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

                                    FORM 10-K

             /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.

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.

ITEM 2. PROPERTIES.

Carbon & Alloy Group

Refined  molten  steel  is  produced  by an  electric  arc  furnace  melt  shop.
Approximately  66 percent of 1997  production at this facility was  continuously
cast into slabs,  with the balance used for ingots.  The  facility  also has two
plate mills, plate-finishing lines and heat-treating facilities.

The  Conshohocken,  Pennsylvania,  facility houses the SMART system.  The system
includes two reheat  furnaces,  a roughing mill, a four- high reversing  Steckel
mill, accelerated on-line cooling and a cut-
<PAGE>
to-length line.  During 1997,  production on the SMART system was  approximately
400,000 tons.  Conshohocken  also has an automated  quench and temper line and a
batch heat-treating system for lighter gauge carbon and alloy plate products.

Carbon & Alloy Group  facilities  are also used to produce  stainless  products.
Stainless steel is melted and refined in Coatesville and subsequently  processed
on the SMART system. For business group reporting of results,  discussed in Item
1, all stainless  product sales and earnings are included in the Stainless Group
results.

A relatively small fabrication facility is located in Newton, North Carolina. It
uses plasma arc cutting  technology to produce blanks and shapes from carbon and
alloy plate.

In 1998,  steel  slabs will  continue  to be  purchased  to  supplement  melting
capacity.  Given current market conditions,  Carbon & Alloy Group facilities are
essentially operating at capacity.

Stainless Group

The group has manufacturing facilities in Washington and Houston,  Pennsylvania,
and in Massillon,  Ohio. The Washington  facility cold rolls stainless sheet and
strip products on Sendzimir  mills and finishes on annealing and pickling lines.
Other  capabilities  include  stainless  coil  polishing,   stretcher  leveling,
slitting  and  processing  stainless  hot bands on a hot anneal and pickle line.
Stainless steel is melted,  cast, and rolled at the Houston location.  The plant
has two electric arc furnaces,  an argon oxygen  decarburization  (AOD) refining
unit and a variable width caster with sequence casting capability.

The  Massillon,  Ohio,  facility is the site of the wide anneal and pickle line.
This system enables us to produce stainless plate in coils up to 96 inches wide.
With its integrated  cut-to-length  capability,  the line has the flexibility to
make coiled and discrete  stainless  plate.  Utilization  of the wide anneal and
pickle line was low in 1997. In addition to the wide anneal and pickle line, the
Massillon  plant  operates  a hot and cold  anneal  and  pickle  line and  other
finishing facilities.

Washington Specialty Metals Corporation has fabrication and
distribution facilities in Wheeling and Carol Stream, Illinois, and
Lawrenceville, Georgia.  Additional distribution centers are listed
below.
o   Carrollton, Texas                      o   Youngsville, North Carolina
o   Tampa, Florida                         o   Brampton, Ontario, Canada
o   Vaudreuil, Quebec, Canada

Capacity of facilities is considered adequate to support projected sales.

<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  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.

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

No matters were voted upon during the fourth quarter of 1998.

<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT

The following  executive  officers were elected by the Board of Directors  until
their respective successors are elected:
<TABLE>
<CAPTION>
                                                                                        Executive Officer
Executive Officer/Title                                               Age                     Since
<S>                                                                   <C>              <C>
R. W. Van Sant                                                         59               October 1991
Chairman and Chief Executive Officer

William W. Beible                                                      45               November 1996
Chief Information Officer

John H. Bucher                                                         58               April 1993
Vice President-Technology

P. Blaine Clemens                                                      60               January 1997
Vice President and Controller

C. B. Houghton, Jr.                                                    57               November 1994
Vice President-Business Development

T. Grant John                                                          59               February 1993
Senior Vice President-Strategic Planning

Richard D. Luzzi                                                       46               February 1993
Vice President-Human Resources

James J. Norton                                                        41               April 1992
Senior Vice President-President and
Chief Operating Officer-
Washington Specialty Metals

Frederick J. Smith                                                     54               April 1993
Senior Vice President-Operations

William D. Sprague                                                     56               October 1988
Vice President,
General Counsel and Secretary

John C. van Roden, Jr.                                                 49               February 1987
Senior Vice President
and Chief Financial Officer
</TABLE>
<PAGE>
Listed  below are  executive  officers  that have been  employed by Lukens in an
executive or managerial capacity for less than five years.

T. Grant John was  previously  with the Axel Johnson  Group,  a  privately-owned
Swedish company with extensive  holdings of stainless steel  businesses.  During
his 14 years with Axel Johnson, Mr. John held operating and management positions
in the corporation's United States operations. In 1985, Mr. John was appointed a
corporate vice president of Axel Johnson, Inc.

Richard D. Luzzi joined  Rockwell  International  Corporation in 1980 and became
vice  president-human  resources at Rockwell Graphic  Systems,  Inc. in 1988. In
1991, he assumed the additional  responsibility of vice  president-international
human resources for Rockwell International.

<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 6.           SELECTED FINANCIAL DATA.

Selected Financial Highlights
<TABLE>
<CAPTION>
                                                     1997            1996            1995             1994           1993
For The Year
<S>                                              <C>                <C>           <C>               <C>             <C>    
  Net sales                                      $  994,380         970,320       1,049,158         947,013         862,072
                                                 ----------         -------       ---------         -------         -------
  Operating earnings (loss)                          13,404         (26,053)         67,980          49,570          36,602
  Net non-operating (expense) income                (19,073)        (16,735)        (13,471)        (13,213)        (16,319)
  Income tax expense (benefit)                       (1,049)        (14,377)         20,495          14,179           7,161
                                                 ----------         -------       ---------         -------         -------
  Earnings (loss) from continuing operations         (4,620)        (28,411)         34,014          22,178          13,122
  Discontinued operations, net of tax                    --              --              --              --           2,780
                                                 ----------         -------       ---------         -------         -------
  Net earnings (loss) before cumulative
    effect of accounting changes                     (4,620)        (28,411)         34,014          22,178          15,902
     Per common share-- basic
       Continuing operations                           (.45)          (2.06)           2.18            1.38             .77
       Discontinued operations                           --              --              --              --             .19
                                                 ----------         -------       ---------         -------         -------
       Net earnings (loss)                             (.45)          (2.06)           2.18            1.38             .96
     Percent of stockholders' investment
        -- start of year                             %(1.9)            (9.5)           12.3             8.3             4.8
     Shares outstanding--
        weighted average                             14,806          14,784          14,696          14,582          14,508
                                                 ----------         -------       ---------         -------         -------
  Cash dividends-- common                            14,805          14,781          14,696          14,583          14,508
     Per share                                         1.00            1.00            1.00            1.00            1.00
                                                 ----------         -------       ---------         -------         -------
  Cash flow from operations                          29,396          43,667          85,491          79,180          72,290
  Depreciation and amortization                      51,831          48,949          41,304          43,962          45,488
  Capital expenditures                               19,369          57,092         104,120         120,342          67,424
  Average number of employees                         3,300           3,450           3,660           4,060           4,769
                                                 ----------         -------       ---------         -------         -------

