-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, GuWbTZJYfTCVUTURMhvEJxRu5k1obFIj+tc9G7OEvSRR4UGMGLS0MytOVFAI/RmS QTxrfLdTpRVsmbUjnTV1HQ== 0000893220-95-000158.txt : 19950616 0000893220-95-000158.hdr.sgml : 19950616 ACCESSION NUMBER: 0000893220-95-000158 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950323 SROS: CSE SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BETHLEHEM STEEL CORP /DE/ CENTRAL INDEX KEY: 0000011860 STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES ROLLING MILLS (COKE OVENS) [3312] IRS NUMBER: 240526133 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-01941 FILM NUMBER: 95522721 BUSINESS ADDRESS: STREET 1: 1170 EIGHTH AVE CITY: BETHLEHEM STATE: PA ZIP: 18016 BUSINESS PHONE: 2156942424 10-K 1 FORM 10-K, BETHLEHEM STEEL CORPORATION 1 1994 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 F O R M 10-K (Mark One) /x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994 / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 1-1941 B E T H L E H E M S T E E L C O R P O R A T I O N (Exact name of registrant as specified in its charter) DELAWARE 24-0526133 (State of Incorporation) (I.R.S. Employer Identification No.) 1170 EIGHTH AVENUE BETHLEHEM, PENNSYLVANIA 18016-7699 (Address of principal executive offices) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (610) 694-2424 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange on Title of each class which registered ------------------- ------------------------- Common Stock--$1 par value per share New York Stock Exchange Chicago Stock Exchange Preference Stock Purchase Rights New York Stock Exchange Chicago Stock Exchange Preferred Stock -- $1 par value per share $5.00 Cumulative Convertible New York Stock Exchange (stated value $50.00 per share) $2.50 Cumulative Convertible New York Stock Exchange (stated value $25.00 per share) 6-7/8% Debentures. Due March 1, 1999 New York Stock Exchange 9% Debentures. Due May 15, 2000 New York Stock Exchange 8-3/8% Debentures. Due March 1, 2001 New York Stock Exchange 8.45% Debentures. Due March 1, 2005 New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE (Title of class) 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. / / Aggregate Market Value of Voting Stock held by Non-Affiliates: $1,717,158,980.25 The amount shown is based on the closing price of Bethlehem Common Stock on the New York Stock Exchange Composite Tape on March 15, 1995. Voting stock held by directors and executive officers of Bethlehem is not included in the computation. However, Bethlehem has made no determination that such individuals are "affiliates" within the meaning of Rule 405 under the Securities Act of 1933. Number of Shares of Common Stock outstanding as of March 15, 1995: 110,056,163 DOCUMENTS INCORPORATED BY REFERENCE: Selected portions of the 1994 Annual Report to Stockholders of Bethlehem Steel Corporation are incorporated by reference into Part II of this Report on Form 10-K. Selected portions of the 1995 Proxy Statement of Bethlehem Steel Corporation are incorporated by reference into Part III of this Report on Form 10-K. 2 PART I ITEM 1. BUSINESS. Bethlehem(1) is the second largest steel producer in the United States and is engaged primarily in the manufacture and sale of a wide variety of steel mill products. Bethlehem also produces and sells coal and other raw materials, repairs ships and offshore drill rigs and manufactures and sells forgings and castings. For financial reporting purposes, Bethlehem has disaggregated the results of its operations and certain other financial information into two segments, Basic Steel Operations and Steel Related Operations. Note C to the Consolidated Financial Statements sets forth certain financial information relating to Bethlehem's industry segments for 1994, 1993 and 1992. The table below shows the percentage contribution to Bethlehem's net sales of each segment and of major classes of products for each of the years 1992 through 1994:
1994 1993 1992 -------- -------- -------- Basic Steel Operations Steel mill products: Sheets and tin mill products . . . . . . . . . . . . . . . 66.1% 63.1% 59.1% Plates . . . . . . . . . . . . . . . . . . . . . . . . . . 14.0 13.6 13.3 Structural shapes and piling . . . . . . . . . . . . . . . 6.7 8.5 9.6 Rail products . . . . . . . . . . . . . . . . . . . . . . 2.8 3.6 2.8 Bars, rods and semifinished . . . . . . . . . . . . . . . 1.2 1.2 2.6 Other steel mill products . . . . . . . . . . . . . . . . 1.3 .8 1.2 Other products and services (including raw materials) . . . . 5.5 6.8 7.5 -------- ------- ------- 97.6 97.6 96.1 Steel Related Operations . . . . . . . . . . . . . . . . . . . . 2.4 2.4 3.9 -------- -------- -------- 100.0% 100.0% 100.0% ======== ======== ========
BASIC STEEL OPERATIONS Bethlehem's Basic Steel Operations produces a wide variety of steel mill products, including hot rolled, cold rolled and coated sheets and strip, plates, structural shapes, piling, tin - -------------------- (1) "Bethlehem" when used herein means Bethlehem Steel Corporation, a Delaware corporation, and where applicable includes its consolidated subsidiaries. Bethlehem was incorporated in Delaware in 1919. 1 3 mill products, specialty blooms, carbon and alloy bars, rail and pipe. Basic Steel Operations includes the following Business Units: the Burns Harbor Division, the Sparrows Point Division, Bethlehem Structural Products Corporation ("Structural Products") and Pennsylvania Steel Technologies, Inc. Also included in Basic Steel Operations are iron ore and coal operations (which provide raw materials to Bethlehem's steelmaking facilities and sell such materials to trade customers), railroad operations (which primarily transport raw materials and semifinished steel products within various Bethlehem operations) and lake shipping operations (which primarily transport raw materials to the Burns Harbor Division). See "ITEM 2. PROPERTIES" of this Report for a description of the facilities of these business units and operations. As reported by the American Iron and Steel Institute ("AISI"), the steel industry's raw steel production capability for 1994 was 108 million tons, and the preliminary average rate of industry utilization of that capability was 91 percent, compared to 110 million tons and 89 percent for 1993 and 113 million tons and 82 percent for 1992. Bethlehem's raw steel production capability was 11.5 million tons for 1994 and 1993, and 16 million tons for 1992. Its average rate of utilization of that capability was 85 percent for 1994, 90 percent for 1993 and 66 percent for 1992. The following table shows, for each of the years indicated, the raw steel production of Bethlehem and of the entire domestic steel industry:
