UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-K/A

             /X/Annual Report Pursuant to Section 13 or 15(d) of the
                         Securities Exchange Act of 1934
                   FOR THE FISCAL YEAR ENDED DECEMBER 27, 1997
                                       OR
           / /Transition Report Pursuant to Section 13 or 15(d) of the
                         Securities Exchange Act of 1934

                      Commission File Number 1-3258 
                                  LUKENS INC.
                50 South First Avenue, Coatesville, PA 19320-0911
                                 (610) 383-2000
         Incorporated in Delaware
         I.R.S. Employer Identification Number 23-2451900

Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class                    Exchange on Which Registered
Common Stock, $.01 Par Value           New York Stock Exchange
7.625% Notes Due 2004                  Not Listed
6.5% Medium-Term Notes,
  Series A, Due 2006                   Not Listed

Securities registered pursuant to Section 12(g) of the Act:  NONE

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes /X/ No / /

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/

Based on the  closing  price of March 2, 1998,  the  aggregate  market  value of
common stock held by nonaffiliates of the registrant was $329.6 million.

The number of common shares  outstanding  of the registrant was 14,977,090 as of
March 2, 1998.
<PAGE>

                                     PART I

ITEM 1. BUSINESS.

General

Headquartered  in  Coatesville,  Pennsylvania,  Lukens Inc. is a holding company
incorporated in Delaware.  The largest  subsidiary of the company,  Lukens Steel
Company,  manufactures  carbon, alloy and clad steel plates, and stainless steel
sheet, strip, plate, hot band and slabs.  Production  facilities and markets are
located primarily in the United States.

On December 15, 1997,  Lukens  entered into a merger  agreement  with  Bethlehem
Steel Corporation. The agreement was subsequently amended as of January 4, 1998.
Under the merger  agreement,  Bethlehem Steel  Corporation  would acquire Lukens
outstanding  common and preferred stock (converted to common) for $30 per share.
Consideration  is a combination of cash and Bethlehem  stock.  At year-end 1997,
the  number  of common  shares  outstanding,  combined  with the  conversion  of
outstanding  preferred  stock,  would  total  16,352,127  shares  and  result in
proceeds of $490.6 million in cash and Bethlehem stock. The merger is contingent
on shareholder  approval.  A special  meeting of  stockholders is expected to be
held during the second quarter of 1998.

Forward-Looking Information

Sections of this Form 10-K include  disclosures about future economic conditions
and  Lukens'  future  financial  performance,   capital  structure,   goals  and
objectives.  Except to the extent  that  these  discussions  contain  historical
facts, these  forward-looking  statements are subject to risks and uncertainties
that could cause actual events to materially differ from those projected.  These
risks and  uncertainties  include,  but are not limited to,  materially  adverse
changes  in general  economic  conditions,  domestic  and  foreign  competition,
weather,  raw material  price  fluctuations,  possible labor  interruptions  and
regulatory or legislative changes.

Business Groups

Lukens  has two  business  groups,  the Carbon & Alloy  Group and the  Stainless
Group. Financial information for these business groups is incorporated herein by
reference to Note 2 to the financial  statements  included in Part II, Item 8 of
this Form 10-K.  The charts below  outline the  business  group  composition  of
consolidated net sales and shipped tons for each of the last three years.

             Composition of Consolidated Net Sales by Business Group

                                            1997          1996          1995
                                         ---------     ---------     ---------
          Carbon & Alloy                %     51.9          49.6          41.9
          Stainless                           48.1          50.4          58.1
                                         ---------     ---------     ---------
          Total                         %    100.0         100.0         100.0
                                         =========     =========     =========

                         Shipped Tons by Business Group

                                              1997          1996          1995
                                         ---------     ---------     ---------
          Carbon & Alloy                   753,900       652,600       589,100

          Stainless                        257,700       262,100       267,200


<PAGE>
Carbon & Alloy Group

The Carbon & Alloy Group specializes in the production of carbon, alloy and clad
steel plate.  Primary production  locations are in Coatesville and Conshohocken,
Pennsylvania.  Both plants have hot rolling and  finishing  facilities,  and the
Coatesville  plant operates a melt shop.  Production from these facilities ranks
the group as one of the largest  domestic plate steel  producers and the largest
domestic  producer of alloy plate steel.  There are several domestic and foreign
competitors.  Major  competitors  are U.S.  Steel Group, a subsidiary of the USX
Corporation, and Bethlehem Steel Corporation.

The group's competitive  position is enhanced by a concentration on plate with a
product line that includes a wide range of sizes and grades.  Price  competition
has been and is expected to remain intense as new capacity enters the market. In
addition to price and quality,  customer satisfaction,  measured by factors like
shipped-on- time performance and production lead times, has become  increasingly
important in the  competitive  environment.  Customer  satisfaction  is also the
focus  of  our  customer   business  teams  that  integrate  sales,   technical,
manufacturing, financial and purchasing expertise.

The Steckel Mill Advanced  Rolling  Technology  (SMART)  system,  located at the
Conshohocken plant, expanded the group's production capabilities and products to
include wide, light-gauge plate, including plate coils. During 1997, integration
of the SMART  system  and the wide  anneal  and pickle  line,  discussed  in the
Stainless Group section, was initiated.

Products are sold  primarily by an in-house sales force.  Steel service  centers
are the largest market for the group. The market accounted for  approximately 48
percent of annual sales in 1997 and averaged  approximately 38 percent of annual
sales in 1996 and  1995.  The  Carbon & Alloy  Group  supplies  a wide  range of
markets in the capital goods sector of the economy, including markets for:
                  o         Machinery and Industrial Equipment
                  o         Infrastructure
                  o         Environmental and Energy
                  o         Transportation.

Some sales involve  government  contracts which may be subject to termination or
renegotiation.  Terminations for convenience of the government generally provide
for  payments to a contractor  for its costs and a portion of its profit.  We do
not  expect  any  material   portion  of  our  business  to  be   terminated  or
renegotiated.

Raw  materials  used in the  production  of carbon and alloy steel plate include
carbon scrap,  alloy scrap and alloy additives.  Generally,  these materials are
purchased in the open market and are available from several sources.  Prices and
availability  are also  affected by the  operating  level of the domestic  steel
industry,  the quantity of scrap exported,  currency  exchange rates,  and world
political and economic  conditions.  Scrap remains readily available,  but scrap
prices remain at relatively high levels.
<PAGE>
Principal energy sources used in production include electricity and natural gas.

Stainless Group

The Stainless Group specializes in manufacturing  and marketing  stainless steel
sheet,  strip,  plate, hot band and slabs. The group's  competitive  position is
built on the ability to serve niche markets by providing a wide range of quality
products.  Manufacturing  facilities  are  located in  Washington  and  Houston,
Pennsylvania,    and    Massillon,    Ohio.    Primary    competitors    include
Allegheny-Teledyne  Incorporated,  J&L Specialty  Steel,  Inc.,  North  American
Stainless Corporation and Avesta Sheffield Pipe Inc.

Washington  Specialty Metals  Corporation is a service and  distribution  center
that specializes in marketing stainless steel. There are numerous competitors on
both a national and a regional scale.  Washington  Specialty Metals is a leading
distributor of flat-rolled stainless steel.

Similar to the  competitive  environment  in the Carbon & Alloy Group,  customer
satisfaction,   measured  by  factors  like   shipped-on-time   performance  and
production lead times, has become increasingly important.  Customer satisfaction
is also the focus of our customer  business teams.  The teams  integrate  sales,
technical,  manufacturing,  financial  and  purchasing  expertise  to solve  our
customers'  problems.  Price  and  quality  remain  significant  factors  in the
competitive environment.

As evidenced by the  Stainless  Group  results in 1997 and 1996,  high levels of
stainless steel imports  accentuated  pricing pressures.  We continue to support
the  imposition of trade  sanctions on stainless  steel  imports.  Without these
sanctions,  we do not expect that prices will  rebound  significantly  from 1997
levels and the  introduction  of new  production  capacity by  competitors  will
continue to exert pressure on selling prices over the next two or three years.

The  installation  of the wide anneal and pickle line at the Massillon plant was
completed in 1996.  Commercialization of products from the line continued during
1997.  Although product shipments  increased  consistently  throughout the year,
utilization of the facility was low in 1997 and is expected to remain relatively
low in 1998.

Stainless  products  processed  on the Carbon & Alloy  Group's  SMART system and
finished on the wide anneal and pickle line are  anticipated to create  quality,
size and cost advantages in the long term.

Products  are sold  primarily  by the group's own sales  organizations.  Service
centers are the largest market for the group and they averaged  approximately 37
percent of annual sales in the last three years.  The Stainless Group ultimately
supplies diverse markets, including:
<PAGE>
                  o         Process Industries
                  o         Food Service Equipment
                  o         Architecture and Construction
                  o         International
                  o         Consumer Durables.

Raw materials used in production  include  stainless scrap,  chrome,  nickel and
molybdenum.  Generally, these materials are purchased in the open market and are
available from several sources.  Some of these raw materials sources are located
in  countries  subject to  potential  interruptions  of supply  that could cause
shortages and affect the  availability  and price.  Prices and  availability are
also affected by the operating level of the worldwide  stainless steel industry,
the quantity of scrap exported, currency exchange rates, and world political and
economic  conditions.  Nickel costs remain highly volatile.  Forward exchange or
hedge  contracts  for nickel are used to manage the  group's  exposure to market
price   volatility.   Principal  energy  sources  used  in  production   include
electricity and natural gas.

Sales Order Backlog
(Dollars in thousands)

Listed below is the backlog at the end of 1997 and 1996. The backlog at year-end
1997 is anticipated to be shipped in 1998.

                             12/27/97     12/28/96
                             --------     --------
          Carbon & Alloy     $118,553       68,134

          Stainless            48,461       59,396
                             --------     --------
          Total              $167,014      127,530
                             ========     ========

Environment

Lukens  is  subject  to  Federal,   state,  and  local  environmental  laws  and
regulations.  An environmental committee meets quarterly to review environmental
and remediation issues.  Also, outside consultants are used on certain technical
issues. The trend for tighter  environmental  standards is expected to result in
higher waste disposal and monitoring costs, and additional capital  expenditures
in the long term. The  Environmental  Protection  Agency's air quality standards
for particulate matter were enacted in July 1997. Implementation is dependent on
the results of  environmental  studies  being  conducted  over the next  several
years.  Although  it is  difficult  to  estimate,  the  cost of  installing  new
environmental  control  systems  across our  manufacturing  facilities  could be
significant in the long term.

In 1997, capital  expenditures for environmental  compliance  projects were $4.7
million.  In  1998  and  1999,  capital   expenditures  are  anticipated  to  be
approximately $4.3 million and $3.8 million, respectively.
<PAGE>
Lukens has been designated a potentially  responsible  party under Superfund law
at  certain  waste  disposal  sites and  continually  monitors  a range of other
environmental issues.  Superfund  designations are made regardless of the extent
of the  company's  direct or indirect  involvement.  These claims are in various
stages of  administrative  or  judicial  proceedings  and  include  demands  for
recovery of incurred costs and for future investigation or remedial actions.

Lukens  accrues costs  associated  with  environmental  matters when they become
probable and can be reasonably estimated. In assessing environmental  liability,
the company considers the extent and type of hazardous substances at a site, the
range  of  technologies  that  can be used for  remediation,  evolving  laws and
regulations,  the allocation of costs among potentially responsible parties, and
the number and financial strength of those parties.

During the second  quarter of 1997,  a  tentative  settlement  was  reached in a
Superfund remediation case where Lukens was designated a potentially responsible
party.  The obligation  for the Superfund site was previously  recognized in the
fourth quarter of 1996.

The information contained in the section entitled "Environmental  Compliance" in
Item 7. Management's  Discussion and Analysis of Financial Condition and Results
of Operations., of this Form 10-K is incorporated herein by reference.

Based  on  information   currently   available,   the  liability   recorded  for
environmental remediation costs was approximately $17.0 million at year-end 1997
and $16.8  million at year-end  1996.  Due to their  uncertain  nature,  amounts
accrued could differ, perhaps significantly,  from the actual costs that will be
incurred.   No  potential  insurance  recoveries  were  taken  into  account  in
determining  the  company's  cost  estimates  or reserves.  Management  does not
anticipate that its financial position will be materially affected by additional
environmental  remediation costs, although quarterly or annual operating results
could be materially affected by future developments.

Employees

The average  number of employees  during 1997 was 3,300.  The labor contract for
the Coatesville  facility of the Carbon & Alloy Group  terminates in 2000. Labor
contracts for the manufacturing facilities of the Stainless Group expire in 1999
and 2000.

<PAGE>

ITEM 3. LEGAL PROCEEDINGS.