At Year-End
  Inventories                                    $  145,587         148,925         163,125         134,928         160,060
  Current assets                                    285,700         266,656         314,891         281,036         307,739
  Working capital                                   114,509          99,158         106,221         106,480         146,034
  Current ratio                                         1.7             1.6             1.5             1.6             1.9
  Plant and equipment, net of depreciation          497,559         533,326         529,432         478,129         431,853
  Total assets                                      877,430         888,751         919,663         826,434         817,178
                                                 ----------         -------       ---------         -------         -------

  Long-term debt                                    244,671         248,695         217,339         201,351         220,768
  Total debt                                        250,947         253,573         228,189         208,485         226,589
  Redeemable stock                                       --          13,427              --              --              --
                                                 ----------         -------       ---------         -------         -------
  Stockholders' investment                          241,750         244,642         298,719         277,057         266,754
     Per common share                                 16.18           16.53           20.27           18.91           18.36
  Common shares outstanding                          14,941          14,802          14,736          14,652          14,529
  Stockholders of record                              4,800           4,900           5,700           6,000           5,600
                                                 ----------         -------       ---------         -------         -------
</TABLE>
Dollars and shares in thousands except per share amounts
<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 $26,115. 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 and $5,933
for fixed asset write-downs. Excluding the 1996 unusual items for comparison
purposes, operating earnings were up $13,342 in 1997.

     The 1996 loss represented a dramatic reversal from strong 1995 earnings.
Excluding the unusual items discussed above for comparison purposes, operating
earnings were $62 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 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 $16,673. Excluding the unusual
items for comparison purposes, the 1996 net loss was $11,738. 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 unusual charges totaling $9,628. The charges
consisted of $3,695 for a work force reduction and $5,933 to write down idle
assets and other equipment replaced as a result of capital improvements.
Excluding the unusual charges for comparison purposes, operating results fell by
$23,058 in 1997, largely due to depressed selling prices discussed previously.

     Excluding the 1996 unusual charges for comparison purposes, operating
earnings of $2,570 were down 97 percent from 1995. The decline primarily
reflected a significant deterioration in stainless steel market conditions as
previously discussed. 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 under Superfund
law at certain waste disposal sites and continually monitors a range of other
environmental issues. As discussed in Note 3, a $9,400 environmental remediation
provision was recorded in 1996. During the second quarter of 1997, a tentative
settlement was reached in a Superfund remediation case. The timing of the
estimated payments will not be determined until final resolution of the related
administrative and judicial proceedings. The company's exposure to remediation
costs at these sites depends on several factors discussed in Note 10.

     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         915,113         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              --
    Fixed asset write-downs                                        --           5,933              --
                                                           ----------         -------       ---------
  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, 3 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 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 provisions of $3,695 for a work force reduction and $5,933 for fixed
asset write-downs.

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.

Fixed Asset Write-Downs. Fixed asset write-downs were recorded during the fourth
quarter of 1996 for idle assets and other equipment replaced as a result of
capital improvements. The charge increased the pre-tax loss by $5,933 and the
net loss by $3,836, or $.26 per share.

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
$42,000 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 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.

During the second quarter of 1997, a tentative settlement was reached in a
Superfund remediation contingency where Lukens was designated a potentially
responsible party. The obligation for the Superfund site was previously
recognized in the fourth quarter of 1996. The tentative settlement resulted in a
reclassification from other long-term liabilities to other accrued expenses in
the Consolidated Balance Sheets.

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.

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        203,114         915,113 
        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>

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

None.


<PAGE>
                                    PART III


ITEM 10.          DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

a.       Directors

         The  directors  of the Company,  together  with their ages and business
backgrounds, are as follows:

         R. W. Van Sant, 59, has been Chairman of the Board, President and Chief
Executive  Officer of the Company  since  December  1991. He held the offices of
President and Chief  Operating  Officer from October 1991 to December  1991. Mr.
Van Sant served as  President  and Chief  Executive  Officer of Blount,  Inc., a
company engaged in construction and manufacturing operations, from December 1990
to October 1991.  Mr. Van Sant has been a Director of the Company since 1988, is
Chairman of the  Executive  Committee  and is a member of the  Committee  on the
Board and the  Finance  Committee.  He is also a director  of Amcast  Industrial
Corporation.

         Michael O. Alexander,  57, has been the President of The  International
Forum Inc.  since June 1993 and the Director of the  International  Forum at the
Wharton School, University of Pennsylvania,  since 1988. The International Forum
Inc. is a business  training and  education  concern.  Mr.  Alexander has been a
Director of the Company since 1993 and is a member of the Audit  Committee,  the
Executive Committee and the Finance Committee.

         Rod Dammeyer, 57, is the managing director of Equity Group Investments,
Inc. ("EGI"), which has major investments in approximately 30 public and private
companies.  He is  also  Chief  Executive  Officer  and a  director  of  Anixter
International  Inc.,  where he has been employed  since 1985.  Mr.  Dammeyer was
elected to the Board of Directors of the Company in 1995.  He is a member of the
Audit  Committee,  the Committee on the Board and the Executive  Development and
Compensation  Committee.  Mr.  Dammeyer  also  serves  as a  director  of  Antec
Corporation,  Capsure Holdings Corp., Falcon Building Products, Inc., IMC Global
Inc.,  Jacor  Communications,  Inc.,  Revco D.S.,  Inc.,  Sealy  Corporation and
TeleTech Holdings, Inc., companies in which EGI has a major investment interest,
and is a trustee of Van Kampen American Capital, Inc. closed end funds.

         T.  Kevin  Dunnigan,  60,  has  been  the  Chairman  of  Thomas & Betts
Corporation, a manufacturer of electrical equipment, since 1992. He was also the
Chief Executive  Officer of that corporation since 1985 to May 1997 and has been
a member of its board of directors  since 1975. Mr. Dunnigan has been a Director
of the Company  since 1994.  He is Chairman of the  Committee on the Board and a
member of the Executive Committee and the Executive Development and Compensation
Committee. He is also a director of Elsag Bailey N.V. and C.R. Bard Inc.

         Ronald M. Gross, 64, is currently  Chairman and Chief Executive Officer
and a director of Rayonier Inc. (formerly known as ITT

<PAGE>
Rayonier Inc.), a forest products company. After joining Rayonier, Inc. in March
1978 as President, Chief Operating Officer and a director, Mr. Gross was elected
Chief Executive Officer in 1981 and Chairman in 1984. Mr. Gross also serves as a
director of The  Pittston  Company and as  President  and a director of Rayonier
Forest Resources Company, the managing general partner of Rayonier  Timberlands,
L.P.,  a  publicly  traded  master  limited  partnership.  Mr.  Gross has been a
Director of the Company since 1991 and is Chairman of the Executive  Development
and  Compensation  Committee  and a member of the Committee on the Board and the
Executive Committee.

         Sandra L. Helton, 48, has been Vice President and Corporate  Controller
of Compaq  Computer  Corporation  since May 1997.  Compaq is a  manufacturer  of
personal  computers  and related  equipment.  From July 1994 until May 1997 Mrs.
Helton was Senior Vice  President  and Treasurer of Corning  Incorporated  since
July 1994. Corning Incorporated is an international corporation focused in three
business segments:  Specialty  Materials,  Communications and Consumer Products.
From  1991 to July 1994 she  served  as Vice  President  and  Treasurer  of that
corporation.  She has been a Director of the Company since 1995. Ms. Helton is a
member of the  Audit  Committee,  the  Committee  on the  Board and the  Finance
Committee.