RAW STEEL PRODUCTION ------------------------------------------ Domestic Bethlehem as a Steel % of Domestic Bethlehem Industry* Steel Industry --------- -------- -------------- (millions of net tons) 1994 . . . . . . . . . . . . . . . . . . . . . . 9.8 97.9** 10.0 1993 . . . . . . . . . . . . . . . . . . . . . . 10.3 97.9 10.5 1992 . . . . . . . . . . . . . . . . . . . . . . 10.5 92.9 11.3
- -------------- * The figures are as reported by the AISI. ** Based on preliminary AISI figures. Of Bethlehem's 1994 raw steel production, 95 percent was produced by basic oxygen furnaces and 5 percent by electric furnaces. Bethlehem's three continuous slab casters for light flat-rolled products and plates produced approximately 78 percent of the slabs needed for these products in 1994 compared to 86 percent in 1993 and 87 percent in 1992. Bethlehem's raw steel production and slab production for 1994 decreased from 1993 primarily due to the rebuild of one of Burns Harbor's two coke oven batteries and the reline of one of its two blast furnaces. See "ITEM 1. BUSINESS--General--Capital Expenditures" of this Report. 2 4 The following table shows, for each of the years indicated, the percentage of the total net tons of steel mill products shipped by Bethlehem's Basic Steel Operations to each of its principal markets, including shipments to its own Steel Related Operations:
1994 1993 1992 -------- -------- -------- Service centers, processors and converters (including semifinished customers) . . . . . . . . . . . . . 45.9% 47.3% 46.3% Transportation (including automotive) . . . . . . . . . . . . 24.2 22.2 19.9 Construction . . . . . . . . . . . . . . . . . . . . . . . . . 14.7 15.5 16.0 Containers . . . . . . . . . . . . . . . . . . . . . . . . . . 5.7 5.4 4.8 Machinery . . . . . . . . . . . . . . . . . . . . . . . . . . 4.9 5.1 5.5 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.6 4.5 7.5 -------- -------- -------- 100.0% 100.0% 100.0% ======== ======== ========
Steel products are distributed by Bethlehem principally through its own sales organizations, which have sales offices at various locations in the United States, Canada and Mexico, and through foreign sales agents. In addition to selling to customers who consume steel products directly, Bethlehem sells steel products to steel service centers, distributors, processors and converters. Export sales for this segment were 2 percent of total sales in 1994 and 1993, and 5 percent in 1992. Trade orders on hand for Basic Steel Operations at December 31, 1994, and December 31, 1993, were approximately $1,166 million and $1,133 million, respectively. Substantially all of the orders on hand at December 31, 1994 are expected to be filled in 1995. Competition within the domestic steel industry is intense. Principal competitors are domestic mini-mills, foreign and domestic integrated steel companies and reconstituted mills. Bethlehem experiences strong competition in all principal markets served by Basic Steel Operations with respect to, among other things, price, service and quality. Domestic integrated producers, such as Bethlehem, have lost market share in recent years to domestic mini-mills. Mini-mills provide significant competition in certain product lines, including structural shapes and hot rolled sheets. Mini-mills are relatively efficient, low-cost producers that produce steel from scrap in electric furnaces, have low employment and environmental costs and target regional markets. Thin slab casting technologies have allowed mini-mills to enter certain sheet markets which have traditionally been supplied by integrated producers. Certain companies have announced plans for, or have indicated that they are currently considering, additional mini-mill plants for sheet products in the United States. Domestic steel producers also face significant competition from foreign producers and have been adversely affected by unfairly traded imports. Imports of finished steel products have accounted for approximately 19 percent of the domestic market in 1994, approximately 15 percent of the domestic market in 1993 and approximately 16 percent of the domestic market in 1992. The major restructuring of the domestic steel industry, which began in the late 1970s and early 1980s, 3 5 has removed the steelmaking capacity that once existed to meet market demand during peak periods. Nineteen ninety-four was the strongest domestic shipment year since 1979. A portion of the demand that exceeded steelmaking capacity was met by domestic producers who imported semifinished slabs for rolling into finished products in their own mills. The remaining demand, which could not be met by domestic rolling mills, was met by increased imports of finished products, primarily hot and cold rolled sheets, and plates, resulting in the increased import share in 1994. A significant portion of these incremental imports went into inventory. Many foreign steel producers are owned, controlled or subsidized by their governments. Decisions by these foreign producers with respect to production and sales may be influenced to a greater degree by political and economic policy considerations than by prevailing market conditions. The following table, which is based on data reported by the AISI, shows the percentage of domestic apparent consumption of steel mill products captured by imports for various classes of products.