On December 23, 1997, a purported stockholder of Lukens, Carrie Anne Polonetsky,
filed a  purported  class  action  (the  "Polonetsky  Action")  in the  Court of
Chancery of the State of Delaware (the "Court of  Chancery")  against the Lukens
Board  alleging,  among other  things,  that the Lukens  Board had  breached its
fiduciary duties by failing to obtain the highest value reasonably  available in
a sale of Lukens.  Two other  purported  stockholders  of Lukens,  Wretha Evelyn
Walker and Michael Abramsky,  filed purported class actions  (collectively  with
the  Polonetsky  Action,  the  "Delaware  Actions")  in the Court of Chancery on
December  29,  1997 and  January 6,  1998,  respectively,  making  substantially
similar allegations. The Delaware Actions have been consolidated by order of the
Court of Chancery dated March 11, 1998. On March 27, 1998, the plaintiffs in the
Delaware Actions filed a consolidated amended complaint against the Lukens Board
alleging,  among other things,  that the Lukens Board had breached its fiduciary
duties by failing to obtain the highest value reasonably  available in a sale of
Lukens. The defendants intend to defend the Delaware Actions vigorously.

Lukens is involved in litigation and  administrative  proceedings which seek the
recovery of response costs with respect to certain waste disposal sites and is a
potentially  responsible  party  under  Superfund  law at some of  these  sites.
Lukens' potential exposure in these actions will vary according to the amount of
responsibility attributed to Lukens, the allocation of responsibility among, and
financial viability of, other responsible  parties,  and the method and duration
of remedial action.  Management does not anticipate that its long-term financial
position will be materially  affected by  additional  environmental  remediation
costs,  although  quarterly  or annual  operating  results  could be  materially
affected by future developments.

The information contained in the section entitled "Environmental  Compliance" in
Item 7. Management's  Discussion and Analysis of Financial Condition and Results
of Operations., of this Form 10-K is incorporated herein by reference.

The  company is party to  various  claims,  disputes,  legal  actions  and other
proceedings  involving  negligence,  contracts,  equal  employment  opportunity,
occupational safety and various other matters. In the opinion of management, the
outcome  of these  matters  should  not have a  material  adverse  effect on the
consolidated financial condition or results of operations of the company.

<PAGE>
                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED 
STOCKHOLDER MATTERS.

The information contained in the section entitled "Dividends" in Part II, Item 7
of this Form 10-K and the section  entitled  "Quarterly  Financial Data" in Part
II, Item 8 of this Form 10-K is incorporated  herein by reference in response to
this item.


<PAGE>

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

     On December 15, 1997, Lukens entered into a merger agreement with Bethlehem
Steel Corporation. The agreement was subsequently amended as of January 4, 1998.
Under the merger agreement, Bethlehem Steel Corporation would acquire Lukens
outstanding common and preferred stock (converted to common) for $30 per share.
Consideration is a combination of cash and Bethlehem stock. At year-end 1997,
the number of common shares outstanding combined with the conversion of
outstanding preferred stock, would total 16,352,127 shares and result in
proceeds of $490,564 in cash and Bethlehem stock. The merger is contingent on
shareholder approval. A special meeting of stockholders to vote on the merger is
expected to be held during the second quarter of 1998.

     The Consolidated Financial Statements, Notes to Consolidated Financial
Statements and the discussion below were prepared assuming a going-concern basis
and did not recognize the impact of the merger. For a discussion of the
contingent liabilities associated with the merger, see Note 10.

     The following discussion focuses on the results of operations and on the
financial condition of Lukens Inc. In addition to the consolidated results
analysis, the results of Lukens' two business groups are discussed.

     This section should be read in conjunction with the consolidated financial
statements and notes.

Consolidated Results of Operations
Net Sales.

A graph of net sales appears in this section.
                  1995           $1,049,158
                  1996           $  970,320
                  1997           $  994,380

     Sales were up 2 percent in 1997. The increase was attributable to strong
Carbon & Alloy Group sales that were largely offset by depressed market
conditions in the Stainless Group.

     1996 sales were down 8 percent compared to 1995. During the second half of
1996, stainless steel market conditions began to deteriorate and contributed to
lower Stainless Group sales. The decrease was partially offset by higher
shipments in the Carbon & Alloy Group.

Operating Earnings (Loss).
A graph of operating earnings (loss) appears in this section.

                       1995                  $ 67,980
                       1996                  $(26,053)
                       1997                  $ 13,404

     Operating earnings in 1997 were attributable to the Carbon & Alloy Group,
which benefited from market conditions, cost reduction initiatives and increased
utilization of new facilities. Depressed selling prices experienced by the
Stainless Group resulted in a loss for the group in 1997.

     Included in 1996 results were unusual charges totaling $20,182. A second
quarter provision of $10,782 was recognized for a work force reduction. In the
fourth quarter, $9,400 was recognized for environmental remediation. Excluding
the 1996 unusual items for comparison purposes, operating earnings were up
$19,275 in 1997.

     The 1996 loss represented a dramatic reversal from strong 1995 earnings.
Excluding the unusual items discussed above for comparison purposes, the
operating loss was $5,871 in 1996. The reversal in results tracks the change in
stainless steel market conditions that resulted in significant selling price
declines. Results in 1996 were also limited by a $5,933 provision for fixed
asset write-downs, higher utility costs caused by severe winter weather and by
signing bonuses associated with a new labor contract.

Summary of Results                   1997             1996           1995
Net sales                        $  994,380         970,320       1,049,158
Operating earnings (loss)        $   13,404         (26,053)         67,980
Interest expense                 $   19,073          16,735          13,471
Income tax expense (benefit)     $   (1,049)        (14,377)         20,495
Effective income tax rate        %    (18.5)          (33.6)           37.6
Net earnings (loss)              $   (4,620)        (28,411)         34,014

Dollars in thousands except per share amounts
<PAGE>
Interest Expense.
A graph of interest expense appears in this section.
                       1995                  $ 13,471
                       1996                  $ 16,735
                       1997                  $ 19,073

     Interest expense in 1997 was up 14 percent with the increase primarily
related to higher amounts of capitalized interest recorded in 1996. Interest
expense in 1996 was up 24 percent compared to 1995. Higher debt levels in 1996
were the primary reason for the increase.

Income Tax Expense (Benefit).
A graph of effective income tax rate appears in this section.
                       1995                     37.6%    
                       1996                    (33.6%)   
                       1997                    (18.5%)      

     The effective tax rate applied against losses was 18.5 percent in 1997 and
33.6 percent in 1996. The difference between the 1997 and 1996 rates reflected
the impact of non-deductible expenses, state taxes and other items that have a
greater percentage impact on the effective rate at lower results levels. The tax
benefits recognized in the past two years primarily resulted in a build in
deferred tax assets that reflected the availability of tax credit carryforwards.
In 1995, the effective tax rate applied to earnings was 37.6 percent.

     Deferred tax assets recognized represent future tax benefits. Recog-nition
of deferred tax assets is based on the combination of the historical earnings
trend, future reversals of existing taxable temporary differences, carryback and
carryforward availability, tax planning strategies and future taxable income.

Net Earnings (Loss).
A graph of net earnings (loss) appears in this section.
                       1995                 $ 34,014
                       1996                 $(28,411)
                       1997                 $  4,620

     A net loss was recorded both in 1997 and 1996. On an after-tax basis, the
unusual items recorded in 1996 reduced results by $12,837. Excluding the unusual
items for comparison purposes, the 1996 net loss was $15,574. Net earnings in
1995 reflected strong Stainless Group results.

Business Groups

Carbon & Alloy.
Business group graphs appear in this section. 
Carbon & Alloy net sales:
                       1995           $439,330
                       1996           $481,237
                       1997           $516,499

Carbon & Alloy operating earnings (loss):
                       1995           $ 11,946
                       1996           $ (2,554)
                       1997           $ 50,410

     Net sales were up 7 percent in 1997. Shipped tons were 753,900 compared to
652,600 tons in 1996. The 16 percent increase reflected higher utilization of
the Steckel Mill Advanced Rolling Technology (SMART(R)) system, evidenced by a
more than 80,000 ton increase in carbon shipments. With the growth in carbon
shipments in 1997, sales reflected a lower-value shipment mix.

     The 10 percent sales increase in 1996 compared to 1995 was largely
attributable to an increase in shipments, particularly in carbon products.
Shipments in 1996 were up 11 percent compared to 589,100 tons in 1995.

     The group recorded strong operating earnings in 1997. Earnings benefited
from a continued focus on cost reduction initiatives and increased utilization
of the SMART system. The operating loss in 1996 was due to unusual charges of
$15,578. A work force reduction charge reduced results by $6,178 and an
environmental remediation provision was $9,400. Excluding the provisions for
comparison purposes, 1997 operating earnings were up $37,386 from 1996. Also
impacting 1996 results was a $3,756 charge for signing bonuses associated with
the new labor agreement at the Coatesville, Pennsylvania, facility, severe
winter weather and disruptions associated with the commissioning of the SMART
system.

     The operating loss in 1996 compared to operating earnings in 1995. The 1996
loss was the result of the charges discussed previously. Excluding the charges,
operating earnings of $13,024 were up 9 percent from 1995. Although to a lesser
extent than 1995, results in 1996 continued to be impacted by production
disruptions and expenses associated with the commissioning of the SMART system.

Dollars in thousands except per share amounts
<PAGE>
Stainless.
Business group graphs appear in this section.
Stainless net sales:
                       1995           $609,828
                       1996           $489,083
                       1997           $477,881

Stainless operating earnings (loss):
                       1995           $ 75,148
                       1996           $ (7,058)
                       1997           $(20,488)

     Selling price erosion that began in 1996 continued in 1997. Higher levels
of low-priced imports continued to exert pressure on selling prices across
product lines. Shipments for 1997 were 257,700 tons, down 2 percent compared to
262,100 tons in 1996.

     Weak stainless steel market conditions in 1996 led to a 20 percent decrease
in sales compared to 1995. The sales decline reflected customer inventory
corrections during the first half of the year that reduced cold rolled
shipments. For the balance of 1996, the selling prices fell across all product
lines. A lower-value shipment mix also contributed to the decrease. Shipments
for 1996 were down slightly from 1995 shipments of 267,200 tons. Excluding
lower-value conversion tonnage, shipments were down 12 percent from 1995,
primarily due to decreases in hot rolled and hot band stainless product
shipments.

     The operating loss recorded in 1997 was significantly larger than the 1996
loss. Results in 1996 included an unusual charge of $3,695 for a work force
reduction. Excluding the unusual charges for comparison purposes, operating
results fell by $17,125 in 1997, largely due to depressed selling prices
discussed previously.

     Excluding the 1996 unusual charges for comparison purposes, the operating
loss of $3,363 compared to earnings of $75,148 in 1995. The decline primarily
reflected a significant deterioration in stainless steel market conditions as
previously discussed. In 1996, a $5,933 provision to write-down idle assets and
other equipment replaced as a result of capital improvements was recorded. In
addition, 1996 earnings from the service center operations did not match their
excellent 1995 results.

Business Outlook

     Similar to 1997, strong market conditions should translate to solid
earnings for the Carbon & Alloy Group. Selling prices will be the key to
Stain-less Group profitability. A continued focus on cost reduction initiatives
and increased utilization of facilities aimed at the stainless plate market
should also contribute to earnings.

     We continue to support the imposition of trade sanctions on stainless steel
imports. Without these sanctions, we do not expect that prices will rebound
significantly from 1997 levels. The introduction of new production capacity by
competitors will continue to exert pressure on selling prices over the next two
or three years.

     Stainless Group results should benefit from increased stainless plate sales
fueled by the continued integration of the SMART system with the wide anneal and
pickle line (WAPL). However, utilization of the WAPL facility is still expected
to be relatively low in 1998. Weak results are expected to continue if there is
no improvement in the current market conditions.

Financial Condition
Capital Structure.

     A graph of current assets and working capital appears in this section.

Current assets:
                       1995           $314,891
                       1996           $266,656
                       1997           $285,700

Working capital:
                       1995           $106,221
                       1996           $ 99,158
                       1997           $114,509

     At the end of 1997, cash and cash equivalents totaled $6,629, a decrease of
$3,653 from the end of 1996. Working capital of $114,509 was up $15,351 from
year-end 1996. The increase primarily reflected a higher accounts receivable
balance. At year-end 1997, the current ratio was 1.7 compared to 1.6 at year-end
1996.

     Included in other accrued expenses at the end of 1997 was an environmental
reserve that was reclassified during the second quarter of 1997 from other
liabilities in the long-term section of the Consolidated Balance Sheets. The
reclassification reflected a tentative settlement agreement negotiated for a
Superfund site where we were designated a potentially responsible party.

     Debt at the end of 1997 was $250,947, a slight decrease of $2,626 from
year-end 1996. Included in year-end debt was $10,619 of ESOP debt, which is
guaranteed by Lukens.

     The ratio of long-term debt to total capital was 50.3 percent at the end of
1997 and 51.7 percent at year-end 1996. The 1996 ratio included 2.6 percent from
the reclassification

Dollars in thousands except per share amounts
<PAGE>
of preferred stock and deferred ESOP compensation as redeemable stock, discussed
below. Based on conditions at the end of 1997, additional borrowings of
approximately $65,400 were available under the committed line of credit
covenant.