         William H. Nelson,  III, 69,  retired from Scott Paper Company in 1986.
From 1981 to 1986,  he served as Executive  Vice  President and President of the
Natural  Resources  Division of this company,  primarily a manufacturer of pulp,
paper and forest-related  products.  He has been a Director of the Company since
1972.  He is  Chairman  of the Audit  Committee  and a member  of the  Executive
Committee and the Executive Development and Compensation Committee.

         David B. Price,  Jr., 52, has been the Executive Vice President of B.F.
Goodrich  Company and  President  and Chief  Operating  Officer of its Specialty
Chemicals  segment  since July 1997.  B.F.  Goodrich  is a leading  producer  of
aerospace systems, products and services and specialty chemicals.  Prior to that
time he was the  President  of the  Performance  Materials  Division of Monsanto
Company  since  1995.  Monsanto  Company  is a  global  producer  of  chemicals,
agricultural products, food ingredients and pharmaceuticals.  Previously at that
company, he was Vice President and General Manager of Commercial Operations, the
Industrial  Products Division,  from 1993 to 1995 and Vice President and General
Manager of the  Performance  Products  Division from 1991 to 1993. Mr. Price was
elected  to the  Board of  Directors  in  February  1996 and is a member  of the
Finance Committee.

         Joab L. Thomas,  65, currently  President  Emeritus of The Pennsylvania
State University, was President of that university from 1990 to 1995. Mr. Thomas
has been a  Director  of the  Company  since  1992 and is a member  of the Audit
Committee,  the  Executive  Committee  and the Finance  Committee.  He is also a
director of Mellon Bank Corporation.

         W. Paul Tippett,  65, has been a Director of the Company since 1989. He
retired from Springs  Industries,  Inc. in 1989. From 1985 to 1989, he served as
the  President  of this  company,  a  manufacturer  of  finished  fabrics,  home
furnishings and industrial fabrics. Prior to that time, Mr. Tippett was Chairman
and Chief  Executive  Officer of American  Motors  Corporation.  Mr.  Tippett is
Chairman of the Finance  Committee  and a member of the Audit  Committee and the
Executive  Development  and  Compensation  Committee.  He is also a director  of
Stride Rite Corporation.
<PAGE>
b.       Executive Officers of the Registrant

Information  required by this item is  contained  in Part I of this Form 10-K in
the section entitled "Executive Officers of the Registrant."

c.       Compliance With Section 16(a)

         Section  16(a) of the  Securities  and Exchange  Act of 1934  generally
requires the Company's Directors and Executive Officers and persons who own more
than 10% of a registered class of the Company's equity securities ("10% owners")
to file with the  Securities  and  Exchange  Commission  and the New York  Stock
Exchange  initial  reports of  ownership  and reports of changes in ownership of
common stock and other equity  securities of the Company.  Directors,  Executive
Officers  and 10% owners are  required by  Securities  and  Exchange  Commission
regulation  to furnish the Company  with copies of all Section  16(a) forms they
file.  To the  Company's  knowledge,  based  solely  on review of copies of such
reports  furnished  to the  Company and  written  representations  that no other
reports were required to be filed during the 1997 fiscal year, all Section 16(a)
filing  requirements  applicable to its  Directors,  Executive  Officers and 10%
owners were met.

<PAGE>
ITEM 11.          EXECUTIVE COMPENSATION.

         The following information for the fiscal years ended December 30, 1995,
December  28,  1996 and  December  27,  1997 is given as to the Chief  Executive
Officer and each of the four other most highly compensated Executive Officers of
the Company who were serving as Executive Officers at the end of the 1997 fiscal
year and whose base salary and bonus  exceeded  $100,000  during the 1997 fiscal
year.

                           Summary Compensation Table
<TABLE>
<CAPTION>
                                                                                                Long-Term
                                               Annual Compensation                            Compensation
                                                                         Other                     Awards
                                                                         Annual                 Securities      All Other
        Name and                                                         Compen-   Restricted   Underlying       Compen-
        Principal                                                        sation       Stock      Options/         sation
       Position(s)               Year     Salary($)(1)   Bonus($)(1)     ($)(1)       Awards      SARs(#)         ($)(1)
<S>                              <C>        <C>          <C>          <C>             <C>          <C>          <C>         
R. W. Van Sant                   1997       $600,000     $   -0-      $ 69,032(2)     50,000(3)    75,000(4)    $ 14,517(5)
 Chairman,                       1996       $603,056     $   -0-      $ 65,657         -0-         59,412       $ 15,592
 President and                   1995       $565,563     $214,529     $ 51,043         -0-         27,735       $321,143
 Chief Executive Officer

T. G. John                       1997       $232,800     $   -0-      $219,412(6)     14,000(3)    15,000(4)    $ 11,637(7)
 Senior Vice President,          1996       $232,800     $   -0-      $141,545         -0-         22,510       $ 10,494
 Strategic Planning              1995       $204,959     $ 63,365     $ 34,914         -0-         21,305       $  9,986

J. J. Norton                     1997       $205,572     $   -0-         (8)          14,000(3)    15,000(4)    $  6,750(9)
 Senior Vice President           1996       $205,572     $   -0-         (8)           -0-         21,398       $  6,750
 President and COO-WSM           1995       $193,210     $ 58,199        (8)           -0-         17,882       $  6,750

J. C. van Roden, Jr.             1997       $186,326     $   -0-      $ 20,288(10)    14,000(3)    15,000(4)    $  8,107(11)
 Senior Vice President and       1996       $176,556     $   -0-      $ 21,428         -0-         20,212       $  7,926
 Chief Financial Officer         1995       $145,718     $ 43,420     $ 18,567         -0-         11,215       $  7,535

R. D. Luzzi                      1997       $184,920     $   -0-      $ 21,557(10)     7,000(3)    10,000(4)    $  8,226(12)
 Vice President,                 1996       $184,920     $   -0-      $ 21,098         -0-         14,298       $  8,038
 Human Resources                 1995       $174,899     $ 51,808        (8)           -0-         13,882       $  7,466
<FN>
(1)      Rounded to the nearest dollar.
(2)      Includes $44,692 imputed to Mr. Van Sant for use of the Company airplane.
(3)      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. 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.
(4)      Options  granted as part of such  Executive  Officer's  regular  annual
         option grant.
(5)      Represents $6,750 of Company contributions to the Lukens Inc. Employees
         Capital  Accumulation  Plan adopted  pursuant to Section  401(k) of the
         Internal  Revenue  Code of 1986,  as  amended;  $5,850 of  Company-paid
         premiums  for life  insurance  coverage  above  $50,000;  and $1,917 of
         premiums  paid by the  Company on another  term life  insurance  policy
         which covers Mr. Van Sant and is owned by the  Company.  The Company is
         the beneficiary  under this second policy but has assigned the right to
         proceeds equal to
<PAGE>
         2 1/2 times Mr. Van Sant's compensation to his designee.
(6)      Includes  $200,738  paid by the Company in  connection  with Mr. John's
         relocation from the Company's Washington,  Pennsylvania facility to its
         Coatesville, Pennsylvania facility.
(7)      Represents $6,750 of Company contributions to the Lukens Inc. Employees
         Capital Accumulation Plan and $4,887 of Company-paid  premiums for life
         insurance coverage above $50,000.
(8)      Does not  exceed  the  lesser  of  $50,000  or 10% of the total of such
         person's annual salary and bonus.
(9)      Represents $6,750 of Company contributions to the Lukens Inc. Employees
         Capital Accumulation Plan.
(10)     Includes an automobile allowance provided by the Company of $13,512.
(11)     Represents $6,750 of Company contributions to the Lukens Inc. Employees
         Capital Accumulation Plan and $1,357 of Company-paid  premiums for life
         insurance coverage above $50,000.
(12)     Represents $6,750 of Company contributions to the Lukens Inc. Employees
         Capital Accumulation Plan and $1,476 of Company-paid  premiums for life
         insurance coverage above $50,000.
</FN>
</TABLE>

         The following table contains information  regarding each type of option
grant to each Executive Officer named in the Summary  Compensation  Table during
the 1997 fiscal year.

