facility......... 70,000 70,000 20,000 20,000
Short-term
borrowings....... 22,100 22,100 5,600 5,600
Pollution control
revenue bonds.... 19,975 20,217 19,975 20,162
Industrial
development
notes............ 8,827 5,375 6,082 3,997
</TABLE>

The following methods and assumptions were used to estimate the fair value
of each financial instrument:

Cash and cash equivalents: The carrying amounts approximate fair value
because of the short term to maturity of these financial instruments.

Interest rate swaps: The fair value of these instruments is based on the
difference between the interest rates either received or paid on the notional
amount of the underlying liability. The calculation of the fair value was
computed on a net present value basis as if the financial instruments were
terminated on the reporting date. A relationship spread was developed based on
the difference between the three-month LIBOR and quoted three-month treasuries.
This spread was added to the quoted treasury yield for the respective maturity
period of the financial instruments and used to compute the net present value.
The negative or positive fair value is an estimate of the amounts that the
Company would either pay or receive to cancel the contracts at the reporting
date.

Term loan: The carrying amount approximates the fair value of the term
loan as this instrument is variable interest debt with the interest rates reset
at least each quarter.

Revolving credit facility: The carrying amount approximates the fair value
of the revolving credit facility as this instrument is variable interest debt
with the interest rates reset at least each quarter.

Short-term borrowings: The carrying amount approximates the fair value of
the short-term borrowings as these borrowings are variable interest debt with
the interest rates reset from 1 to 180 days.

Pollution control revenue bonds: The estimated fair value of the pollution
control revenue bonds was computed based on quoted market prices as of the
reporting date obtained from an independent financial trading institution.

Industrial development notes: The fair value of these industrial
development notes was computed by discounting expected cash flows at the rates
currently offered to the Company for debt of similar remaining maturities.

Other assets and liabilities: The Company believes that the carrying value
of its other assets and liabilities represent their fair value as of the
reporting date as a result of the short maturity and the reset interest rate
periods for such financial instruments.

21
<PAGE> 18

- --------------------------------------------------------------------------------

NOTE 17 STOCK OPTION PLAN

On October 26, 1993, the Company's Board of Directors authorized the
adoption of the 1993 Stock Incentive Plan ("Plan") under which 2,000,000 shares
of common stock have been reserved for issuance to employees pursuant to the
exercise of incentive stock options ("ISOs") and for issuance to employees and
the Chairman of the Board of Directors of the Company pursuant to the exercise
of nonstatutory stock options. The Plan also provides for alternative stock
appreciation rights ("SARs") with respect to both ISOs and nonstatutory stock
options. The SARs generally give the grantee the right to either receive shares
upon exercise of the option or, at the discretion of the Board of Directors,
cash, shares or a combination thereof equal in value to 100% of the excess of
the fair market value of the common stock on the date of exercise of the option
over the option price.

Under the Plan, the exercise price of each option equals the market price
of the Company's stock on the date of grant. The stock options and stock
appreciation rights are exercisable over a period determined by the Board of
Directors, but no longer than ten years after the date they are granted.
Following are the options granted under the 1993 Stock Incentive Plan:

<TABLE>
<CAPTION>
NUMBER
OPTIONS EXERCISED/ NUMBER
DATE OF GRANT PRICE GRANTED EXPIRED OUTSTANDING WITH SARS EXERCISABLE
------------- ------ ------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
October 1993........................ $14.00 568,000 65,000 503,000 503,000 194,333
December 1995....................... $15.63 330,000 -- 330,000 165,000 143,333
June 1996........................... $16.94 30,000 -- 30,000 15,000 --
December 1996....................... $12.00 27,000 -- 27,000 13,500 --
December 1997....................... $ 9.56 9,000 -- 9,000 4,500 --
------- ------ ------- ------- -------
964,000 65,000 899,000 701,000 337,666
======= ====== ======= ======= =======
</TABLE>

During 1995, 20,000 of the October 1993 stock appreciation rights were
exercised, resulting in a cash payment of $163. There were 234,333 stock options
exercisable at December 31, 1996, and 20,000 exercisable at December 31, 1995.
The Company accounts for the Plan by application of APB No. 25 and related
Interpretations. For the years ended December 31, 1996 and 1995, the
compensation expense (income) related to the stock appreciation rights was
$(1,390) and $404, respectively. No compensation expense or income was recorded
in 1997.

