-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Sk8tY6K1+q2Qz7vMBynbh1t6rKvUdgGD+LheKJOz6KyvVVx0BVjHaq6Ri7VsMkkX rev5+hX+H3kkwqKP4cjWIQ== 0000950128-98-000683.txt : 19980331 0000950128-98-000683.hdr.sgml : 19980331 ACCESSION NUMBER: 0000950128-98-000683 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980327 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: J&L SPECIALTY STEEL INC CENTRAL INDEX KEY: 0000912599 STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES ROLLING MILLS (COKE OVENS) [3312] IRS NUMBER: 251564186 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-12660 FILM NUMBER: 98577139 BUSINESS ADDRESS: STREET 1: PO BOX 3373 STREET 2: ONE PPG PLACE CITY: PITTSBURGH STATE: PA ZIP: 15230 BUSINESS PHONE: 4123381600 MAIL ADDRESS: STREET 1: PL BOX 3373 STREET 2: ONE PPG PLACE 18TH FLOOR CITY: PITTSBURGH STATE: PA ZIP: 15230 FORMER COMPANY: FORMER CONFORMED NAME: SPECIALTY MATERIALS CORP DATE OF NAME CHANGE: 19930927 10-K 1 J&L SPECIALTY STEEL 1 ================================================================================ 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. ================================================================================ 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 2 3 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. 3 4 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 4 5 $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 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. 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. 5 6 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. 6 7 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. 7 8 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.
NAME AGE POSITIONS HELD ---- --- -------------- 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
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. 8 9 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. 9 10 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. 10 11 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.
Page No. of This Form 10-K Report --------------------- 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
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. 11 12 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 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 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 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 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 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 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)
ADDITIONS -------------------------------- BALANCE BALANCE AT CHARGED CHARGED AT BEGINNING TO TO OTHER END OF DESCRIPTION OF PERIOD EXPENSE ACCOUNTS (A) DEDUCTIONS (B) PERIOD - ------------------------------------------------------------------------------------------------------------------------------- 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 ====== ===== ====== ====== ======
(A) Allowance for cash discounts charged against sales. (B) Includes cash discounts taken and uncollectible accounts written off. 18 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.* 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.* 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.* 20 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.* 21 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.* 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. 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.* 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.* 23 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.* 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.* 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. *Incorporated by reference. EX-10.11 2 J&L SPECIALTY STEEL 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 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 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 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 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. (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 5 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. 6 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. 7 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. 8 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 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. 10 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. 11 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. 12 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 13 EX-10.12 3 J&L SPECIALTY STEEL 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. (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 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. 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 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. 2 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, 3 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: (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 4 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 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. 6 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. (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 7 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. (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. 8 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. (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: 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 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. 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 10 11 not be amended or modified except by written instrument executed by the parties hereto. 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. 11 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. 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 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 12 EX-10.18 4 J&L SPECIALTY STEEL 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; 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 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 3 EX-10.25 5 J&L SPECIALTY STEEL 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 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 ----------
Performance Levels ----------------------------------------------------------------- Threshold Target Target Maximum --------- ------ ------ ------- 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%
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 ----------
Performance Levels ----------------------------------------------------------------- Threshold Target Target Maximum --------- ------ ------ ------- 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%
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 EX-13.1 6 J&L SPECIALTY STEEL 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 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 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 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 5 - -------------------------------------------------------------------------------- ========================= ========================= J&L Specialty Steel, Inc. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1997 AND 1996 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) ASSETS
1997 1996 -------- -------- 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 ======== ========
The accompanying notes are an integral part of these financial statements. 9 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)
1997 1996 1995 -------- -------- -------- 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 ======== ======== ========
The accompanying notes are an integral part of these financial statements. 10 7 - -------------------------------------------------------------------------------- ========================= ========================= 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)
1997 1996 1995 --------- -------- --------- 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 ========= ======== =========
The accompanying notes are an integral part of these financial statements. 11 8 - -------------------------------------------------------------------------------- ========================= ========================= 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)
ADDITIONAL RETAINED COMMON PAID-IN EARNINGS/ UNEARNED STOCK CAPITAL (DEFICIT) COMPENSATION TOTAL ------ ---------- --------- ------------ -------- 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 ==== ======== ======== ======= ========
The accompanying notes are an integral part of these financial statements. 12 9 - -------------------------------------------------------------------------------- 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 10 - -------------------------------------------------------------------------------- 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 11 - -------------------------------------------------------------------------------- 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:
1997 1996 -------- -------- 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 ======== ========
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:
1996 1995 -------- -------- 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 ======== ========
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:
1997 1996 -------- -------- 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 ======== ========
15 12 - -------------------------------------------------------------------------------- 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 13 - -------------------------------------------------------------------------------- The following table provides information on the interest rate swaps:
WEIGHTED AVERAGE NOTIONAL INTEREST RATE NOTIONAL AMOUNT ----------------- CLASSIFICATION AMOUNT OUTSTANDING RECEIVED PAID -------------- -------- ----------- --------- ----- 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
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:
PLAN TYPE 1997 1996 1995 --------- ------ ------ ------ Defined benefit......... $3,696 $4,171 $4,445 Defined contribution.... 1,670 1,602 1,478 ------ ------ ------ Total................... $5,366 $5,773 $5,923 ====== ====== ======
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:
1997 1996 1995 ------- -------- ------- 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 ======= ======== =======
17 14 - -------------------------------------------------------------------------------- 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.