                        Option Grants in Last Fiscal Year

                                Individual Grants
<TABLE>
<CAPTION>
                                        % of Total
                         Number of        Options
                        Securities      Granted to
                        Underlying       Employees     Exercise or
                          Options        in Fiscal      Base Price    Expiration         Grant Date
Name                  Granted(#) (1)     Year (2)         ($/Sh)       Date (3)    Present Value ($) (4)
                      --------------     --------         ------       --------    ---------------------
<S>                       <C>              <C>           <C>            <C>               <C>     
R. W. Van Sant            75,000          23.7%          $18.4375       2/28/07           $326,265
T. G. John                15,000           4.7%          $18.4375       2/28/07           $ 65,253
J. J. Norton              15,000           4.7%          $18.4375       2/28/07           $ 65,253
J. C. van Roden           15,000           4.7%          $18.4375       2/28/07           $ 65,253
R. D. Luzzi               10,000           3.2%          $18.4375       2/28/07           $ 43,502
<FN>
(1)      Regular option grants under the 1985 Stock Option and Appreciation Plan
         include  options which qualify as incentive stock options under Section
         422 of the Internal Revenue Code of 1986, as amended, and options which
         do not so qualify.  The options  granted in 1997 became  exercisable on
         February 28, 1998.
(2)      Rounded to the nearest one-tenth of one percent.
(3)      Outstanding  options  may expire  earlier due to death,  disability  or
         termination  of   employment.   The  Company  has  agreed  to  cash-out
         outstanding  options of  certain  Executive  Officers  upon a change in
         control.
(4)      Based on the  Black-Scholes  option pricing model,  using the following
         assumptions:  (a) 10 year option  term;  (b) 6.58%  risk-free  interest
         rate; (c) 30.6% volatility; and (d) 5.4% dividend yield.
</FN>
</TABLE>

<PAGE>
         The following table presents  information about stock options exercised
during the 1997  fiscal  year by the  Executive  Officers  named in the  Summary
Compensation Table and the amount and value of unexercised  options held by such
Executive Officers at fiscal year-end,  distinguishing between options that were
vested (i.e.,  exercisable  at year-end) and options that were not vested (i.e.,
becoming exercisable in the future).
<TABLE>
<CAPTION>
                               Aggregated Option Exercises in Last Fiscal Year and
                                           Fiscal Year-End Option Values

                                                        Number of Securities
                                                       Underlying Unexercised            Value of Unexercised
                                                          Options at Fiscal            In-the-Money Options at
                     Shares Acquired    Value                Year-End(#)                Fiscal Year-End($) (1)
Name                  on Exercise(#) Realized($)     Exercisable    Unexercisable     Exercisable    Unexercisable
<S>                       <C>           <C>           <C>             <C>            <C>             <C>       
R. W. Van Sant             -0-           -0-           210,000         282,147       $1,018,125      $1,604,360
T. G. John                 -0-           -0-            41,700          32,815           30,875         158,890
J. J. Norton               -0-           -0-            23,000          31,280           27,688         158,645
J. C. van Roden            -0-           -0-            35,500          27,427           50,130         157,830
R. D. Luzzi                -0-           -0-            22,700          23,180           17,813         106,195
-----------
<FN>
(1)      Rounded to the  nearest  dollar.  Based on the  difference  between the
         closing  price of the  Company's  common  stock  on the New York  Stock
         Exchange  Composite Tape at the fiscal  year-end and the exercise price
         of the options.
</FN>
</TABLE>

Retirement Plans

         The Lukens Inc. Salaried Employees  Retirement Plan provides retirement
benefits  to  certain  salaried  employees  who  retire or  otherwise  terminate
employment  after  completing  five or more years of  service.  The Lukens  Inc.
Supplemental  Retirement Plan for Lukens Performance Incentive Plan Participants
provides  supplemental  retirement  benefits to  participating  managerial level
employees.  Benefits  under this Plan are offset by benefits  payable  under the
Lukens Inc.  Salaried  Employees  Retirement Plan. In addition,  the Lukens Inc.
Supplemental  Retirement Plan for Designated  Executives  provides  supplemental
retirement  benefits to participating  executives.  Under this Plan benefits for
participating  executives are calculated by crediting the executive with service
in addition to the executive's actual period of service as an employee. Benefits
payable  under this Plan are offset by  benefits  payable  under the Lukens Inc.
Salaried Employees Retirement Plan.

         Each of the Executive Officers named in the Summary  Compensation Table
participates in the Lukens Inc.  Salaried  Employees  Retirement  Plan.  Messrs.
John,  Luzzi and van Roden  also  participate  in the Lukens  Inc.  Supplemental
Retirement Plan for Lukens Performance Incentive Plan Participants. Mr. Van Sant
also participates in the Lukens Inc. Supplemental Retirement Plan for Designated
Executives.  Benefits  under these Plans are payable  monthly and are based upon
formulas  which consider  years of service and  compensation  (as defined in the
Plans) and age at retirement.

         The following table shows the approximate  annual  retirement  benefits
that Messrs.  Van Sant,  John, van Roden and Luzzi would receive under the Plans
described above based on
<PAGE>
credited years of service if they retire at normal  retirement  age. Mr. Norton,
who participates in the Lukens Inc. Salaried  Employees  Retirement Plan but not
in any of the Company's  supplemental  retirement plans, would receive an annual
retirement  benefit of $18,438 if he retires at normal  retirement  age.  Lesser
amounts may be payable  following a  termination  of  employment  before  normal
retirement age.
<TABLE>
<CAPTION>
                                                  Years of Service
  Remuneration (1)   10 Years      15 Years     20 Years      25 Years     30 Years    35 Years     40 Years
<S>  <C>            <C>           <C>          <C>           <C>          <C>        <C>            <C>       
     $    100,000   $   13,600    $   20,300   $   27,100    $   33,900   $   38,900 $   43,900     $   48,900
          200,000       33,600        50,300       67,100        83,900       93,900    103,900        113,900
          300,000       53,600        80,300      107,100       133,900      148,900    163,900        178,900
          400,000       73,600       110,300      147,100       183,900      203,900    223,900        243,900
          500,000       93,600       140,300      187,100       233,900      258,900    283,900        308,900
          600,000      113,600       170,300      227,100       283,900      313,900    343,900        373,900
          700,000      133,600       200,300      267,100       333,900      368,900    403,900        438,900
          800,000      153,600       230,300      307,100       383,900      423,900    463,900        503,900
          900,000      173,600       260,300      347,100       433,900      478,900    523,900        568,900
        1,000,000      193,600       290,300      387,100       483,900      533,900    583,900        633,900
<FN>
(1)  The  estimated  benefit  calculated  is  based on  salary  plus  bonus,  as
     designated in the Summary Compensation Table above.
</FN>
</TABLE>

     Benefits  payable under the Lukens Inc.  Supplemental  Retirement  Plan for
Lukens Performance  Incentive Plan Participants and the Lukens Inc. Supplemental
Retirement  Plan for  Designated  Executives  are  computed  on a straight  life
annuity basis and are subject to offset by any Social Security benefits to which
the participant is entitled.