Had compensation cost for the Plan been determined based on the fair value
at the grant dates for awards under the Plan consistent with the method of SFAS
No. 123, the Company's 1997 net loss would have increased to $40,726 and the
diluted loss per share would have been unchanged at $1.05. Net income and
diluted earnings per share in 1996 would have increased to $24,075 and the
diluted earnings per share would have been unchanged at $.63. The pro forma
effect on 1995 was insignificant. Because the SFAS No. 123 method of accounting
has not been applied to options granted prior to January 1, 1995, the resulting
pro forma compensation cost may not be representative of that to be expected in
future years. The fair value of each option grant was estimated on the date of
grant using the Black-Scholes option-pricing model as follows:

<TABLE>
<CAPTION>
ASSUMPTIONS
------------------------------------------------
FAIR DIVIDEND EXPECTED RISK-FREE EXPECTED
GRANT DATE VALUE YIELD VOLATILITY INTEREST RATE LIVES
---------- ----- -------- ---------- ------------- --------
<S> <C> <C> <C> <C> <C>
December 1995..................................... $5.98 2.4% 35% 5.8% 8
June 1996......................................... 6.89 2.4 35 6.9 8
December 1996..................................... 4.20 3.3 35 6.4 8
December 1997..................................... 2.88 4.2 35 5.9 8
</TABLE>

22
<PAGE> 19

- --------------------------------------------------------------------------------

On June 10, 1997, the Plan was amended and restated to permit the issuance
of restricted shares of the Company's common stock to employees. The amendment
did not increase the total number of shares available for issuance under the
Plan, but did extend the expiration period in which to make future awards from
October 25, 2003 to March 3, 2007. On December 7, 1997, 93,000 time accelerated
restricted shares were issued to certain executives at a fair value of $9.56 per
share. In addition, a total of 88,000 time accelerated restricted shares are
anticipated to be issued in 1998 and 1999 pursuant to certain executive
employment agreements. The vesting of these shares may be accelerated based on
the Company's performance as measured against a steel industry group.

NOTE 18 EARNINGS PER SHARE

The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, "Earnings per Share," ("SFAS No. 128") in February
1997. SFAS No. 128 simplifies the standards for computing earnings per share
("EPS") previously found in APB Opinion No. 15, "Earnings per Share." SFAS No.
128 replaces the presentation of primary EPS with a presentation of basic EPS,
which includes only the weighted average number of common shares outstanding and
does not include any potentially dilutive securities in the calculation.

The 1997 basis EPS computation was done using 38,683,885 shares. Given the
net loss for 1997, there were no reconciling dilutive securities, as the 899,000
outstanding options to purchase common stock would have been antidilutive had
they been exercised. These options expire during 2003 through 2007. Following is
the reconciliation of the basic and diluted per share computations for the years
ended December 31, 1996 and 1995:

<TABLE>
<CAPTION>
1996 1995
-------------------------------- ---------------------------------
NET PER-SHARE NET PER-SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------- ---------- --------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS.......................... $24,265 38,670,000 $.63 $84,402 38,670,000 $ 2.18

EFFECT OF DILUTIVE SECURITIES
Common Stock Options............... -- 48,947 -- -- 217,686 .01
------- ---------- ---- ------- ---------- ----------
DILUTED EPS........................ $24,265 38,718,947 $.63 $84,402 38,887,686 $ 2.17
======= ========== ==== ======= ========== ==========
</TABLE>

For the 1996 calculation, options, in addition to those shown in the table, to
purchase 360,000 shares of common stock at $15.63 to $16.94 per share were
outstanding during 1996 but were not included in the computation of diluted EPS
because the options' exercise price was greater than the average market price of
the common shares. These options, which expire in December 2005 and June 2006,
were still outstanding at the end of 1996.