     During the second quarter of 1997, Standard & Poor's lowered their rating
on Lukens notes from BBB+ to BBB. During the third quarter of 1997, Moody's
lowered their rating from Baa2 to Baa3.

     In 1997, the Board of Directors approved the issuance of performance vested
restricted stock to certain officers and other executives as part of an
incentive compensation program. During the first quarter of 1997, 134,000
restricted shares were awarded. The shares carry voting and dividend rights and
were recorded at fair market value on the grant date. A corresponding charge to
deferred compensation was recorded in the stockholders' investment section of
the Consolidated Balance Sheets. The deferred compensation balance was
subsequently adjusted for changes in the market price of Lukens common stock and
for compensation expense recognized. The awards vest at the end of three years,
contingent on continued employment and the achievement of performance goals that
are tied to Lukens' total shareholder return relative to other steel companies.

     Lukens Series B Convertible Preferred Stock is redeemable in common stock,
cash or a combination at the option of Lukens when the price of Lukens common
stock is $20 per share or greater. If the price is below $20 per share,
participants in a company-sponsored 401(k) employee savings plan have the option
to redeem preferred stock in the combination above. At year-end 1996, preferred
stock and the related ESOP deferred compensation were classified as redeemable
stock because the price of Lukens common stock was below $20 per share on
December 28, 1996, the fiscal year-end. The reclassification from stockholders'
investment reflected the ability of 401(k) participants to elect a cash payout
option at redemption. The classification was not made in 1997 or years prior to
1996 because the company had the ability and intention to redeem preferred stock
with Lukens common stock.

     Lukens enters into forward exchange contracts (derivatives) with the
objective to manage or hedge exposure to market price changes of certain
commodities used in manufacturing. The company does not speculate or trade in
these agreements for profit. These contracts generally provide for the exchange
of a market price for a fixed price based on a notional quantity. Contracts are
executed under the guidelines of a corporate policy. The policy specifies
members of management with the authority to execute agreements and establishes
limits on the amount of contracts outstanding. As of year-end 1997, Lukens was
party to several agreements maturing in 1998, which are discussed in Note 8.

Liquidity -- Short Term.
Graphs of cash flow from operations and capital expenditures appear in this
section.
Cash flow from operations:
                       1995           $85,491
                       1996           $43,667
                       1997           $29,396

Capital expenditures:
                       1995           $104,120
                       1996           $ 57,092
                       1997           $ 19,369

     Cash flow from operating activity was relatively low at $29,396 in 1997
compared to $43,667 in 1996. The decrease was primarily due to higher working
capital requirements.

     Financing activity required $15,066 with net borrowings of $2,018 partially
offset by dividend payments of $17,084. Investing activity required $17,983,
primarily for capital expenditures of $19,369.

     Improving cash flows from operating activity in 1998 is dependent on
reduced working capital requirements coupled with the earnings factors
identified in the Business Outlook section. Capital expenditures for 1998 are
expected to be relatively low at approximately $36,000. The anticipated cash
flow from operating activity and low capital expenditure requirements should
result in an improved capital structure compared to year-end 1997.

Dollars in thousands except per share amounts
<PAGE>

     Consolidated backlog at year-end 1997 was $167,000, up 31 percent from the
beginning of the year. The increase was primarily attributable to the Carbon &
Alloy Group.

Liquidity -- Long Term. In the long term, Lukens relies on the ability to
generate sufficient cash flows from operating activity to fund investing and
financing requirements. Our target long-term debt-to-capital ratio is 35
percent. A key to reach our target will be the ability to increase utilization
of facilities added during our recent capital improvement program. Lukens has
generated cash from operations totaling $158,554 over the past three years.

Environmental Compliance. Capital expenditures for environmental compliance are
projected to be approximately $4,279 in 1998 and $3,838 in 1999. The trend for
tighter environmental standards is expected to result in higher waste disposal
and monitoring costs and additional capital expenditures in the long term.

     Lukens has been designated a potentially responsible party (PRP) under
Superfund law at certain waste disposal sites and continually monitors a range
of environmental issues including the following:

Helen Kramer

         This Superfund site, a municipal and industrial waste landfill located
in New Jersey, was placed on the National Priorities List in 1983. The remedial
investigation and feasibility study was completed in September of 1985. The
Record of Decision was executed on September 27, 1985. The EPA completed
construction of the remedial action and turned over responsibility for operation
and maintenance of the site to the State of New Jersey in May 1994. In October
of 1989, the EPA sued numerous parties, including generators and transporters as
direct defendants, to recover its remediation costs. Lukens became a third party
defendant in the Superfund case when it was sued by the direct defendants in
September 1991. The direct defendants alleged that Lukens generated hazardous
substances that were transported to and disposed at the Helen Kramer landfill.
Through discovery, Lukens learned that its transporters allegedly transported
pickle liquor, a waste acid generated in the steel manufacturing process, to the
Helen Kramer landfill from approximately May 1971 to December 1974.

         During this period of time, Lukens believed that its transporter was
hauling pickle liquor generated by Lukens to the transporter's facility in
Western Pennsylvania. Lukens believed that its pickle liquor was neutralized at
such facility by the transporter. The transporter was also required to suitably
dispose of our pickle liquor after it completed the neutralization process.
Contrary to our beliefs concerning the neutralization and suitable disposal of
our pickle liquor, our transporter claimed that our pickle liquor was taken
directly from our plant to the Helen Kramer landfill and was not neutralized.

         A preliminary waste-in report, performed by an independent consultant
hired by the PRP's, was circulated in the third quarter of 1995. This report was
the consultant's initial attempt to address nexus and volume issues at the site.
Other allocation issues such as toxicity, generator/transporter liability,
ability to pay and de minimis issues were to be addressed in subsequent reports.
The preliminary waste-in report was subject to change as all participating
parties were given an opportunity to provide comments on the report and submit
to the consultant additional evidence regarding the issues of nexus and volume.
Lukens strongly objected to the nexus and volume determinations, which were
based on what Lukens considered to be unreliable evidence. In addition, Lukens
believed that the consultant considered unsubstantiated evidence in making its
volume calculations. We disputed the reliability of the evidence upon which the
consultant's volume and nexus conclusions were based for several reasons,
including the following:

          *   The nexus time period was contradicted by a letter from the
              transporter to Lukens in May 1971 in which the transporter
              specifically stated that Lukens' pickle liquor was going to the
              transporter's Western Pennsylvania neutralization facility and not
              to the Helen Kramer landfill.

          *   Statements by the former President of the transporter were
              unreliable because they were obtained approximately 25 years after


<PAGE>

              the disposal of the pickle liquor and at a time when the
              transporter arguably had a motive to maximize its exposure at this
              site in order to minimize its exposure at other sites.

          *   There was testimony in this case that the transporter disposed of
              pickle liquor at landfills other than the Helen Kramer landfill.

          *   Although our transporter purportedly disposed of more than 10
              million gallons of its customers' pickle liquor at the Helen
              Kramer landfill, the only contemporaneous record that it was able
              to produce was one customer list. This list did not refer to the
              types of services provided, the frequency of such services, the
              volume of waste transported or the nature of the waste.

          *   In our opinion, the volume calculations were flawed because the
              consultant did not appropriately account for events such as bad
              weather and operational difficulties that could have disrupted the
              transportation of waste to the site.

          Many of the PRP's expressed significant concerns regarding this
waste-in report and objected to its preliminary findings. Additionally, a
substantial part of the total site costs incurred by the Federal government were
the subject of a pending criminal investigation against one of the contractors
that performed the remediation for the government. Recoverable cleanup costs
ranged from $50,000 to $150,000 depending on the outcome of the investigation.

         In the fourth quarter of 1995, Lukens received a draft allocation plan
from the consultant. Our percentage allocation was approximately 3% based on
this plan. The purpose of this allocation plan was to further assist the PRP's
in understanding the allocation approach contemplated in the case. This plan was
subject to change as all participating parties were given an opportunity to
provide comments and submit additional evidence regarding the determinations
made in the plan. Lukens objected to this plan based on the following:

          *   The issues and concerns we had with the preliminary waste-in
              report were not adequately addressed in the preliminary allocation
              plan.

          *   The pickle liquor generated at Lukens had a very low toxicity
              level and did not drive the remedy at the site. Our pickle liquor
              was approximately 95% water and 5% acid.

          *   The PRP's included many municipalities and numerous chemical
              companies whose waste material had toxicity levels believed by us
              to be significantly higher than pickle liquor. Consequently,
              Lukens felt strongly that the preliminary allocation report did
              not provide an adequate discount for the low toxicity level of its
              pickle liquor.

<PAGE>

          *   Our transporter had advised us that it would neutralize and
              suitably dispose of all of our pickle liquor. We believed that our
              pickle liquor was being transported to an approved site in
              Pittsburgh, Pennsylvania. If our transporter failed to neutralize
              and suitably dispose of our pickle liquor, Lukens believed that
              the transporter should bear virtually all of the costs arising
              from such failure.

          *   Our transporter held itself out as an expert on pickle liquor and
              knew the composition of our pickle liquor, the available disposal
              facilities and, most importantly, selected the Helen Kramer
              landfill without our knowledge. The transporter, not Lukens,
              benefited financially from its failure to neutralize and suitably
              dispose of our pickle liquor. In addition, the transporter was
              financially viable. Based on the preceding facts and certain case
              law which supported a higher share for transporters than the
              allocation determined in the plan, Lukens believed that the
              transporter should bear virtually all of the costs attributable to
              the alleged disposal of pickle liquor at the Helen Kramer
              landfill.

         The PRP's continued to express significant concerns regarding this
allocation plan and objected to its draft findings. Additionally, the issues
surrounding the recoverable costs of remediation still had not been resolved.

         Based on the above facts and the significant uncertainties surrounding
this matter, Lukens concluded, at the end of 1995, it was not probable that a
liability had been incurred and no provision was recorded. Lukens also concluded
that, while it was reasonably possible that a liability could result from this
matter, management was unable to reasonably estimate the amount, if any, of such
liability.

         In the second quarter of 1996, a final, non-binding allocation plan was
received from the consultant. Our percentage allocation was approximately 4%
based on this plan. We continued to have major concerns with this allocation
plan and believed that we could significantly reduce our allocated percentage
based on our arguments related to nexus, volume, toxicity, transporter
liability, neutralization and the other allocation issues discussed above. The
uncertainty of the eventual allocation was also supported by our own outside
environmental consultant who advised us that (i) our pickle liquor had a low
toxicity and did not drive the remedy at the site, (ii) the acid in our pickle
liquor would have dissipated before the site was remediated, (iii) our pickle
liquor contained only low levels of metal contaminants and (iv) the pickle
liquor from Lukens and all other parties combined contributed only 0.84% to
1.15% to the total site costs.

         Additionally, other PRP's continued to express significant concerns
with the plan. Subsequently, in the third quarter of 1996, a majority of PRP's
voted to reject using the plan as a basis for further negotiations. Upon such
rejection, we were faced with the distinct possibility of beginning a new
allocation process or litigating the entire case, in which case Lukens believed
it had substantial defenses based on the considerations discussed above.

         Based on this second report and the continuing uncertainties
surrounding this matter, Lukens again concluded it was not probable that a
liability had been incurred and no provision was recorded. Lukens also concluded
that, while it was reasonably possible that a liability could result from this
matter, management was unable to reasonably estimate the amount, if any, of such
liability.
<PAGE>

         On July 31, 1996, the EPA made a settlement demand on the direct
defendants. On September 24, 1996, the direct defendants made an offer to the
EPA. As a result of these events, in the fourth quarter of 1996, circumstances
surrounding this matter changed significantly. Although the PRP's had voted to
reject using the plan as a basis for further negotiations, the EPA and the
direct defendants made significant progress towards reaching an agreement on the
total cleanup costs to be reimbursed based on the offer submitted by the direct
defendants. The EPA also strongly encouraged mediation and settlement
discussions, a settlement agreement by year-end 1996 and a commitment by the
third party defendants to contribute their allocated shares and to participate
in the settlement process. These discussions between the EPA and the direct
defendants generated significant momentum toward settlement and increased the
level of pressure on the third party defendants, such as Lukens. It quickly
became clear that, despite the third quarter rejection vote by the PRP's, the
EPA and the direct defendants were focused on the allocations identified in the
last allocation report and there appeared little probability that further
allocation reports would be commissioned.

          Based on these new developments, the total cost of the settlement was
now able to be reasonably estimated as was our estimated portion of such cost.
Accordingly, we concluded late in the fourth quarter of 1996 that a liability,
based on the allocation report issued in the second quarter of 1996, was
probable and should be recognized. At that time, we recognized a liability of
$6,000.

         During the second quarter of 1997, a tentative settlement was reached
in the Helen Kramer Superfund matter for which we agreed to pay $5,600.

         We are currently negotiating with our insurance carriers for recovery
of the tentative settlement amount and we are optimistic that a substantial
recovery will be available. However, no receivable has been recorded for any
estimated recovery, given the uncertainty surrounding such claims.