         Messrs.   John,   van  Roden  and  Luzzi  have   credited   service  of
approximately five, 16 and five years, respectively, in the Lukens Inc. Salaried
Employees  Retirement Plan and in the Lukens Inc.  Supplemental  Retirement Plan
for Lukens Performance  Incentive Plan  Participants.  Mr. Van Sant has credited
service of  approximately  six years  under the Lukens Inc.  Salaried  Employees
Retirement Plan and 25 years under the Lukens Inc. Supplemental  Retirement Plan
for  Designated  Executives.  Each Plan,  with the  exception of the Lukens Inc.
Salaried  Employees  Retirement  Plan,  contains  provisions for a present value
lump-sum payment payable in the event of a change in control.

Compensation of Directors

         An  annual  retainer  of  $24,000  is  paid  to  Directors  who are not
employees of the Company and an attendance fee of $900 is paid to such Directors
for each day or part of a day they  attend a regular or  special  meeting of the
Board. A fee is also payable to such Directors for attendance at Board Committee
meetings.  The fee is $800  for  all  Committees,  except  that  members  of the
Executive Committee are paid an attendance fee of $900. Attendance fees are paid
for Committee meetings on Board meeting days except for Committee meetings of an
administrative  nature.  An annual retainer of $2,500 per Committee is also paid
to Directors who serve as Committee Chairmen. Directors who serve a partial year
are paid a pro rata share of the annual retainer based upon the number of months
served.

         Any  Director of the Company who is  separately  compensated  for Board
services  may elect to defer  compensation  for  distribution  at a later  date.
Deferred  amounts may be invested in mutual funds or  interest-bearing  accounts
and may be paid in a lump sum or in annual
<PAGE>
installments over a period of five years.

         For periods  before May 1, 1997,  Lukens  maintained a pension plan for
non-employee  directors which was terminated as of April 30, 1997.  Effective as
of May 1, 1997,  Lukens  adopted the Lukens Inc.  Non-Employee  Director  Equity
Compensation  Plan (the "ECP").  Under the ECP, the present value of the benefit
of each non-employee  director under the terminated  directors' retirement plan,
determined as of May 1, 1997, was credited to a bookkeeping  account established
for the  benefit of each  non-employee  director.  The amount  credited  to each
account was deemed invested in hypothetical shares of Lukens Common Stock at the
average closing price of such shares for May 1997.  Under the ECP, on each April
30  occurring  after May 1, 1997,  an  additional  amount  will be  credited  to
accounts  established  for all  non-employee  directors,  and deemed invested in
hypothetical  shares of Lukens Common Stock based on the closing price of Lukens
Common Stock on the allocation  date. The amount credited is based on the annual
retainer  compensation  for directors then in effect,  discounted for a ten-year
period at the  thirty-year U. S. Treasury bond rate then in effect.  Pursuant to
the terms of the ECP, within sixty days following a change of control of Lukens,
the amount credited to each non-employee  director's  account under the ECP will
be paid in a cash lump sum.

         Pursuant to the Company's Stock Option Plan for Non-Employee Directors,
each  Director who is not an employee of the Company or any of its  subsidiaries
receives an annual grant of options to purchase  1,000  shares of the  Company's
common  stock  at an  exercise  price  equal  to the  fair  market  value of the
Company's common stock on the date of grant. Options become exercisable one year
after the date of grant and  expire  ten years  after the date of grant,  except
that options terminate three years after a person ceases to be a Director.

Employment  Contracts  and  Termination  of  Employment  and   Change-in-Control
Arrangements

         The  Company  has  entered  into an  agreement  with Mr. Van Sant which
provides  for his  employment  by the  Company  until  his  65th  birthday.  The
agreement  provides  for the  following  compensation:  a minimum base salary of
$600,000 per annum,  an annual bonus  calculated and paid in accordance with the
Lukens  Performance  Incentive Plan at a target amount of 30% of base salary and
certain employee  benefits.  Pursuant to the agreement and adjusted to reflect a
50% stock  dividend,  Mr. Van Sant was issued 330,000 options to purchase common
stock of the  Company at an  exercise  price of $23.375  per  share,  which,  as
adjusted,  was 85% of the fair market  value of such common stock on the date of
the grant. Such options vest at a rate of 30,000 per year. The agreement further
provides that if Mr. Van Sant's employment is terminated by the Company prior to
his 65th birthday,  other than for disability or for cause,  he will be entitled
to continue to receive his full  salary and  certain  other  benefits  under the
agreement  until the earlier of the third  anniversary of his termination or his
65th birthday.

         Severance  Agreements.  On various  dates  during  the  period  between
October 31, 1990 and January 29, 1997, Lukens entered into severance  agreements
with Messrs.  R. W. Van Sant, T. G. John, J. J. Norton, J. C. van Roden, Jr., R.
D. Luzzi and six other executive officers (the "Severance  Agreements").  Under
each of the Severance  Agreements,  if the  employment of any of such  executive
officers  is  terminated  within  two years  following  the change in control of
Lukens  for any  reason  other  than  termination  by Lukens  for  "cause,"  the
executive officer's
<PAGE>
death  or  disability  or by the  executive  officer  with  "good  reason,"  the
executive  officer  is  entitled  to receive  (i) a lump sum cash  payment in an
amount equal to (A) three times the sum of the executive  officer's  salary plus
the average of the highest  three bonus  awards made in respect of the five most
recently  completed  measuring  periods  preceding the termination of employment
plus (B)  additional  amounts in respect of contingent  bonuses for  uncompleted
measuring  periods,  elective deferred  compensation,  certain stock options and
certain supplemental retirement benefits, (ii) paid coverage for 36 months under
life, disability, and accident and health programs similar to those in effect at
the date of termination  of employment and (iii) for any executive  officer who,
as the result of the  foregoing,  becomes  subject to the excise tax pursuant to
Section 280G of the Code, an additional  lump sum cash payment in an amount such
that the  executive  officer will be in the same net  after-tax  position as the
executive  officer would have been had no such excise tax been  applicable.  The
purpose of the agreements is to assure the continued  dedication of such persons
to their duties and their unbiased counsel in the event of an unsolicited tender
offer.

         In general, a "change in control" will be deemed to occur if (i) during
a period of two consecutive  years, the individuals who constituted the Board of
Directors at the  beginning of such period cease to constitute a majority of the
Board,  (ii) any person or group  acquires  20% or more of the  combined  voting
power of the  Company's  then  outstanding  securities,  (iii)  the  Company  is
acquired  by  merger or  consolidation  or (iv) the  Company  is  liquidated  or
substantially all of its assets are sold.