23
<PAGE> 20

- --------------------------------------------------------------------------------

NOTE 19 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1997 QUARTER QUARTER QUARTER QUARTER
- ---- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales................................ $ 165,095 $ 161,296 $ 142,561 $ 129,979
Unusual income........................... (5,907) -- (10,000) --
Restructuring charge..................... -- -- -- 37,100
Operating income (loss).................. 10,513 (2,683) 3,646 (49,593)
Net income (loss)........................ 5,041 (3,386) 655 (42,826)
Net income (loss) per common share:
Basic.................................. .13 (.09) .02 (1.11)
Diluted................................ .13 (.09) .02 (1.11)
Weighted average number of common shares:
Basic.................................. 38,670,000 38,670,000 38,670,000 38,725,087
Diluted................................ 38,671,981 38,670,000 38,671,488 38,725,087

1996
- ----
Net sales................................ $ 184,926 $ 163,704 $ 146,816 $ 132,576
Operating income......................... 20,805 15,546 8,913 5,771
Net income............................... 10,682 7,773 3,834 1,976
Net income per common share:
Basic.................................. .28 .20 .10 .05
Diluted................................ .28 .20 .10 .05
Weighted average number of common shares:
Basic.................................. 38,670,000 38,670,000 38,670,000 38,670,000
Diluted................................ 38,820,273 38,812,535 38,673,623 38,670,680
</TABLE>

24
<PAGE> 21

- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors,
J&L Specialty Steel, Inc.:

We have audited the accompanying consolidated balance sheets of J&L
Specialty Steel, Inc., a Pennsylvania corporation, and subsidiaries as of
December 31, 1997 and 1996, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of J&L Specialty Steel, Inc.
and subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.

/s/ ARTHUR ANDERSEN LLP
--------------------------
ARTHUR ANDERSEN LLP

Pittsburgh, Pennsylvania,
January 21, 1998
25
<PAGE> 22

- --------------------------------------------------------------------------------

MANAGEMENT'S REPORT ON RESPONSIBILITY FOR FINANCIAL INFORMATION

The accompanying consolidated financial statements of J&L Specialty Steel,
Inc. 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 consolidated financial statements and other
sections of this Annual Report.

The Company has a system of internal controls in place to provide
reasonable assurance of the safeguarding of assets and reliability of financial
reporting. Management is aware of the inherent limitations in all systems of
control; however, it believes that through a formal set of procedures and
policies, a structured program of review by local management and an internal
audit program with appropriate management follow-up, the Company has an
effective and responsive system of internal controls.

As part of their audit of the Company's consolidated financial statements,
Arthur Andersen LLP, independent public accountants, considered the Company's
system of internal control to the extent they deemed necessary to determine the
nature, timing and extent of their audit tests. The audit was done in accordance
with generally accepted auditing standards.

The Audit Committee of the Board of Directors is composed of two outside
members. The Audit Committee has the responsibility to make recommendations
concerning the engagement of the independent public accountants, to review with
the independent public accountants the plans and results of the audit
engagement, to review the independence of the independent public accountants, to
consider the range of audit and nonaudit fees and to review the adequacy of the
Company's internal controls. The Audit Committee meets with the independent
public accountants and the Company's internal auditors jointly and separately to
evaluate the controls in place.

/s/ EUGENE A. SALVADORE
- -----------------------------------------
Eugene A. Salvadore
President and Chief Executive Officer

/s/ KIRK F. VINCENT
- -----------------------------------------
Kirk F. Vincent
Executive Vice President, Finance and
Administration and Chief Financial Officer

/s/ JOSEPH F. BROZICK
- ------------------------------------------
Joseph F. Brozick
Controller

26
<PAGE> 23

- --------------------------------------------------------------------------------

========================= =========================
J&L Specialty Steel, Inc.

SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total sales, net......................... $598,931 $628,022 $867,022 $711,660 $648,192
Operating income (loss)(1)(2)............ (38,117) 51,035 155,413 108,559 83,671
Income before extraordinary item and
cumulative effect of accounting
change................................. (40,516) $ 24,265 $ 84,402 $ 53,575 $ 36,444
Extraordinary item....................... -- -- -- -- (4,134)(4)
Cumulative effect of accounting change... -- -- -- -- (13,526)(5)
-------- -------- -------- -------- --------
Net income (loss)(3)..................... $(40,516) $ 24,265 $ 84,402 $ 53,575 $ 18,784
======== ======== ======== ======== ========
EARNINGS (LOSS) PER DILUTED SHARE DATA:
Income before extraordinary item and
cumulative effect of accounting
change................................. $ (1.05) $ .63 $ 2.17 $ 1.38 $ 1.14
Extraordinary item....................... -- -- -- -- (.13)
Cumulative effect of accounting change... -- -- -- -- (.42)
-------- -------- -------- -------- --------
Net income (loss)........................ $ (1.05) $ .63 $ 2.17 $ 1.38 $ .59
======== ======== ======== ======== ========
Dividends declared on common stock....... $ 15,468 $ 15,468 $ 13,921 $ 13,921 $ 23,480