Electric Arc Furnace Flue Dust

         Electric Arc Furnace flue dust is generated by Lukens and other steel
companies from the melting of scrap steel in electric arc furnaces. We began to
dispose of flue dust at a site on our premises in approximately 1961. This
practice ceased in 1980 prior to the enactment of the Resource Conservation and
Recovery Act ("RCRA"). The EPA defines electric arc furnace flue dust generated
after the enactment of RCRA as a listed hazardous waste. This site was
originally visited by the EPA in 1989, at a time when many steel mills were
being reviewed, but the EPA required no further action regarding the site.

         Lukens was not aware of any other EPA activity related to this site
until late in the first quarter of 1996, at which time the EPA conducted another
inspection of the site. The results of the EPA's inspection were received in May
1996. The EPA's inspection and sampling resulted in a hazard ranking score that
was greater than the threshold required for inclusion of the site on the
National Priority List ("NPL"). We reviewed the EPA's sampling results and
identified discrepancies between the EPA's results and our split sample results.


<PAGE>

The EPA concluded that the site did not require remedial action at that time. No
administrative orders or consent decrees were received or entered into. However,
the EPA concluded that the site warranted further investigation and indicated
that it would initiate a sampling process at the site within six to nine months.
This was the first step in an approximate two year process for evaluation as a
potential NPL site.

         As part of this investigation, in the second quarter of 1996 the EPA
suggested that Lukens pursue voluntary remediation under Pennsylvania Act 2.
Voluntary cleanup programs such as Pennsylvania Act 2 allow site owners to
identify and clean up sites, to use less extensive administrative procedures and
to obtain some relief from future state liability for past contamination. We
began considering this alternative and efforts to further assess the site and
evaluate potential remedial alternatives and costs.

          On October 14, 1996, Lukens received a report, dated October 11, 1996,
from an independent consulting firm hired by Lukens. The report outlined
remedial alternatives and costs. The report provided four scenarios with costs
ranging from $456 to $4,850, depending on the extent of the remediation.
Additionally, during the quarter, we met with the Pennsylvania Department of
Environmental Protection ("DEP") to initiate discussions in accordance with the
EPA's recommendations to avoid the NPL process. The DEP agreed to consider
whether the site was qualified for the Act 2 program. We believed that the site
qualified for the Act 2 program because all disposal activities at the site
occurred prior to the enactment of RCRA.

          Based on our decision to approach the DEP for voluntary cleanup
coupled with the results of the preliminary remediation report, we concluded in
the 1996 fourth quarter that a liability was probable and could be reasonably
estimated. The $3,000 liability recognized was based on our best estimate from
the remediation alternatives presented in the consultant's report, along with
certain estimated future consulting costs and expenses.

         In the first quarter of 1997, we received approval from the DEP to
include the site in the Act 2 program. There has been no further significant
activity regarding this matter.

Douglassville

          Lukens is a PRP at this Superfund site located in Berks County,
Pennsylvania. We allegedly sent approximately 80,000 gallons of waste oil/sludge
to the site for treatment and disposal. Lukens is a de minimis party with less
than 1% of the total waste-in allocation at the site. Lukens agreed to pay
approximately $368 pursuant to a de minimis Consent Decree in the second quarter
of 1996.

         The Consent Decree has not yet been entered by the Court because
certain PRP's are attempting to convince the EPA to reissue the Record of
Decision for the site to substitute an on-site soil stabilization remedy for the
current incineration remedy. Since on-site stabilization is more cost effective
than incineration, we would expect our liability to decrease if the Record of
Decision is reissued.
<PAGE>

     We have accrued $375 for the Douglassville site based on the terms of our
settlement. The possibility of payments in excess of the amount accrued is
considered remote.

     Based on information currently available, management does not anticipate
that its financial position will be materially affected by additional
environmental remediation costs, although quarterly or annual operating results
could be materially affected by future developments.

Debt Financing. Lukens' notes outstanding of $150,000 are due in 2004. The
Medium-Term Notes, Series A, outstanding of $75,000 are due in 2006. Supporting
both short- and long-term liquidity needs are agreements for a committed line of
credit.

Other Commitments. A contract for the supply of oxygen and related products to a
Carbon & Alloy Group manufacturing facility runs until 2007 and includes
take-or-pay provisions totaling $24,087 over the remaining term.

     A software modification program is in process to address programming
requirements related to the year 2000.

Inflation.  On  average,  inflation  rates for the  domestic  economy  have been
relatively low over the past few years.  Although long-term  inflation rates are
difficult to predict,  Lukens  believes it has the flexibility in operations and
capital structure to maintain a competitive position.

Dividends.
A graph of net earnings per common share and dividends per common share appears
in this section.
Net earnings (loss) per common share:
                       1995          $ 2.18
                       1996          $(2.06)
                       1997          $( .45)

Dividends per common share:
                       1995           $1.00
                       1996           $1.00
                       1997           $1.00

     Lukens paid $1.00 per share in common stock dividends in 1997. A quarterly
common dividend of $.25 per share was paid on February 20, 1998. It is the
company's objective to pay common dividends approximating 35 percent of net
earnings over the long term. The merger agreement with Bethlehem Steel
Corporation discussed in Note 1, limits the quarterly dividend to $.25 per
share. As of February 6, 1998, there were approximately 4,600 common
stockholders of record.

     The Series B Convertible Preferred Stock held by the ESOP carries a
cumulative annual dividend of $4.80 per share.

     Lukens common stock is listed and traded on the New York Stock Exchange,
symbol LUC. Dividends and stock market price ranges for the last two years are
included in the table on page 21.

Dollars in thousands except per share amounts
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Consolidated Statements of Earnings
for the 52 weeks ended December 27, 1997, December 28, 1996, and December 30,
1995
<TABLE>
<CAPTION>
                                                               1997            1996            1995
<S>                                                           <C>             <C>             <C>    
Net Sales                                                  $  994,380         970,320       1,049,158
Operating Costs and Expenses (Notes 1, 4, 6, 8 and 10)
  Cost of products sold                                       925,984         921,046         922,667
  Selling and administrative expenses                          54,992          55,145          58,511
  Unusual items (Note 3)
    Work force reduction provision                                 --          10,782              --
    Environmental remediation provision                            --           9,400              --
                                                           ----------         -------       ---------
  Total operating costs and expenses                          980,976         996,373         981,178
Operating Earnings (Loss)                                      13,404         (26,053)         67,980
  Interest expense (Note 8)                                    19,073          16,735          13,471
                                                           ----------         -------       ---------
Earnings (Loss) Before Income Taxes                            (5,669)        (42,788)         54,509
  Income tax expense (benefit) (Note 5)                        (1,049)        (14,377)         20,495
                                                           ----------         -------       ---------
Net Earnings (Loss)                                        $   (4,620)        (28,411)         34,014
                                                           ----------         -------       ---------
  Dividend requirements for preferred stock (Note 9)           (2,015)         (1,994)         (1,962)
Net Earnings (Loss) Applicable to Common Stock             $   (6,635)        (30,405)         32,052
                                                           ----------         -------       ---------

Earnings (Loss) Per Common Share (Note 1)
  Basic                                                    $     (.45)          (2.06)           2.18
  Diluted                                                  $     (.45)          (2.06)           2.05
Common Shares and Equivalents Outstanding (Note 1)
  Basic                                                        14,806          14,784          14,696
  Diluted                                                      16,244          16,278          16,334
Cash Dividends on Common Stock-- Per Share                 $     1.00            1.00            1.00
                                                           ----------         -------       ---------
</TABLE>

The notes are an integral part of these statements.


Dollars and shares in thousands except per share amounts
<PAGE>

Consolidated Balance Sheets
as of December 27, 1997, and December 28, 1996

<TABLE>
<CAPTION>
Assets                                                                     1997           1996
Current Assets
<S>                                                                    <C>               <C>   
  Cash and cash equivalents (Note 1)                                   $   6,629         10,282
  Receivables, less allowance of $6,716 in 1997 and $7,750 in 1996       118,026         92,356
  Inventories (Notes 1 and 7)                                            145,587        148,925
  Deferred income taxes (Note 5)                                          13,725         13,129
  Prepaid expenses and other                                               1,733          1,964
                                                                       ---------        -------
  Total current assets                                                   285,700        266,656
Plant and Equipment (Notes 1 and 10)
  Land                                                                    12,237         11,880
  Buildings                                                               88,918         87,875
  Machinery and equipment                                                850,419        842,334
  Construction in progress                                                 9,249         11,664
                                                                       ---------        -------
                                                                         960,823        953,753
  Less accumulated depreciation                                          463,264        420,427
                                                                       ---------        -------
  Net plant and equipment                                                497,559        533,326
Intangible Assets, net of accumulated amortization
  of $11,352 in 1997 and $9,114 in 1996 (Notes 1 and 4)                   58,139         57,158
Deferred Income Taxes (Note 5)                                            34,599         29,937
Other Assets                                                               1,433          1,674
                                                                       ---------        -------
Total Assets                                                           $ 877,430        888,751
                                                                       ---------        -------

Liabilities & Stockholders' Investment
Current Liabilities
  Accounts payable                                                     $  87,618         92,252
  Accrued employment costs (Notes 3, 4 and 6)                             43,787         46,603
  Other accrued expenses (Note 10)                                        33,510         23,765
  Current maturities of long-term debt (Note 8)                            6,276          4,878
                                                                       ---------        -------
  Total current liabilities                                              171,191        167,498
Long-Term Debt (Note 8)                                                  244,671        248,695
Retirement Benefits (Notes 3 and 4)
  Pensions                                                                53,690         43,995
  Medical and life insurance                                             151,307        148,479
Other Liabilities (Notes 3 and 10)                                        14,821         22,015
                                                                       ---------        -------
  Total liabilities                                                      635,680        630,682
Commitments and Contingencies (Note 10)
Redeemable Stock (Note 9)
  Series preferred stock                                                      --         28,801
  Deferred compensation-- ESOP                                                --        (15,374)
                                                                       ---------        -------
  Total redeemable stock                                                      --         13,427
Stockholders' Investment
  Series preferred stock (Note 9)                                         28,218             --
  Common stock (Note 9)                                                      158            158
  Capital in excess of par value                                          88,444         86,002
  Earnings invested                                                      150,140        171,730
  Foreign currency translation adjustments                                (1,739)        (1,332)
  Deferred compensation-- ESOP (Notes 6 and 9)                           (10,619)            --
  Deferred compensation-- restricted stock (Note 6)                       (2,574)            --
  Repurchased stock, at cost                                             (10,278)       (11,916)
                                                                       ---------        -------
  Total stockholders' investment                                         241,750        244,642
                                                                       ---------        -------
Total Liabilities & Stockholders' Investment                           $ 877,430        888,751
                                                                       ---------        -------
</TABLE>

The notes are an integral part of these statements.



Dollars in thousands
<PAGE>
Consolidated Statements of Stockholders' Investment
for the 52 weeks ended December 27, 1997, December 28, 1996, and December 30,
1995
<TABLE>
<CAPTION>
                                                          1997                          1996                       1995
                                                   Shares      Dollars          Shares         Dollars      Shares      Dollars
<S>                                                 <C>           <C>          <C>                <C>      <C>              <C>  
Series Preferred Stock (Note 9)
(1,000,000 shares authorized)
 Series B
   Balance at beginning of year                         --      $   --         494,413       $  29,665     510,592      $ 30,635
   Reversal of redeemable stock
    classification (Note 9)                        480,018      28,801              --              --          --            --
   Conversion                                       (9,718)       (583)        (14,395)           (864)    (16,179)         (970)
   Redeemable stock classification
   (Note 9)                                             --          --        (480,018)        (28,801)         --            --
--------------------------------------------------------------------------------------------------------------------------------
   Balance at end of year                          470,300      28,218              --              --     494,413        29,665
Common Stock (Note 9)
(40,000,000 shares authorized)                  15,813,259         158      15,813,259             158  15,813,259           158

Capital in Excess of Par Value
   Balance at beginning of year                                 86,002                          85,204                    84,088
   Stock option activity (Note 6)                                  124                             565                       716
   Conversion of Series B
    preferred stock                                                 37                             233                       400
   Restricted stock activity (Note 6)                            2,281                              --                        --
--------------------------------------------------------------------------------------------------------------------------------
   Balance at end of year                                       88,444                          86,002                    85,204

Earnings Invested
   Balance at beginning of year                                171,730                         216,934                   199,586
   Net earnings (loss)                                          (4,620)                        (28,411)                   34,014
   Dividends declared
     Preferred ($4.80 per share)                                (2,266)                         (2,339)                   (2,405)
     Common ($1.00 per share)                                  (14,805)                        (14,781)                  (14,696)
     Restricted stock ($1.00 per share)                           (134)                             --                        --
     Tax benefit on ESOP preferred
      stock dividends                                              235                             327                       435
--------------------------------------------------------------------------------------------------------------------------------
     Balance at end of year                                    150,140                         171,730                   216,934

Foreign Currency Translation
 Adjustments
   Balance at beginning of year                                 (1,332)                         (1,141)                   (1,303)
   Effect of rate changes                                         (407)                           (191)                      162
--------------------------------------------------------------------------------------------------------------------------------
   Balance at end of year                                       (1,739)                         (1,332)                   (1,141)

Deferred Compensation -- ESOP (Note 6)
   Balance at beginning of year                                     --                         (19,404)                  (22,767)
   Reversal of redeemable stock
    classification (Note 9)                                    (15,374)                             --                        --
   Allocations to employees                                      4,755                           4,030                     3,363
   Redeemable stock classification (Note 9)                         --                          15,374                        --
--------------------------------------------------------------------------------------------------------------------------------
   Balance at end of year                                      (10,619)                             --                   (19,404)

Deferred Compensation --
 Restricted Stock (Note 6)
   Balance at beginning of year                                     --                              --                        --
   Restricted stock activity                                    (3,861)                             --                        --
   Amortization of deferred compensation                         1,287                              --                        --
--------------------------------------------------------------------------------------------------------------------------------
   Balance at end of year                                       (2,574)                             --                        --

Repurchased Stock, at cost
   Balance at beginning of year                  1,010,988     (11,916)      1,077,305         (12,697)  1,161,460       (13,340)
   Stock option activity (Note 6)                       --          --         (36,750)            433     (35,675)           74
   Conversion of Series B
    preferred stock                                 (4,956)         59         (29,567)            348     (48,480)          569
   Issuance of restricted stock (Note 6)          (134,000)      1,579              --              --          --            --
--------------------------------------------------------------------------------------------------------------------------------
   Balance at end of year                          872,032     (10,278)      1,010,988         (11,916)  1,077,305       (12,697)

Stockholders' Investment                                     $ 241,750                       $ 244,642                 $ 298,719
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The notes are an integral part of these statements.