         Accelerated   Vesting  of  Restricted  Stock  under  Lukens  Inc.  1997
Performance  Vested  Restricted Stock Plan.  Pursuant to the Performance  Vested
Restricted  Stock Plan (the "PVRS Plan"),  134,000 shares of Lukens Common Stock
have been granted as  "restricted  stock" to certain  executive  officers.  Such
shares are subject to forfeiture,  in whole or in part,  unless Lukens  achieves
certain  performance  objectives for the period  commencing  January 1, 1997 and
ending  December 31, 1999.  Upon a change of control of Lukens,  all  forfeiture
restrictions on such restricted shares will lapse.

         Under the PVRS Plan, Mr. Van Sant has received 50,000 restricted shares
of Lukens Common Stock,  Messrs.  John,  Norton and van Roden have each received
14,000  restricted  shares of Lukens  Common  Stock,  and Mr. Luzzi has received
7,000 restricted shares of Lukens Common Stock.

         Supplemental  Retirement Plans.  Lukens has adopted three  supplemental
retirement  plans  for the  benefit  of  certain  executive  officers  and other
employees:   the  Lukens  Inc.  Supplemental   Retirement  Plan  for  Designated
Executives,  the Lukens Inc. Supplemental Retirement Plan for Lukens Performance
Incentive Plan  Participants  and the Lukens Inc.  Supplemental  Retirement Plan
(collectively,  the "SERP").  In general,  the SERP  provides for the payment of
retirement  benefits to certain executive officers and other employees of Lukens
in excess of the  retirement  benefits  generally  payable under the Lukens Inc.
Salaried Employees Retirement Plan.

         The SERP  previously  provided for a cash lump sum payment of the value
of participants'  accrued benefits upon a "change of control," without regard to
whether the  participant's  employment was terminated or whether the participant
continued to be eligible to participate in
<PAGE>
the SERP.  On December 9, 1997,  the Lukens Board  amended the SERP, so that (i)
participants'  accrued  benefits under the SERP become  nonforfeitable  upon the
completion of five or more years of continuous  service in the management group;
(ii) at a change of  control of Lukens,  no cash lump sum  payment  will be made
automatically  to  participants  in  the  SERP;  and  (iii)  if a  participant's
employment with the surviving  corporation is terminated by the employer without
"cause," the  participant  resigns for "good  reason" or the SERP is  terminated
without  replacement by a similar plan, in each case within five years following
the change of control, the participant, or all participants, as the case may be,
shall  become  entitled  to a cash lump sum  payment  of the  value of  benefits
accrued under the SERP.

         On December 9, 1997,  the Lukens  Board  authorized  the adoption of an
irrevocable  grantor trust. On or before the consummation of a change of control
of Lukens, the present value of accrued benefits under the SERP as of such dates
will be deposited into the grantor trust and will be available for  distribution
in accordance with the terms of the SERP.


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

Security Ownership of Certain Beneficial Owners

         The following  table sets forth  information,  as of December 31, 1997,
regarding each person who is known by the Company to beneficially  own more than
5% of any class of stock of the Company.  Such  information  was provided to the
Company by such persons or is based on data available to the Company.
<TABLE>
<CAPTION>
                                                                                 Shares
Name and Address                                              Title of        Beneficially          Percent of
                                                               Class              Owned              Class(1)
<S>                                                         <C>                <C>                    <C>
State Street Bank and Trust Company
   225 Franklin Street                                       Preferred        470,328(2)(3)            100%
   Boston, MA  02110
Merrill Lynch Asset Management, L.P.
   800 Scudders Mill Road                                      Common         2,197,035(4)             14.7%
   Plainsboro, NJ 08536
Bankers Trust New York Corporation                             Common          792,930(5)              5.3%
   130 Liberty Street
   New York, NY  10006
<FN>
(1)      Rounded to the nearest one-tenth of one percent and based on the number
         of shares of the applicable class outstanding on December 31, 1997.
(2)      Rounded to the nearest share.
(3)      Held as trustee of the Lukens  Inc.  Employees  Stock  Ownership  Trust
         under the Lukens Inc. Employees Capital  Accumulation Plan, as to which
         State Street Bank and Trust Company disclaims beneficial ownership. The
         trustee's  duties  include  management  of the  trust  and  voting  the
         preferred  stock held in the trust.  Each share of  preferred  stock is
         generally  convertible into three shares of the Company's common stock.
         If all of the shares of preferred  stock were  converted,  State Street
         Bank and Trust Company would hold  1,410,983  shares of common stock as
         trustee. These shares, together with the 60,423 shares of
<PAGE>
         common  stock held in separate  or  commingled  funds  managed by State
         Street Bank and Trust Company,  would represent  approximately  9.0% of
         the Company's common stock.
(4)      Includes 1,417,035 shares held by Merrill Lynch Asset Management,  L.P.
         ("MLAM"),  of which  Princeton  Services,  Inc.  ("PSI") is the general
         partner,  and 780,000  shares held by Merrill  Lynch Global  Allocation
         Fund, Inc. (the "Fund"),  for which MLAM serves as investment  adviser.
         PSI  disclaims  beneficial  ownership of the  1,417,035  shares held by
         MLAM.
(5)      Includes 527,875 shares for which Bankers Trust Company, a wholly owned
         subsidiary of Bankers Trust New York  Corporation,  has sole voting and
         dispositive  power,  100,055 shares for which Bankers Trust Company has
         sole  dispositive  power,  and 165,000 shares for which BT Alex.  Brown
         Incorporated,  an indirect wholly owned subsidiary of Bankers Trust New
         York Corporation, has sole voting and dispositive power.
</FN>
</TABLE>

Security Ownership of Management

         The  following  table sets forth as of March 2, 1998,  the  approximate
number of shares of common stock and preferred stock of the Company  (rounded to
the  nearest  share)  beneficially  owned by each  Director,  by each  Executive
Officer  named  in the  Summary  Compensation  Table  and by all  Directors  and
Executive  Officers of the Company as a group who are serving in such capacities
on that date.
<PAGE>
<TABLE>
<CAPTION>
                                            Shares Beneficially                      Percent
                                                   Owned                           of Class(1)