OTHER DATA:
Tons shipped............................. 334,163 306,791 367,030 367,742 331,404

BALANCE SHEET DATA:
Working capital.......................... $ 67,613 $ 68,758 $113,024 $132,949 $108,951
Property, plant and equipment, net....... 338,062 304,721 217,060 138,551 146,736
Total assets............................. 792,391 771,928 753,818 674,361 626,038
Total debt............................... 245,902 176,657 148,022 165,608 200,670
Shareholders' equity..................... 336,506 390,738 380,225 308,028 267,516
</TABLE>

- ------------

(1) Includes DRAP Line commissioning costs incurred throughout 1997 and the
commencement of depreciation during the fourth quarter of 1997, totaling
$31.1 million.

(2) Included in 1997 is a $37.1 million restructuring charge for the Detroit
plant and unusual gains from vendor settlements of $15.9 million.

(3) Included in the 1994 results was a $6.6 million after-tax charge for the
adoption of the LIFO inventory accounting method.

(4) In December 1993, the Company terminated a $120.0 million interest rate swap
agreement scheduled to expire in June 1995. This termination resulted in an
extraordinary charge of $4.1 million.

(5) Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions." The Company elected to recognize the
cumulative effect of the accounting change by recording a one-time,
after-tax charge to net income of $13.5 million in 1993.

27
<PAGE> 24

- --------------------------------------------------------------------------------
SHAREHOLDERS' INFORMATION

STOCK EXCHANGE LISTING

The common stock of J&L Specialty Steel, Inc. is listed on the New York
Stock Exchange under the symbol "JL."

COMMON STOCK DATA
<TABLE>
<CAPTION>
MARKET PRICE RANGES
-----------------------------------------
QUARTER 1997 1996
- ------- ------------------ -------------------
HIGH LOW HIGH LOW
--- --- ---- ---
<S> <C> <C> <C> <C>
First................ $14-3/8 $11-1/4 $18-3/4 $15-5/8
Second............... 13-3/8 11-3/8 19-1/4 14-3/8
Third................ 13-15/16 11-1/2 15-3/8 13-1/8
Fourth............... 14-3/16 8 14 10-3/4
</TABLE>

A $.10 per share quarterly dividend was paid in 1996 and 1997.

As of March 11, 1998, there were 38,763,000 shares of common stock
outstanding that were held by 248 shareholders of record.

<PAGE> 1

Exhibit 23.2

ARTHUR ANDERSEN LLP

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation by
reference in this Form 10-K of our report dated January 21, 1998, included in
the Company's 1997 Annual Report. It should be noted that we have not audited
any financial statements of the Company subsequent to December 31, 1997, or
performed any audit procedures subsequent to the date of our report.

/s/ ARTHUR ANDERSEN LLP

ARTHUR ANDERSEN LLP

Pittsburgh, Pennsylvania
March 27, 1998

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,186
<SECURITIES> 0
<RECEIVABLES> 57,952
<ALLOWANCES> 3,883
<INVENTORY> 151,115
<CURRENT-ASSETS> 227,895
<PP&E> 443,199
<DEPRECIATION> 105,137
<TOTAL-ASSETS> 792,391
<CURRENT-LIABILITIES> 160,282
<BONDS> 222,583
0
0
<COMMON> 388
<OTHER-SE> 336,118
<TOTAL-LIABILITY-AND-EQUITY> 792,391
<SALES> 598,931
<TOTAL-REVENUES> 598,931
<CGS> 561,992
<TOTAL-COSTS> 561,992
<OTHER-EXPENSES> 48,161
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,859
<INCOME-PRETAX> (44,611)
<INCOME-TAX> (4,095)
<INCOME-CONTINUING> (40,516)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (40,516)
<EPS-PRIMARY> (1.05)<F1>
<EPS-DILUTED> (1.05)<F1>
<FN>
<F1>The EPS information has been prepared in accordance with SFAS No. 128, and
therefore basic and diluted EPS have been entered in place of primary and fully
diluted, respectively.
</FN>

</TABLE>