Dollars in thousands except per share amounts
<PAGE>

Consolidated Statements of Cash Flows
for the 52 weeks ended December 27, 1997, December 28, 1996, and December 30,
1995
<TABLE>
<CAPTION>
                                                          1997          1996          1995
<S>                                                    <C>            <C>            <C>   
Operating Activity
Net earnings (loss)                                    $ (4,620)      (28,411)       34,014
Adjustments to Reconcile Net Earnings (Loss)
to Cash Flow from Operating Activity
   Depreciation and amortization                         51,831        48,949        41,304
   Income taxes deferred                                 (2,393)      (18,323)        9,270
   Provision for uncollectible accounts                   5,130        11,348        10,044
   Retirement benefit funding less than expense           9,208        12,078         4,859
   Environmental remediation provision                       --         9,400            --
   Fixed asset write-downs                                   --         5,933            --
   Changes in working capital affecting operations
      Accounts receivable                               (27,178)       26,897       (25,102)
      Inventories                                         3,338        14,200       (29,746)
      Prepaid expenses and other                            231          (297)          144
      Accounts payable                                   (4,622)      (29,654)       36,585
      Accrued expenses                                   (3,527)      (11,901)        1,894
   Other, net                                             1,998         3,448         2,225
                                                       --------        ------        ------
Cash flow from operating activity                        29,396        43,667        85,491

Financing Activity
Long-term debt
   Proceeds from issuance of notes                           --        74,538            --
   Other borrowed                                        27,800            --        70,350
   Other repaid                                         (25,782)      (45,230)      (47,346)
Dividends paid                                          (17,084)      (17,137)      (17,121)
Proceeds from stock options exercised                        --           802           408
Other, net                                                   --          (537)          (12)
                                                       --------        ------        ------
Net from (for) financing activity                       (15,066)       12,436         6,279

Investing Activity
   Capital expenditures                                 (19,369)      (57,092)     (104,120)
   Proceeds from sale of assets/subsidiaries                987           466        17,106
   Other, net                                               399          (251)       (3,506)
                                                       --------        ------        ------
   Net for investing activity                           (17,983)      (56,877)      (90,520)

Cash and Cash Equivalents
   Increase (decrease)                                   (3,653)         (774)        1,250
   Start of year                                         10,282        11,056         9,806
                                                       --------        ------        ------
   End of year                                         $  6,629        10,282        11,056
                                                       --------        ------        ------
</TABLE>

The notes are an integral part of these statements.


Dollars in thousands
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Accounting Policies

Merger Agreement and Change in Control. On December 15, 1997, Lukens entered
into a merger agreement with Bethlehem Steel Corporation. The agreement was
subsequently amended as of January 4, 1998. Under the merger agreement,
Bethlehem Steel Corporation would acquire Lukens outstanding common and
preferred stock (converted to common) for $30 per share. Consideration is a
combination of cash and Bethlehem stock. At year-end 1997, the number of common
shares outstanding, combined with the conversion of outstanding preferred stock,
would total 16,352,127 shares and result in proceeds of $490,564 in cash and
Bethlehem stock. The merger is contingent on shareholder approval. A special
meeting of stockholders is expected to be held during the second quarter of
1998.

The Consolidated Financial Statements and the Notes to Consolidated Financial
Statements were prepared assuming a going-concern basis and did not recognize
the impact of the merger. For a discussion of the contingent liabilities
associated with the merger, see Note 10.

Basis of Presentation. The consolidated financial statements include the
accounts of Lukens Inc. and all majority-owned subsidiaries. Our fiscal year is
the 52- or 53-week period that ends on the last Saturday of December. Certain
subsidiaries are consolidated on a calendar year basis. The preparation of
financial statements in conformity with generally accepted accounting principles
requires estimates and assumptions that affect the reported amounts and
contingency disclosures.

Cash and Cash Equivalents. Highly liquid investments with maturities of three
months or less when purchased are recognized as cash equivalents. 

Inventories. Inventories are recorded at the lower of cost or market. Cost is
determined by the last-in, first-out (LIFO) method for most product and raw
material inventories. The service center operations of the Stainless Group
determine cost by the first-in, first-out (FIFO) method. Supplies are valued at
the lower of average cost or market. Additional disclosures are included in Note
7.

Plant and Equipment. Plant and equipment are stated at cost and are depreciated
using the straight-line method over the estimated useful life. The useful life
ranges from 30 to 40 years for buildings and from 10 to 18 years for most
production machinery and equipment. The cost of plant and equipment retired in
the normal course of business is generally charged against accumulated
depreciation. Gains and losses on other retirements are reflected in earnings.

Intangible Assets. Intangible assets consist primarily of goodwill resulting
from the Washington Steel Corporation acquisition in 1992. Goodwill from the
acquisition is amortized on a straight-line basis over 25 years. Also included
in intangible assets are pension related assets, discussed in Note 4.

Derivative Financial Instruments. Derivative financial instruments, such as
forward exchange contracts, are used to manage or hedge exposure to changes in
market conditions for certain raw material purchases. Gains or losses on these
contracts are deferred and recognized as a component of the raw material cost
based on the maturities of the contracts. Any gains or losses from the early
termination of these derivative financial instruments are deferred and
recognized over the original term of the contract. Additional disclosures are
included in Note 8.

Environmental Remediation. Environmental liabilities recognized represent our
best estimate of remediation expenditures, including legal, consulting and other
professional fees, that are probable and that can be reasonably estimated.
Environmental costs are expensed unless they increase the value of the related
asset and/or prevent or mitigate future contamination. In November 1996, the
American Institute of Certified Public Accountants issued guidance on accounting
for environmental liabilities. The adoption of this guidance in 1997 did not
have a material effect on the company's consolidated financial condition or
results of operations. Additional disclosures are included in Notes 3 and 10.

Start-Up Costs. Costs incurred in the start-up of a facility, including training
and production testing, are expensed as incurred.

Software Modification Costs for Year 2000 Compliance. Costs incurred to modify
software packages to operate in the year 2000 and beyond are expensed as
incurred. 


Dollars in thousands except per share amounts
<PAGE> 
Stock-Based Compensation. In 1996, Lukens adopted Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation."
This statement provided for an implementation option, reflecting the controversy
surrounding the measurement of compensation expense for stock options and other
stock-based compensation. One option was to recognize compensation expense in
the consolidated financial statements using a fair-value based method, applied
to virtually all stock-based compensation. The alternative did not change the
current intrinsic-value approach of expense recognition, but required pro forma
disclosure in the notes to consolidated financial statements using the
fair-value method. We elected to continue the intrinsic-value method of expense
recognition and to provide the pro forma disclosures required under SFAS No.
123. Additional disclosures are included in Note 6.

Earnings Per Share. In 1997, Lukens adopted SFAS No. 128, "Earnings per Share."
This statement specified the computation, presentation and disclosure
requirements for earnings per share (EPS). The main objectives of the statement
were to simplify the EPS calculation and to make EPS comparable on an
international basis. Effective in 1997, primary and fully diluted EPS were
replaced by basic and diluted EPS. Prior period results were restated for
comparative purposes. A significant difference compared to the prior method is
that basic EPS does not assume potentially dilutive securities in the
computation.

Basic earnings per common share are calculated by dividing net earnings
applicable to common stock by the average number of common shares outstanding.
On a diluted basis, both net earnings and shares outstanding are adjusted to
reflect the conversion of convertible preferred stock. Shares outstanding in the
diluted calculation also assume common stock equivalents, such as stock options.
Diluted common shares and equivalents outstanding disclosed in the Consolidated
Statements of Earnings reflect the maximum dilution possible. Adjustments that
would be antidilutive or reduce a loss per share are not recognized.

Also in 1997, Lukens adopted SFAS No. 129, "Disclosure of Information about
Capital Structure." This statement was issued in conjunction with the earnings
per share statement discussed above and was intended to centralize capital
structure disclosure requirements and to expand the number of companies subject
to the requirements. Since we were in compliance with the existing capital
structure disclosure requirements, we did not materially change our disclosures
under the new standard.

Future Accounting Changes -- Comprehensive Income. In June 1997, SFAS No. 130,
"Reporting Comprehensive Income," was released. Comprehensive income is a
concept that includes the total of net earnings (loss) reported in the
Consolidated Statements of Earnings, plus revenues, expenses, gains and losses
that are recognized directly in the stockholders' investment section of the
Consolidated Balance Sheets. The purpose of the statement was to more
prominently highlight comprehensive income items and to report a total amount
for a reporting period. Effective in 1998, Lukens will be required to disclose
comprehensive income and its components within our financial statements. Prior
period financial statements will be restated for comparative purposes.

Future Accounting Changes -- Business Segments. SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," was also issued in June of
1997. Beginning in 1998, disclosures will be based on the way management
organizes business segments to make decisions about resource allocation and to
measure performance. Disclosures will include interim reporting requirements.
Previously reported information will be restated for comparative purposes. We do
not expect to materially change our segment disclosures under the new standard.

2. Business Groups

Listed below is a description of our business groups, which operate primarily in
the United States. Sales to foreign countries are not significant.

Carbon & Alloy Group -- specializes in the production of carbon, alloy and clad
plate steels. The group operates in a wide range of markets in the capital goods
sector of the economy. Steel service centers, the largest market for the group,
accounted for approximately 48 percent of annual sales in 1997 and averaged
approximately 38 percent of sales in 1996 and 1995. The primary facilities are
located in Coatesville and Conshohocken, Pennsylvania. The labor contract for
the Coatesville plant expires in 2000.

Stainless Group -- specializes in the production of stainless steel sheet,
strip, plate, hot band and slabs. Manufacturing facilities located in Houston
and Washington, Pennsylvania, and Massillon, Ohio, primarily serve the capital
goods and consumer durables sectors of the economy. Labor contracts for these
facilities expire in 1999 and 2000. The group also operates stainless steel
service centers in the United States and Canada. The primary market for the
group is service centers, which averaged approximately 37 percent of annual
sales in the last three years.