Name                                     Common         Preferred          Common          Preferred
<S>                                        <C>             <C>             <C>             <C>
R. W. Van Sant                             398,618(2)      909             less than 1%     less than 1%
Michael O. Alexander                         5,700(3)      -0-             less than 1%             None
Rod Dammeyer                                 7,000(4)      -0-             less than 1%             None
T. Kevin Dunnigan                            7,400(5)      -0-             less than 1%             None
Ronald M. Gross                              7,500(3)      -0-             less than 1%             None
Sandra L. Helton                             4,500(6)      -0-             less than 1%             None
T. Grant John                               89,757(7)      522             less than 1%     less than 1%
Richard D. Luzzi                            50,841(8)      556             less than 1%     less than 1%
William H. Nelson, III                       9,000(3)      -0-             less than 1%             None
James J. Norton                             65,392(9)      -0-             less than 1%             None
David B. Price, Jr.                          2,500(4)      -0-             less than 1%             None
Joab L. Thomas                              7,600(10)      -0-             less than 1%             None
W. Paul Tippett                              6,500(3)      -0-             less than 1%             None
John C. van Roden                          79,599(11)     1,098            less than 1%     less than 1%
All Directors and Executive             1,045,184(12)     9,110                    6.4%             2.0%
  Officers as a Group
  (19 Persons)
<FN>
(1)  Rounded to the nearest one-tenth of one percent and based on (i) the number
     of shares subject to options for common stock exercisable by such person(s)
     on or before May 1, 1998, and 14,977,090  shares of common stock,  which on
     March 2, 1998, was the  approximate  number of shares  outstanding and (ii)
     458,338  shares  of  preferred  stock,  which  on March  2,  1998,  was the
     approximate number of shares outstanding.
(2)  Includes  options  to  purchase  342,735  shares of common  stock  that are
     currently exercisable and 50,000 performance vested restricted shares.
(3)  Includes  options  to  purchase  5,000  shares  of  common  stock  that are
     currently exercisable or will become exercisable on May 1, 1998.
(4)  Includes  options  to  purchase  2,000  shares  of  common  stock  that are
     currently exercisable or will become exercisable on May 1, 1998.
(5)  Includes  options  to  purchase  4,000  shares  of  common  stock  that are
     currently exercisable or will become exercisable on May 1, 1998.
(6)  Includes  options  to  purchase  3,000  shares  of  common  stock  that are
     currently exercisable or will become exercisable on May 1, 1998.
(7)  Includes  options  to  purchase  65,005  shares  of common  stock  that are
     currently  exercisable,  14,000  performance  vested  restricted shares and
     1,541 shares of common stock held by his wife in a retirement  plan,  as to
     which he disclaims beneficial ownership.
(8)  Includes  options  to  purchase  39,082  shares  of common  stock  that are
     currently exercisable and 7,000 performance vested restricted shares.
(9)  Includes  options  to  purchase  45,882  shares  of common  stock  that are
     currently exercisable and 14,000 performance vested restricted shares.
(10) Includes  2,600  shares of common  stock held  jointly  with his spouse and
     options  to  purchase  5,000  shares of  common  stock  that are  currently
     exercisable or will become exercisable on May 1, 1998.
(11) Includes  options  to  purchase  55,715  shares  of common  stock  that are
     currently exercisable and 14,000 performance vested restricted shares.
(12) Includes  options  to  purchase  790,145  shares of common  stock  that are
     currently  exercisable or will become  exercisable on May 1, 1998,  134,000
     performance  vested  restricted shares and 12,441 shares of common stock as
     to which beneficial ownership is disclaimed.
</FN>
</TABLE>
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         During  fiscal year 1997,  the Company had an  outstanding  loan in the
amount of $270,000 to Mr. John, Senior Vice President, Strategic Planning, on an
interest  free  basis.  The  purpose  of  this  loan  was to  assist  him in his
relocation.




<PAGE>

                                     PART IV

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

a.       Documents filed as a part of this report.

         1. Financial Statements

         No financial  statements have been filed with this Form 10-K other than
         those included in Item 8.

         2. Financial Statement Schedules

         II Valuation and Qualifying Accounts

         Schedules,  other than Schedule II, have been omitted  because they are
         not applicable.

         3. Exhibits

         See Index to Exhibits.

b. Reports on Form 8-K.

         On December 16, 1997, a report was filed for Item 5. Other Events., and
Item 7. Financial  Statements,  Pro Forma  Financial  Information and Exhibits.,
concerning a merger agreement with Bethlehem Steel Corporation.

         No other  reports  on Form 8-K were  filed  during  the  quarter  ended
December 27, 1997.

         Subsequent to year-end 1997, a report was filed on January 5, 1998, for
Item 5. Other Events.,  and Item 7. Financial  Statements,  Pro Forma  Financial
Information and Exhibits.,  concerning an amendment to the merger with Bethlehem
Steel Corporation.

<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 report to be signed on its
behalf by the undersigned, thereunto duly authorized.


                                             LUKENS INC.
                                             (Registrant)





Date:  February 25, 1998                  By /s/ R. W. Van Sant
                                             ------------------
                                             R. W. Van Sant
                                             Chairman and
                                             Chief Executive Officer

<PAGE>

SIGNATURES (continued)


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed  below,  as of February 25, 1998,  by the  following  persons on
behalf of the registrant and in the capacities indicated.

Signature and Title

         /s/ Michael O. Alexander
         -------------------------
         Michael O. Alexander                David B. Price, Jr.
         Director                            Director


         /s/ Rod Dammeyer                    /s/ Joab L. Thomas
         -------------------------           ---------------------------
         Rod Dammeyer                        Joab L. Thomas
         Director                            Director


                                             /s/ W. Paul Tippett
                                             ---------------------------
         T. Kevin Dunnigan                   W. Paul Tippett
         Director                            Director


         /s/ Ronald M. Gross                 /s/ R. W. Van Sant
         -------------------------           ---------------------------
         Ronald M. Gross                     R. W. Van Sant
         Director                            Chairman and
                                             Chief Executive Officer


         /s/ Sandra L. Helton                /s/ John C. van Roden, Jr.
         -------------------------           ---------------------------
         Sandra L. Helton                    John C. van Roden, Jr.
         Director                            Senior Vice President and Chief
                                             Financial Officer


         /s/ William H. Nelson, III          /s/ P. Blaine Clemens
         -------------------------           ---------------------------
         William H. Nelson, III              P. Blaine Clemens
         Director                            Vice President and Controller

<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,  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
                                             March 20, 1998

<PAGE>

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                             (Dollars in Thousands)

             Allowance for Doubtful Receivables and Customer Claims
<TABLE>
<CAPTION>
                           Balance at          Additions Charged to                           Balance at
                           Beginning         Costs and                                          End of
Fiscal Year Ended          of Period         Expenses         Other        Deductions (a)       Period
<S>                        <C>                   <C>          <C>             <C>              <C>  
December 27, 1997            $7,750             5,130            -             6,164             6,716

December 28, 1996            $6,632            11,348            -            10,230             7,750

December 30, 1995            $7,569            10,044            -            10,981             6,632


(a)   Amounts determined not to be collectible, net of recoveries. Amount also
      includes a reduction in the reserve from the divestiture of subsidiaries
      of $145 in 1995.



                  Deferred Income Tax Asset Valuation Allowance

                           Balance at          Additions Charged to                           Balance at
                           Beginning         Costs and                                          End of
Fiscal Year Ended          of Period         Expenses         Other          Deductions         Period

December 27, 1997            $2,705                65            -                --             2,770

December 28, 1996            $2,575               130            -                --             2,705

December 30, 1995            $2,575                --            -                --             2,575
</TABLE>

<PAGE>


INDEX TO EXHIBITS (Note 1)

(2) Plan of acquisition, reorganization, arrangement, liquidation or succession

         (2.1)  Agreement and Plan of Merger, dated December 15, 1997
         among Bethlehem Steel Corporation, Lukens Acquisition
         Corporation and Lukens Inc. (Note 4)

         (2.2)  Amendment  dated as of January 4, 1998 to the Agreement and Plan
         of Merger,  dated December 15, 1997 among Bethlehem Steel  Corporation,
         Lukens Acquisition Corporation and Lukens Inc. (Note 5)

(3) Certificate of incorporation and by-laws (Note 2)

(4) Instruments Defining the Rights of Security Holders including Indentures

         (4.1)  Lukens Inc. Indenture dated as of July 1, 1992
         (Note 3)

         (4.2) Renewed Rights Agreement, dated as of September 25, 1996 (Note 8)

         (4.3)  Amendment to Renewed Rights Agreement (Note 4)

(10) Material Contracts

         (10.1) Lukens Inc. Supplemental Retirement Plan, as amended and
         restated, effective December 9, 1997