BENEFITS 1997 1996 -------- ------- ------- 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 ======= =======
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:
1997 1996 1995 ------ ------ ------ 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 ====== ====== ======
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:
1997 1996 ------- ------- 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 ======= =======
18 15 - -------------------------------------------------------------------------------- Postretirement benefit liabilities as of December 31 are reported on the balance sheets as follows:
1997 1996 ------- ------- Accrued compensation and benefits.................... $ 3,600 $ 3,300 Postretirement benefits liability................... 53,473 48,729 ------- ------- Total postretirement benefits liability................... $57,073 $52,029 ======= =======
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:
1997 1996 1995 ------- ------- ------- 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 ======= ======= =======
19 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:
1997 1996 1995 ----- ----- ----- 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% ===== ===== =====
Net deferred income tax assets (liabilities) are composed of the following as of December 31:
1997 1996 -------- -------- 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 ======== ========
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 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:
1997 1996 ------------------- ------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE -------- -------- -------- -------- 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
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 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:
NUMBER OPTIONS EXERCISED/ NUMBER DATE OF GRANT PRICE GRANTED EXPIRED OUTSTANDING WITH SARS EXERCISABLE ------------- ------ ------- ---------- ----------- ---------- ----------- 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 ======= ====== ======= ======= =======
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:
ASSUMPTIONS ------------------------------------------------ FAIR DIVIDEND EXPECTED RISK-FREE EXPECTED GRANT DATE VALUE YIELD VOLATILITY INTEREST RATE LIVES ---------- ----- -------- ---------- ------------- -------- 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
22 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:
1996 1995 -------------------------------- --------------------------------- NET PER-SHARE NET PER-SHARE INCOME SHARES AMOUNT INCOME SHARES AMOUNT ------- ---------- --------- ------- ---------- ---------- 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 ======= ========== ==== ======= ========== ==========
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 20 - -------------------------------------------------------------------------------- NOTE 19 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
FIRST SECOND THIRD FOURTH 1997 QUARTER QUARTER QUARTER QUARTER - ---- ----------- ----------- ----------- ----------- 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
24 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 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 23 - -------------------------------------------------------------------------------- ========================= ========================= J&L Specialty Steel, Inc. SELECTED FINANCIAL DATA
YEAR ENDED DECEMBER 31, -------------------------------------------------------- 1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 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
- ------------ (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 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
MARKET PRICE RANGES ----------------------------------------- QUARTER 1997 1996 - ------- ------------------ ------------------- HIGH LOW HIGH LOW --- --- ---- --- 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
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. 31 EX-23.2 7 J&L SPECIALTY STEEL 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 EX-27.1 8 J&L SPECIALTY STEEL
5 1,000 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 1,186 0 57,952 3,883 151,115 227,895 443,199 105,137 792,391 160,282 222,583 0 0 388 336,118 792,391 598,931 598,931 561,992 561,992 48,161 0 6,859 (44,611) (4,095) (40,516) 0 0 0 (40,516) (1.05) (1.05) 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.
-----END PRIVACY-ENHANCED MESSAGE-----