Dollars in thousands except per share amounts
<PAGE>
Summary business group information is included in the following chart.
                                       1997           1996         1995
Net sales
        Carbon & Alloy              $ 516,499       481,237       439,330
        Stainless                     477,881       489,083       609,828
                                    ---------       -------     ---------
                                    $ 994,380       970,320     1,049,158
Operating earnings (loss)
        Carbon & Alloy(a)           $  50,410        (2,554)       11,946
        Stainless(b)                  (20,488)       (7,058)       75,148
        Corporate(c)                  (16,518)      (16,441)      (19,114)
                                    ---------       -------     ---------
                                    $  13,404       (26,053)       67,980
Assets
        Carbon & Alloy              $ 426,405       421,034       420,665
        Stainless                     418,830       440,711       468,515
        Corporate(d)                   32,195        27,006        30,483
                                    ---------       -------     ---------
                                    $ 877,430       888,751       919,663
Depreciation and
 amortization
        Carbon & Alloy              $  24,061        23,453        18,696
        Stainless                      27,007        24,505        21,994
        Corporate                         763           991           376
        Discontinued Operations            --            --           238
                                    ---------       -------     ---------
                                    $  51,831        48,949        41,304
Capital expenditures
        Carbon & Alloy              $   6,213        13,747        36,940
        Stainless                       6,049        40,298        63,803
        Corporate                       7,107         3,047         3,236
        Discontinued Operations            --            --           141
                                    ---------       -------     ---------
                                    $  19,369        57,092       104,120
                                    ---------       -------     ---------

a. Carbon & Alloy Group Operating Results: 1996 -- Results included a $3,756
charge for signing bonuses associated with the bargaining unit contract. Unusual
items discussed in Note 3 included a $6,178 work force reduction charge and a
provision for environmental remediation of $9,400.
b. Stainless Group Operating Results: 1996 -- As discussed in Note 3, results
included a provision of $3,695 for a work force reduction. Fixed assets
write-downs also reduced results by $5,933.
c. Corporate Expenses: 1997 -- Merger related expenses (Note 1) totaled $2,215.
1996 -- Expenses included a $909 work force reduction charge
(Note 3) and environmental expenses, offset by reduced professional fees and
incentive compensation expense. 1995 -- Results included higher incentive
compensation expense and environmental expenses. Corporate environmental
expenses are associated with properties retained from divested subsidiaries.
d. Corporate Assets: Corporate assets consist primarily of cash and cash
equivalents, properties held for sale, office facilities and deferred income
taxes.

3. Unusual Items

Work Force Reduction. During the second quarter of 1996, Lukens announced a work
force reduction program of approximately 150 salaried positions. The program was
primarily aimed at reducing costs by integrating administrative functions.
Termination benefits accrued and charged to expense in the second quarter
totaled $10,782. On an after-tax basis, the provision reduced results by $6,859,
or $.46 per share.

The charge included severance related benefits of $6,784. Termination benefits
paid and charged against the liability were essentially completed during 1997.
Pension related benefits included $3,998 from the combination of pension plan
benefits that are triggered at termination and from the recognition of a
curtailment loss. Pension benefits were measured at a 7.75 percent discount
rate.

Environmental Remediation. During the fourth quarter of 1996, $9,400 of expenses
for environmental remediation were recognized. The provision represented our
best estimate of costs for a Superfund site and other waste disposal sites. On
an after-tax basis, the charge reduced results by $5,978, or $.40 per share. As
discussed in Note 10, during the second quarter of 1997, a tentative settlement
was reached at a Superfund site where Lukens was designated a potentially
responsible party.

4. Retiree Benefits

Pensions. Lukens has defined benefit plans that provide pension and survivor
benefits for most employees. Benefits are primarily based on the combination of
years of service and compensation. Plans are funded in accordance with
applicable regulations.

Pension benefits triggered by a change in control (Note 1) are discussed in Note
10.

Dollars in thousands except per share amounts
<PAGE>

The components of pension expense are listed below.

                                                1997        1996        1995
Service cost for
        benefits earned(a)                    $ 8,642       8,246       6,829
Interest cost on projected
        benefit obligation                     31,674      30,298      29,279
Actual return on assets                       (64,200)    (44,870)    (67,841)
Amortization and deferrals
                Deferred return on assets      31,092      13,894      41,770
                Prior service cost(a)           4,195       4,263       2,900
                Other, net                         35         100          25
                                              -------      ------      ------
Net pension expense(a)                        $11,438      11,931      12,962
                                              =======      ======      ======

a. The increase in service cost and amortization of prior service cost,
beginning in 1996, reflected plan improvements to the bargaining unit plan in
the Carbon & Alloy Group and improvements to the Lukens Inc. salary plan.

The following table reconciles the net funded status of our plans to amounts
recognized in the Consolidated Balance Sheets.

                                             1997           1996
Actuarial present value of
     Vested benefit obligation(a)        $(403,807)      (365,780)
     Nonvested benefit obligation(a)       (43,968)       (33,013)
                                         ---------       -------- 
     Accumulated benefit obligation(a)    (447,775)      (398,793)
     Effect of projected future
       compensation(a)                     (33,703)       (24,765)
                                         ---------       -------- 
     Projected benefit obligation(a)      (481,478)      (423,558)
Plan assets at fair value(b)               403,802        365,083
                                         ---------       -------- 
Plan assets less than projected
       benefit obligation                  (77,676)       (58,475)
                                         ---------       -------- 
Unrecognized net loss (gain)                 1,652        (15,735)
Unrecognized prior service cost(a)          37,108         41,642
Unrecognized net obligation
       at transition                           144            178
Adjustment to recognize
       minimum liability(c)                (20,421)       (14,503)
                                         ---------       -------- 
Net pension liability                    $ (59,193)       (46,893)
                                         ---------       -------- 

a. The increase in the 1997 benefit obligations primarily reflected a lower
discount rate and another actuarial assumption change.

b. Plan assets primarily consist of stocks, bonds and short-term investments.
Contributions to defined benefit plans were $4,029 in 1997 and $7,563 in 1996.

c. The minimum liability was recognized in intangible assets in the Consolidated
Balance Sheets.

The net pension liability was recognized in the following accounts in the
Consolidated Balance Sheets.

                                       1997          1996
Accrued employment costs            $ (7,908)       (7,753)
Retirement benefits -- pensions      (53,690)      (43,995)
Intangible assets                      2,405         4,855
                                    --------       ------- 
Net pension liability               $(59,193)      (46,893)
                                    --------       ------- 

Significant assumptions used in the calculation of expense and obligations are
listed below.

                                    1997    1996    1995
Discount rate                %       6.8     7.5     7.0
Rate of compensation
        increase             %       3-7     3-7     3-7
Long-term rate of return
        on plan assets       %       9.5     9.5     9.5

Retiree Medical and Life Insurance Benefits. Lukens provides retiree medical and
life insurance benefits for most employees if they continue to work for the
company until they reach retirement age.

As required under the 1996 contract for bargaining unit employees at
Coatesville, Pennsylvania, a Voluntary Employees' Beneficiary Association (VEBA)
Trust was established to provide funding for retiree medical and life insurance
programs. The trust agreement requires an annual contribution of $2,500 during
the four-year term of the contract. At the end of 1997, two contributions are
remaining.

Benefit payments from the trust are restricted until required funding levels are
achieved. Based on current conditions, benefit payments from the trust are not
anticipated in the short term. In addition to the VEBA requirement, benefits are
funded as claims are submitted.

The components of retiree medical and life insurance expense are listed below.

                                     1997          1996        1995
Service cost for
        benefits earned             $2,405        2,794        2,074
Interest cost on accu-
        mulated postretirement
        benefit obligation          10,192       10,939       10,433
Actual return on assets               (214)         (67)          --
Net amortization
        and deferrals                 (339)         (49)        (500)
                                   -------       ------       ------
Net postretirement
        benefit expense            $12,044       13,617       12,007
                                   -------       ------       ------


Dollars in thousands except per share amounts
<PAGE>

The following table reconciles the net funded status of our obligations to the
liability recognized in the Consolidated Balance Sheets.

                                            1997           1996
Accumulated postretirement
  benefit obligation
Retirees(a)                             $ (92,629)       (83,179)
Fully eligible active participants(a)     (24,035)       (21,398)
Other active participants(a)              (41,392)       (37,888)
                                        ---------       -------- 
Total accumulated postretirement
  benefit obligation(a)(b)               (158,056)      (142,465)
Plan assets at fair value(c)                5,281          2,567
                                        ---------       -------- 
Plan assets less than accumulated
  postretirement benefit obligation      (152,775)      (139,898)
Unrecognized gain                          (1,032)       (11,081)
                                        ---------       -------- 
Net postretirement
  benefit liability(d)                  $(153,807)      (150,979)
                                        ---------       -------- 

a. The increase in 1997 benefit obligations primarily reflected a lower discount
rate.

b. Obligations include life insurance benefits of $16,495 in 1997 and $15,109 in
1996.

c. Plan assets consist of short-term investments.

d. At year-end 1997 and 1996, $2,500 was included in current liabilities --
accrued employment costs for the VEBA contribution.

Significant assumptions used in the calculation of expense and obligations are
listed below.

                                      1997         1996       1995
Discount rate                  %       6.8          7.5       7.0
Health-care cost increase(a)   %     6.5-7.6      6.7-8.1   6.9-8.6
Long-term rate of return
   on plan assets              %       5.0          5.0        --

a. Health-care cost increase assumptions are reduced to a rate of 5% beginning
in 2003.

A one-percentage point increase in the medical cost trend rate for each year
would increase the accumulated postretirement benefit obligation by
approximately $19,265 and would increase net postretirement benefit expense by
approximately $2,087.

5. Income Taxes

The effective tax rate that determined the income tax expense (benefit)
recognized is listed below. Essentially all earnings and losses are from United
States sources.

                                          1997      1996      1995
Federal statutory rate                 % (35.0)    (35.0)     35.0
State income taxes net of
  federal tax benefit                      8.3        .1       2.4
State income tax changes                    --        --        .2
Non-deductible expenses                   16.0       1.9       1.5
ESOP dividends                            (9.6)     (1.2)      (.8)
Other                                      1.8        .6       (.7)
                                       -------     -----      ----
Effective income tax rate              % (18.5)    (33.6)     37.6
                                       -------     -----      ----

The components of the deferred income tax assets (liabilities) are listed below.

                                              1997           1996
Deferred tax assets
  Retirement benefits                     $  81,926         75,330
  Tax credit carryforwards                   28,613         17,500
  Other deductible temporary
    differences                              23,965         24,210
  Valuation allowance                        (2,770)        (2,705)
                                            -------        -------
                                            131,734        114,335
Deferred tax liabilities
  Plant and equipment                       (73,758)       (61,612)
  Other taxable temporary differences        (9,652)        (9,657)
                                            -------        -------
                                            (83,410)       (71,269)
                                            -------        -------
Net deferred tax assets                   $  48,324         43,066
                                            -------        -------

The current and deferred components of the income tax expense (benefit) are
listed below.
                                1997          1996          1995
Current
  U.S. Federal                 $4,542         3,272        11,439
  State and other                 551           865         1,609
                             --------       -------        ------
                                5,093         4,137        13,048
Deferred to future years
  U.S. Federal                 (7,299)      (18,720)        4,870
  State and other               1,092            76         2,494
                             --------       -------        ------
                               (6,207)      (18,644)        7,364
Change in tax rate                 --            --            83
Change in valuation
    allowance                      65           130            --
                             --------       -------        ------
Income tax expense
   (benefit)                 $ (1,049)      (14,377)       20,495
                             --------       -------        ------

On a cash basis, the following amounts of income taxes were paid.

                 1997            1996             1995

               $5,315          $4,938          $13,018

At year-end 1997, $28,613 of alternative minimum tax credit carryforwards were
available.

During 1997, settlements were reached in the Internal Revenue Service audits of
1993, 1994 and 1995. Management believes that the outcome of the outstanding
audits will not have a material adverse effect on the financial condition,
liquidity or results of operations of the company.


Dollars in thousands except per share amounts
<PAGE>

During the third quarter of 1997, the 1997 Taxpayer Relief Act (1997 TRA) was
enacted. Changes to the Federal tax structure included a restructuring of the
depreciable lives used in the alternative minimum tax calculation. Additionally,
the net operating loss carryback period was reduced to two years and the
carryforward period was increased to 20 years. These changes will become
effective in the coming years and will likely have a favorable impact on the tax
position of Lukens. The enactment of the 1997 TRA did not require any
recognition in the 1997 tax provision for the remeasurement of our deferred tax
balances or for changes to the estimated amount of 1997 Federal taxes payable.

6. Compensation Plans

Stock Options. The 1985 Stock Option and Appreciation Plan provides for the
issuance of non-qualified stock options and incentive stock options (ISOs) to
officers and other executives. At the Annual Meeting of Stockholders on April
24, 1996, stockholders approved an amendment to the plan that increased the
number of shares of common stock available for issuance by 900,000 to a total of
2,737,500. These options to purchase Lukens common stock were available for
grant until February 26, 1998, at an exercise price not less than the fair
market value on the grant date. Options were also issued as part of an executive
incentive compensation program. These options vest after three years and expire
in seven years. All other options vest after one year and expire in 10 years.

The Lukens Inc. Stock Option Plan for Non-Employee Directors provides for the
issuance of up to 75,000 non-qualified options to purchase Lukens common stock
at an exercise price based on the fair market value on the grant date. These
options vest after one year and expire in 10 years.

During 1991, 330,000 non-qualified stock options were granted to Mr. Van Sant as
part of his employment agreement. These options become exercisable ratably over
11 years. The options carry an exercise price of $23.38 per share, which was 85
percent of the fair market value on the grant date. Compensation expense from
this discount from fair market value is being recognized on a straight-line
basis over the term of his employment agreement.

During 1996, Lukens adopted a new stock-based compensation accounting standard,
discussed in Note 1. As provided for in the statement, the company elected to
continue the intrinsic-value method of expense recognition. If compensation cost
for these plans had been determined using the fair-value method prescribed by
SFAS No. 123, the company's results would have been reduced to the pro forma
amounts indicated below.