         (10.2)  Lukens Inc. Supplemental Retirement Plan for Lukens
         Performance Incentive Plan Participants, as amended and
         restated, effective December 9, 1997

         (10.3)  Lukens Inc. Supplemental Retirement Plan for
         Designated Executives, as amended and restated, effective
         December 9, 1997

         (10.4)  Lukens Inc. Performance Incentive Plan, effective
         January 1, 1995 (Note 11)

         (10.5)  Lukens Inc. 1997 Performance-Vested Restricted Stock
         Plan, effective February 26, 1997 (Note 6)

         (10.6)  Lukens Inc. 1985 Stock Option and Appreciation Plan,
         as amended (Note 9)

         (10.7)  Lukens Inc. Stock Option Plan for Non-employee
         Directors (Note 13)

<PAGE>
         (10.8) Lukens Inc. Non-Employee Director Equity Compensation Plan,
         effective May 1, 1997 (Note 6)

         (10.9) Employment Agreement dated October 12, 1991, between R. William
         Van Sant and Lukens Inc. (Note 15)

         (10.10) Severance Agreement dated October 12, 1991, between R. William
         Van Sant and Lukens Inc. (Note 15)

         (10.11) Form of Severance Agreement between certain Executive Officers
         and Lukens Inc.

         (10.12) Form of  Indemnification  Agreement  between certain  Executive
         Officers and Lukens Inc. (Note 16)

         (10.13)  Lukens Inc. Directors' Deferred Payment Plan (Note 17)

         (10.14) Guaranty Agreement dated as of June 28, 1989, between Lukens
         Inc. and The Toronto-Dominion Bank & Trust Company as Agent for the
         Guaranteed Parties (Note 16)

         (10.15)  Retirement Plan for Non-Employee  Directors of Lukens Inc., as
         amended through November 30, 1994 (Note 12)

         (10.16) Form of Indemnification Agreement between Directors and Lukens
         Inc. (Note 16)

         (10.17) Amended and Restated Credit Agreement, dated as of April 22,
         1992, and Amended and Restated as of September 30, 1992 among Lukens
         Inc. and Lukens Steel Company, as the Borrowers, Certain Commercial
         Lending Institutions, the Toronto-Dominion Bank, and NBD Bank, N.A., as
         the Co-Agents, and Provident National Bank, as the Administrative Agent
         (Note 14)

         (10.18) First Amendment, dated as of January 15, 1995, to Amended and
         Restated Credit Agreement (Note 12)

         (10.19) Extension Request, dated as of December 1, 1995, to Amended and
         Restated Credit Agreement (Note 10)

         (10.20) Extension Request, dated as of December 5, 1996, to Amended and
         Restated Credit Agreement (Note 7)

         (10.21) Lease among PNC Leasing  Corp.,  Blount,  Inc.,  and Washington
         Steel Corporation, dated as of October 1, 1986 (Note 14)

         (10.22)  Lease Amendment No. 1, dated July 22, 1987, among
         PNC Leasing Corp., Blount, Inc. and Washington Steel
         Corporation (Note 14)

<PAGE>

         (10.23)  Lease Amendment No. 2, Assumption and Consent among
         PNC Leasing Corp., Blount, Inc. and Washington Steel
         Corporation, dated as of October 18, 1988 (Note 14)

         (10.24)  Lease Amendment No. 3, Assumption and Consent among
         PNC Leasing Corp., Lukens Inc. and Washington Steel
         Corporation, dated as of July 21, 1992 (Note 14)

(11)     Statement regarding Computation of Per Share Earnings

(21)     Subsidiaries of the Registrant

(23)     Consent of Arthur Andersen LLP (Note 18)

(27)     Financial Data Schedule

(27.1)   Restated Financial Data Schedule (SFAS No. 128) for the thirty-nine
         weeks ended September 27, 1997.

(27.2)   Restated Financial Data Schedule (SFAS No. 128) for the twenty-six
         weeks ended June 28, 1997.

(27.3)   Restated Financial Data Schedule (SFAS No. 128) for the thirteen weeks
         ended March 29, 1997.

(27.4)   Restated Financial Data Schedule (SFAS No. 128) for the fifty-two weeks
         ended December 28, 1996.

(27.5)   Restated Financial Data Schedule (SFAS No. 128) for the thirty-nine
         weeks ended September 28, 1996.

(27.6)   Restated Financial Data Schedule (SFAS No. 128) for the twenty-six
         weeks ended June 29, 1996.

(27.7)   Restated Financial Data Schedule (SFAS No. 128) for the thirteen weeks
         ended March 30, 1996.

(27.8)   Restated Financial Data Schedule (SFAS No. 128) for the fifty-two weeks
         ended December 30, 1995.

NOTES TO EXHIBITS

1. Copies of exhibits will be supplied upon request. Exhibits will be provided
at $.25 per page requested. Annual and quarterly filings are electronically
filed with the SEC. Copies of the exhibits are available free of charge through
the SEC site on the Internet (http://www.sec.gov).

2. The certificate of incorporation is incorporated by reference to exhibits
included in the Lukens Inc. Post-Effective Amendment No. 1 to the Registration
Statement on Form S-8, File No. 33- 23405. By-laws, as amended and restated June
26, 1991, are incorporated by reference to exhibits included in the Lukens Inc.
Form 10-Q for the quarter ended June 29, 1991.

3. Incorporated by reference to exhibits included in the Lukens Inc.
Registration Statement on Form S-3, File No. 33-49112.

4. Incorporated by reference to exhibits included in the Lukens Inc. Form 8-K
for the Date of Report, December 15, 1997.

5. Incorporated by reference to exhibits included in the Lukens Inc. Form 8-K
for the Date of Report, January 4, 1998.

6. Incorporated by reference to exhibits included in the Lukens Inc. Form 10-Q
for the quarter ended June 28, 1997.

7. Incorporated by reference to exhibits included in the Lukens Inc. Form 10-K
for the fiscal year ended December 28, 1996.

8. Incorporated by reference to exhibits included in the Lukens Inc. Form 10-Q
for the quarter ended September 28, 1996.
<PAGE>

9. Incorporated by reference to exhibits included in the Lukens Inc. Form 10-Q
for the quarter ended March 30, 1996.

10. Incorporated by reference to exhibits included in the Lukens Inc. Form 10-K
for the fiscal year ended December 30, 1995.

11. Incorporated by reference to exhibits included in the Lukens Inc. Form 10-Q
for the quarter ended September 30, 1995.

12. Incorporated by reference to exhibits included in the Lukens Inc. Form 10-K
for the fiscal year ended December 31, 1994.

13. Incorporated by reference to exhibits included in the Lukens Inc. Form 10-K
for the fiscal year ended December 25, 1993.

14. Incorporated by reference to exhibits included in the Lukens Inc. Form 10-K
for the fiscal year ended December 26, 1992.

15. Incorporated by reference to exhibits included in the Lukens Inc. Form 10-K
for the fiscal year ended December 28, 1991.

16. Incorporated by reference to exhibits included in the Lukens Inc. Form 10-K
for the fiscal year ended December 30, 1989.

17. Incorporated by reference to exhibits included in the Lukens Inc.
Registration Statement on Form S-4, File No. 33-10935.

18. Incorporated by reference to the sections entitled "Consent of Independent
Public Accountants" in this Form 10-K.