                                1997          1996           1995
Net earnings (loss)     $     (5,717)       (29,703)        33,028
Earnings (loss) per
  share-- basic         $       (.52)         (2.14)          2.11
Earnings (loss) per
  share-- diluted       $       (.52)         (2.14)          1.99

The pro forma effect on results may not be representative of the impact in
future years because the fair-value method was not applied to options granted
before 1995.

The fair value of each option was estimated on the grant date using the
Black-Scholes option pricing model. Based on the assumptions presented below,
the weighted average fair value of options granted was $4.33 per option in 1997,
$7.26 per option in 1996 and $8.76 per option in 1995.

                                        1997     1996      1995
Expected life in years                   8.0      7.0      7.0
Risk-free interest rate       %          6.6      5.6      7.7
Volatility                    %         30.6     27.4     28.5
Dividend yield                %          5.4      3.6      3.6


Dollars in thousands except per share amounts
<PAGE>

A summary of stock option activity is presented below.

                                                             Weighted
                                                              Average
                                          Shares       Exercise Price
1995
Outstanding, beginning of year          767,818         $       27.99
Granted                                 246,347         $       28.19
Exercised                               (50,525)        $       18.23
Forfeited/canceled                      (28,445)        $       35.02
                                      ---------         -------------
Outstanding, end of year                935,195         $       28.35
                                      ---------         -------------
Exercisable, end of year                487,643         $       30.58
                                      ---------         -------------
Available for grant, end of year        436,873
                                      ---------

1996
Outstanding, beginning of year          935,195         $       28.35
Granted                                 308,942         $       27.81
Exercised                               (36,750)        $       21.82
Forfeited/canceled                      (33,800)        $       32.26
                                      ---------         -------------
Outstanding, end of year              1,173,587         $       28.30
                                      ---------         -------------
Exercisable, end of year                618,893         $       29.93
                                      ---------         -------------
Available for grant, end of year      1,061,731
                                      ---------

1997
Outstanding, beginning of year        1,173,587         $       28.30
Granted                                 326,110         $       18.45
Exercised                                    --         $          --
Forfeited/canceled                     (121,450)        $       29.61
                                      ---------         -------------
Outstanding, end of year              1,378,247         $       25.86
                                      ---------         -------------
Exercisable, end of year                746,043         $       28.88
                                      ---------         -------------
Available for grant, end of year        857,071
                                      ---------

For options outstanding at the end of 1997, exercise prices ranged from $16.625
to $47.25 and the weighted average remaining life was approximately 6.5 years.

Restricted Stock. In 1997, the Board of Directors approved the issuance of
performance vested restricted stock to officers as part of an incentive
compensation program. During the first quarter of 1997, 134,000 restricted
shares were awarded. The shares carry voting and dividend rights and were
recorded at fair market value on the grant date. A corresponding charge to
deferred compensation was recorded in the stockholders' investment section of
the Consolidated Balance Sheets. The deferred compensation balance was
subsequently adjusted for changes in the market price of Lukens common stock and
for compensation expense recognized. The awards vest at the end of three years,
contingent on continued employment and the achievement of performance goals that
are tied to Lukens' total shareholder return relative to other steel companies.
Compensation expense recognized for these awards totaled $1,287 in 1997.

Incentive Compensation. Most Lukens employees participate in incentive
compensation plans. These plans are based on the consolidated results of Lukens
Inc., and on the results and performance measures of various subsidiaries.
Compensation expense under these plans is listed below.

          1997             1996             1995
        $12,754           $9,944          $24,875

Employee Stock Ownership Plan (ESOP). The Lukens ESOP was designed to provide
401(k) employer matching benefits to most salaried employees in the form of
convertible preferred stock. The stock was acquired with the proceeds from a
$33,075 term loan (Note 8). The stock is released for allocation to
participants' accounts based on the relationship of debt and interest payments
to the total of all scheduled debt and interest payments. Dividends on allocated
stock are paid, in-kind, with preferred stock. As discussed in Note 8, the
quarterly payments of the ESOP debt were restructured in 1996. The projected
maturities of the ESOP loan over the remaining term are listed below.

                       1998                1999
                      $5,828              $4,791

The loan is guaranteed by Lukens, and the outstanding balance is recognized as
debt in the Consolidated Balance Sheets. An offsetting amount, representing
deferred compensation measured by the stated value of convertible preferred
stock, was recognized in the stockholders' investment section in 1997. In 1996,
this account was classified as redeemable stock, discussed in Note 9. Debt
service requirements of the ESOP are met by the combination of Lukens' cash
contributions to the ESOP and dividends on the preferred stock.

Regarding expense recognition, cash contributions to the ESOP are recorded as
compensation expense, and preferred stock dividends reduce retained earnings.
This recognition results in interest expense incurred on the ESOP debt not being
recognized as interest expense on Lukens' financial statements. Cash
contributions are listed below.

                  1997           1996            1995
                $3,563          $3,187         $2,784

Change in Control. Compensation liabilities triggered by a change in control
(Note 1) are discussed in Note 10.


Dollars in thousands except per share amounts
<PAGE>

7. Inventories

The components of inventory are listed below.

                                       1997         1996
Products finished and in process     $117,455      116,477
Raw materials                          23,326       27,762
Supplies                                4,806        4,686
                                     --------      -------
Inventories(a)                       $145,587      148,925
                                     --------      -------

a. The percent of inventories accounted for under the LIFO inventory valuation
method was approximately 80% in 1997 and 1996.

The estimated cost to replace inventories at year-end was $185,000 in 1997 and
$192,000 in 1996.

8. Financial Instruments

Long-Term Debt.  Listed below is a summary of long-term debt outstanding.
                                   Years Due         1997            1996
Notes payable, face amount              2004      $ 150,000        150,000
Unamortized discount                                   (422)          (486)
  Coupon interest at 7.625%
  Effective interest at 7.691%

Medium-term notes,
    face amount                         2006         75,000         75,000
Unamortized discount                                   (373)          (419)
  Coupon interest at 6.5%
  Effective interest at 6.585%

Short-term notes(a)                     2002          9,300         10,700
Industrial revenue bonds           1998-2009          6,823          3,404
ESOP debt guarantee(b)             1998-1999         10,619         15,374
Total debt(c)                                       250,947        253,573
--------------------------------------------------------------------------
Less current portion                                  6,276          4,878
--------------------------------------------------------------------------
Long-term debt                                    $ 244,671        248,695
--------------------------------------------------------------------------

a. The weighted-average interest rate was 5.8% at year-end 1997 and 5.7% at
year-end 1996. Short-term notes are classified as long term because they are
supported by the revolving credit agreement discussed below.

b. The ESOP debt, guaranteed by Lukens, carries an 8.26% interest rate on $6,691
as of December 27, 1997. The remaining ESOP debt carries a variable rate of
80.5% of the Prime Rate. For a discussion on ESOP accounting, see Note 6.

During 1996, the quarterly payments of the ESOP debt were restructured to align
anticipated benefits with the release of preferred stock (Note 9). The terms of
the variable-interest rate portion of the ESOP debt were not changed.

c. Annual maturities of long-term debt, excluding the ESOP debt guarantee, over
the next five years are listed below.

             1998    1999    2000     2001    2002
             $448    $418    $350     $361   $9,672

Notes Payable. There are $150,000 of notes due in 2004 and $75,000 of
Medium-Term Notes, Series A, due in 2006. Interest is payable semi-annually.
During the second quarter of 1997, Standard & Poor's lowered their rating from
BBB+ to BBB on these notes and during the third quarter of 1997, Moody's lowered
their rating from Baa2 to Baa3.

Lukens also has $25,000 of notes available for issuance under a shelf
registration. The notes were structured to provide Lukens with flexibility in
maturities, from nine months to 30 years, and flexibility in interest rate
structures.

Revolving Credit Agreement. Lukens' revolving credit agreement provides for a
$150,000 committed line of credit. Interest is based on one of the following
rates:

*    the higher of the Prime Rate or the Federal Funds Rate plus .5%

*    London Inter-Bank Offered Rate (LIBOR) adjusted for applicable reserves
     plus .225% to .5% depending on the Standard & Poor's or Moody's rating of
     the long-term notes of Lukens

*    competitively bid rates from lenders.

A facility fee is required on the total line of credit and ranges from .125% to
 .3% based on the lower of Standard & Poor's or Moody's rating of Lukens
long-term notes.

The agreement includes covenants that require a maximum leverage ratio (defined
in the agreement) of 55% and restrictions on additional debt and asset
dispositions. At year-end 1997, additional borrowings of approximately $65,400
were available under these covenants.

Interest Expense. Interest costs include interest on obligations and
amortization of debt set-up costs. For a discussion of ESOP debt accounting, see
Note 6. Interest components are listed below.

                           1997        1996         1995

Costs incurred           $19,073      19,005       16,395
Interest capitalized          --      (2,270)      (2,924)
                         -------      ------       ------
Interest expense         $19,073      16,735       13,471
                         -------      ------       ------
Interest paid            $18,796      17,436       16,107
                         -------      ------       ------

Derivative Financial Instruments --

Commodity Hedges. As of year-end 1997, Lukens was party to several commodity
hedge agreements maturing in 1998. Based on year-end market conditions, the
value of Lukens' contractual obligations for these commodity hedges was $15,020
and the obligation of the counterparties to the agreements was $12,645. Gains
and losses on these contracts are recognized as a component of cost of products
sold. Lukens is exposed to credit risk from nonperformance by the counterparties
to these agreements.

Dollars in thousands except per share amounts
<PAGE>
Fair Value of Financial Instruments. The following table presents the fair value
of certain financial instruments as of year-end 1997 and 1996.

                            Asset (Liability)
                       Book Value      Fair Value
1997
Debt(a)                 $(250,947)      (257,376)
Commodity hedges(b)     $      --         (2,168)

1996
Debt(a)                 $(253,573)      (254,201)
Commodity hedges(b)     $      --         (1,956)

a. Fair value was determined by discounting cash flows using comparable year-end
market interest rates.

b. Fair value was estimated by using quotes from brokers.

9. Stockholders' Investment
and Redeemable Stock

Common Stock. There are 40,000,000 common shares authorized with a par value of
$.01 per share. Under the stock option plans discussed in Note 6, 3,142,500
shares of common stock have been reserved.

Preferred Stock. There are 1,000,000 shares of series preferred stock, par value
$.01 per share, authorized. An ESOP was established in 1989 with the issuance of
551,250 shares of Series B Convertible Preferred Stock. The preferred stock is
stated at its liquidation preference of $60 per share and carries an annual
cumulative dividend of $4.80 per share. Each share may be converted into three
shares of common stock within the guidelines of an employee 401(k) savings plan
(Note 6). Holders of the Series B preferred stock are entitled to vote upon all
matters submitted to the holders of common stock for a vote. The number of votes
is equal to the number of common shares into which the preferred shares are
convertible. Lukens' redemption price of $61.80 per share declines gradually
each year to $60 per share on or after July 2, 2000.

Under the terms of the 401(k) plan, when the price of Lukens common stock is $20
per share or greater, the preferred stock is redeemable in common stock, cash or
a combination at the option of Lukens. If the price is below $20 per share, the
401(k) participants have the option to redeem preferred stock in the combination
above.

Redeemable Stock. At year-end 1996, Series B Convertible Preferred Stock and the
related ESOP deferred compensation (Note 6) were classified as redeemable stock
because the price of Lukens common stock was below $20 per share at the fiscal
year-end, December 28, 1996. The reclassification from stockholders' investment
reflected the ability of 401(k) participants to elect a cash payout option at
redemption. The classification was not made in 1997 or in years prior to 1996
because the company had the ability and intention to redeem preferred stock with
Lukens common stock.

Shareholder Rights Plan. Lukens has a Shareholder Rights Plan designed to deter
coercive or unfair takeover tactics and to prevent a buyer from gaining control
of Lukens without offering a fair price to stockholders. The plan entitles each
outstanding share of common stock to one right. Each right entitles stockholders
to buy one one-hundredth of a share of Series A Junior Participating Preferred
Stock at an exercise price of $80. The rights become exercisable if a person or
group acquires or makes a tender or exchange offer for 15 percent or more of
common stock outstanding. The rights can also become exercisable if the Board of
Directors determines, with the concurrence of outside directors, that a person
has certain interests adverse to Lukens and has acquired at least 10 percent of
common stock outstanding.

If the company is then acquired in a merger or other business combination
transaction, each right will entitle the holder to receive, upon exercise,
common stock of either Lukens or the acquiring company having a value equal to
two times the exercise price of a right.

Lukens will generally be entitled to redeem the rights at $.01 per right at any
time until the tenth day following public announcement that a 15 percent
position has been acquired. The purchase rights will expire on September 25,
2006. Of the 1,000,000 shares of series preferred stock authorized, 75,000 have
been reserved for the Series A preferred stock discussed above. As of December
27, 1997, there were 6,580,990 rights outstanding.

In connection with the Bethlehem merger agreement discussed in Note 1, the
Shareholder Rights Plan was amended to make the provisions of the plan not
applicable to the proposed merger.

10. Commitments and Contingencies

Change in Control. As discussed in Note 1, Lukens entered into a merger
agreement with Bethlehem Steel Corporation. In the event that the merger is
approved by stockholders, a change in control liability totaling approximately
$56,000, subject to fluctuations in the market value of Bethlehem common stock,
would be triggered. Components of the liability include obligations for
severance, pension, stock options and performance vested restricted stock.

Dollars in thousands except per share amounts
<PAGE>
Leases. Lukens has various operating leases primarily for real estate and
production equipment. At year-end 1997, minimum rental payments under
noncancelable leases totaled $21,292. Listed below are the scheduled payments
over the next five years for these leases.
                  1998    1999    2000    2001    2002
                $5,576  $5,074  $2,755  $1,905  $1,715

Rent expense for all operating leases is listed below.
                       1997    1996    1995
                     $7,961  $8,091  $7,177

Environmental Remediation. Lukens has been designated a potentially responsible
party (PRP) under Superfund law at certain waste disposal sites and continually
monitors a range of other environmental issues. Superfund designations are made
regardless of the extent of the company's direct or indirect involvement. These
claims are in various stages of administrative or judicial proceedings, and
include demands for recovery of incurred costs and for future investigation or
remedial actions. The company accrues costs associated with environmental
matters when they become probable and can be reasonably estimated. In assessing
environmental liability, the company considers the extent and type of hazardous
substances at a site, the range of technologies that can be used for
remediation, evolving laws and regulations, the allocation of costs among
potentially responsible parties, and the number and financial strength of those
parties.

The Helen Kramer Superfund Site is a municipal and industrial waste landfill for
which remediation was performed over several years by the EPA. This remediation
process was completed in 1994. Lukens became a third party defendant in 1991 as
the direct defendants associated with this site alleged that Lukens generated
hazardous substances that were transported to and disposed at this landfill.

A preliminary waste-in report was circulated among the PRP's in the third
quarter of 1995. Many of the PRP's expressed significant concerns regarding this
report and objected to its preliminary findings. Additionally, a substantial
part of the total site costs incurred by the Federal government were the subject
of a pending criminal investigation, and recoverable clean-up cost estimates
ranged from $50,000 to $150,000, depending on the outcome of the investigation.
In the fourth quarter of 1995, Lukens received a draft allocation plan. The
draft allocation plan attributed a percentage allocation of approximately 3% to
Lukens. This plan was subject to change as all participating parties were given
an opportunity to provide comments and submit additional information regarding
the determinations made. Lukens objected strongly to this plan based on issues
related to nexus, volume, toxicity, transporter liability, neutralization and
other allocation issues.

At the end of 1995, based on the significant uncertainties surrounding this
matter, Lukens concluded that it was not probable that a liability had been
incurred and no provision was recorded. Lukens also concluded that, while it was
reasonably possible that a liability could result from this matter, management
was unable to reasonably estimate the amount, if any, of such liability.

In the second quarter of 1996 a final non-binding allocation plan was received.
Lukens' percentage allocation was approximately 4% based on this plan. We
continued to have major concerns with this allocation plan and believed we could
significantly reduce our allocation percentage based on the issues described
above. In the third quarter of 1996, a majority of PRP's voted to reject using
the final allocation plan as a basis for further negotiation.

In the fourth quarter of 1996, circumstances surrounding this matter changed
significantly. The EPA and the direct defendants made significant progress
towards reaching an agreement on the total cleanup costs to be reimbursed based
on a proposal submitted by the direct defendants. The EPA strongly encouraged a
settlement agreement by year-end 1996 including a commitment by the third party
defendants to contribute their allocated shares and to participate in the
settlement process. These discussions between the EPA and the direct defendants
generated significant momentum toward settlement and increased the level of
pressure on the third party defendants, such as Lukens. It quickly became clear
that, despite the third quarter rejection vote by the PRP's, the EPA and the
direct defendants were focused on the allocations identified in the last
allocation report and there appeared little probability that further allocation
reports would be commissioned.

Based on these new developments, the total cost of the settlement was now able
to be reasonably estimated, as was our estimated portion of such cost.
Accordingly, we concluded late in the fourth quarter of 1996 that a liability,
based on the allocation report issued in the second quarter of 1996, was
probable and should be recognized. At that time, we recognized a liability of
$6,000.

During the second quarter of 1997, a tentative settlement was reached in the
Helen Kramer Superfund matter for which we agreed to pay $5,600.
<PAGE>
We are currently negotiating with our insurance carriers for recovery of the
tentative settlement amount and we are optimistic that a substantial recovery
will be available. However, no receivable has been recorded for any estimated
recovery, given the uncertainty surrounding such claims.

Lukens disposed of Electric Arc Furnace flue dust at a site on our premises from
approximately 1961 to 1980. Flue dust is listed by the EPA as a hazardous waste.
This site was originally visited by the EPA in 1989, but the EPA required no
further action at that time.

Lukens was not aware of any other EPA activity related to this site until late
in the first quarter of 1996, at which time the EPA conducted another inspection
of the site. The EPA's inspection results, received in May 1996, resulted in a
hazard ranking score that was greater than the threshold required for inclusion
of the site on the National Priority List ("NPL"). We reviewed the EPA's
sampling results and identified discrepancies between the EPA's results and our
sample results. The EPA concluded that the site did not require remedial action
at that time. Additionally, no administrative orders or consent decrees were
received or entered into. However, the EPA concluded that the site warranted
further investigation and indicated that it would initiate a sampling process at
the site within six to nine months.

During the fourth quarter of 1996, a preliminary report outlining remedial
alternatives and costs was issued by an independent consulting firm, hired by
Lukens. The report provided four scenarios with costs ranging from $456 to
$4,850, depending on the extent of the remediation. Additionally, during the
fourth quarter, we met with the Pennsylvania Department of Environmental
Protection ("DEP") to initiate discussions, in accordance with a recommendation
from the EPA in the second quarter of 1996, to pursue voluntary remediation
under Pennsylvania Act 2. This would, among other items, avoid the NPL process.
The DEP agreed to consider whether the site was qualified for the Act 2 program.

Based on our decision to approach the DEP for voluntary cleanup coupled with the
results of the preliminary remediation report, we concluded in the 1996 fourth
quarter that a liability was probable and could be reasonably estimated. The $3
million liability recognized was based on our best estimate from the remediation
alternatives presented in the consultant's report, along with certain estimated
future consulting costs and expenses.

In the first quarter of 1997, we received approval from the DEP to include the
site in the Act 2 program. There has been no further significant activity
regarding this matter.

Based on information currently available, the liability recorded for
environmental remediation costs was approximately $16,950 at year-end 1997 and
$16,800 at year-end 1996 (Note 3). Due to their uncertain nature, amounts
accrued could differ, perhaps significantly, from the actual costs that will be
incurred. No potential insurance recoveries were taken into account in
determining the company's cost estimates or reserves. Management does not
anticipate that its financial position will be materially affected by additional
environmental remediation costs, although quarterly or annual operating results
could be materially affected by future developments.
<PAGE>
Litigation. The company is party to various claims, disputes, legal actions and
other proceedings involving negligence, contracts, equal employment opportunity,
occupational safety and various other matters. In the opinion of management, the
outcome of these matters should not have a material adverse effect on the
consolidated financial condition or results of operations of the company.

Commitments. At year-end 1997, purchase commitments for capital expenditures
were approximately $5,000. Capital expenditures projected for 1998 are
approximately $36,000.

Lukens Steel Company has a long-term contract for the supply of oxygen and
related products to its facility in Coatesville, Pennsylvania. The contract runs
until 2007 and has take-or-pay provisions totaling $24,087 for the remaining
term. Annual minimum commitments of $2,604 can be adjusted for inflation and are
representative of amounts expensed in the prior three years.

Report of Independent Public Accountants

To the Stockholders and Board of Directors, Lukens Inc.:

We have audited the accompanying consolidated balance sheets of Lukens Inc. (a
Delaware Corporation) and subsidiaries as of December 27, 1997 and December 28,
1996 and the related consolidated statements of earnings, stockholders'
investment and cash flows for each of the three fiscal years in the period ended
December 27, 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 Lukens Inc. and subsidiaries as
of December 27, 1997 and December 28, 1996, and the results of their operations
and their cash flows for each of the three fiscal years in the period ended
December 27, 1997 in conformity with generally accepted accounting principles.

/s/ Arthur Andersen LLP
Arthur Andersen LLP
Philadelphia, Pennsylvania
January 19, 1998

Dollars in thousands except per share amounts
<PAGE>
Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
                                        First         Second         Third         Fourth          Fiscal
                                       Quarter        Quarter       Quarter        Quarter           Year
<S>                                 <C>               <C>           <C>            <C>             <C>     
Results of Operations
1997
        Net sales                   $  248,118        258,247       243,371        244,644         994,380
        Cost of products sold       $  233,837        238,253       225,583        228,311         925,984
        Net earnings (loss)         $   (1,978)         1,181           133         (3,956)         (4,620)
                                    ----------        -------       -------        -------         -------
1996
        Net sales                   $  264,172        255,955       234,421        215,772         970,320 
        Cost of products sold       $  252,464        236,343       223,192        209,047         921,046 
        Net earnings (loss)         $   (4,375)        (5,733)c      (4,087)       (14,216)d       (28,411)
                                    ----------        -------       -------        -------         -------
Per Common Share
1997
        Basic earnings (loss)(a)    $     (.17)           .05         (.03)           (.30)           (.45)
        Diluted earnings (loss)(a)  $     (.17)           .05         (.03)           (.30)           (.45)
        Dividends                   $      .25            .25          .50 b            --            1.00 
                                    ----------        -------       -------        -------         -------
1996
        Basic earnings (loss)(a)    $     (.33)          (.42)c       (.31)           (.99)d         (2.06)
        Diluted earnings (loss)(a)  $     (.33)          (.42)c       (.31)           (.99)d         (2.06)
        Dividends                   $      .25            .25          .50 b            --            1.00
                                    ----------        -------       -------        -------         -------
Market Prices of Common Stock
1997
        High                        $   21 7/8         20 3/8       21 13/16       29               29      
        Low                         $   17 3/8         16 7/8       18             15               15      
        Close                       $   17 3/8         19 1/8       19  9/16       28 13/16
                                    ----------        -------       -------        -------         -------
1996
        High                        $   30 1/4         27 3/8       24  1/8        19  1/4          30 1/4
        Low                         $   24 1/4         23 3/4       18  1/8        13  1/2          13 1/2
        Close                       $   24 7/8         23 7/8       18  1/8        19  1/8
                                    ----------        -------       -------        -------         -------
</TABLE>
a. Earnings (loss) per share calculations were based on the weighted-average
shares and equivalents (diluted) outstanding during the period reported. No
adjustments were made that would be antidilutive or reduce the loss per share.
Consequently, the sum of the quarterly earnings per share amounts may not equal
the annual per share amounts. See Note 1 for a discussion regarding the impact
of a new accounting statement issued that addressed the earnings per share
calculations. Quarterly amounts have been restated under the new standard.

b. Due to the timing of the Board of Directors meetings, two quarterly common
stock dividends were declared in the third quarter, totaling $.50 per share.

c. A $10,782 work force reduction charge reduced results by $6,859, or $.46 per
share (Note 3).

d. Results include unusual charges of $15,333 for an environmental remediation
provision (Note 3) and fixed asset write-downs (Note 3). On an after-tax basis,
the provisions reduced results by $9,814, or $.66 per share.

Dollars in thousands except per share amounts and market prices of common stock
<PAGE>


                                   SIGNATURES


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


                                             LUKENS INC.
                                             (Registrant)





Date:  April 16, 1998                     By /s/ R. W. Van Sant
                                             ------------------
                                             R. W. Van Sant
                                             Chairman and
                                             Chief Executive Officer

<PAGE>

              REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES


We have audited, in accordance with generally accepted auditing  standards,  the
consolidated  financial  statements  included in this Form 10-K, and have issued
our report  thereon dated January 19, 1998. Our audits were made for the purpose
of  forming  an  opinion on those  statements  taken as a whole.  The  financial
statement schedule referred to in Item 14 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 part of the basic financial  statements.
The financial  statement 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
                                             Philadelphia, Pennsylvania
                                             January 19, 1998



                    CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation of our
reports  dated January 19, 1998  included or  incorporated  by reference in this
annual report on Form 10-K, as amended,  into the  Company's  previously  filed:
Form S-8  Registration  Statements  File Numbers  33-6673,  33-23405,  33-29105,
33-54269,  33-54271, 33-54371, 33-69780 and 333-09451, and Form S-3 Registration
Statement File Number 33-53681.


                                             /s/ Arthur Andersen LLP

                                             Arthur Andersen LLP
                                             Philadelphia, Pennsylvania
                                             April 23, 1998