1994* 1993 1992 ----- ---- ---- Structural shapes and piling . . . . . . . . . . . . . . 12% 10% 9% Bars, rods, tool steel and semifinished . . . . . . . . 35 29 20 Plates . . . . . . . . . . . . . . . . . . . . . . . . . 23 16 18 Sheets, strip and tin mill products . . . . . . . . . . 19 13 17 Rail . . . . . . . . . . . . . . . . . . . . . . . . . . 28 18 27 All Products** . . . . . . . . . . . . . . . . . . . . . 25 19 18
- -------------- * Preliminary ** Excludes steel imported in the form of manufactured goods, such as automobiles, but includes semifinished steel. Excluding semifinished steel, imports of steel mill products were approximately 22.1 million tons in 1994, 14.5 million tons in 1993 and 14.7 million tons in 1992. Antidumping and countervailing duty orders covering imports of corrosion resistant sheet from 6 countries, cold rolled sheet from 3 countries and plates from 11 countries, which resulted from unfair trade cases filed by Bethlehem and 11 other companies in 1992, remain in place. The Court of International Trade in New York has affirmed all of the negative ITC injury determinations on hot and cold rolled sheet which had been appealed by Bethlehem and the other petitioners. Decisions on appeals of the affirmative ITC injury determinations on corrosion resistant sheet and plate by respondents are still pending. Imports of flat rolled products from countries not covered by antidumping and countervailing duty orders, particularly imports of plate from Russia and the Ukraine, surged throughout 1994 and are diminishing the impact of the successful cases. 4 6 The intensely competitive conditions within the domestic steel industry have been exacerbated by the continued operation, modernization and upgrading of marginal steel production facilities through bankruptcy reorganization procedures, thereby perpetuating overcapacity in certain industry product lines. Overcapacity is also perpetuated by the continued operation of marginal steel production facilities that have been sold by integrated steel producers to new owners, which operate such facilities with a lower cost structure. In the case of many steel products, there is substantial competition from manufacturers of products other than steel, including plastics, aluminum, ceramics, glass, wood and concrete. STEEL RELATED OPERATIONS Bethlehem's Steel Related Operations includes BethForge, Inc. and CENTEC. BethForge, Inc. manufactures and fabricates forgings and castings. CENTEC produces centrifugally cast rolls for the metalworking industry. The operations of BethForge, Inc. and CENTEC are located in Bethlehem, Pennsylvania. Steel Related Operations also includes the BethShip Division, which repairs and services ships and offshore drill rigs and fabricates industrial products. The facilities of the BethShip Division consist of a ship repair yard at Sparrows Point, Maryland, and a dry dock facility for the repair and inspection of offshore drill rigs and other vessels at Port Arthur, Texas. Bethlehem sells this segment's fabricated steel products to the steel, machinery, transportation, energy, defense and utility industries. These products are distributed principally through Bethlehem's own sales organization. The markets for these products overlap to a certain extent with the principal markets for products included in Basic Steel Operations. Bethlehem obtains the major portion of the materials and products used in the manufacture and fabrication of the products of this segment from its own steel mills. Competition is strong in all principal markets for the products of this segment, particularly with respect to price, quality and service. Principal competitors are foreign and domestic independent steel and marine fabricating companies. As is the case with Basic Steel Operations, there is substantial competition with respect to some fabricated steel products from certain of Bethlehem's competitors operating under the protection of the United States Bankruptcy Code, from manufacturers of products other than steel and from imports. The operations of this segment are generally subject to the cyclical fluctuations characteristic of the construction and capital goods industries. Trade orders on hand for Bethlehem's Steel Related Operations at December 31, 1994, and December 31, 1993, were approximately $46 million and $82 million, respectively. Substantially all the orders on hand at December 31, 1994 are expected to be filled in 1995. 5 7 GENERAL Capital Expenditures Capital expenditures were $445 million in 1994 compared to $327 million in 1993 and $329 million in 1992. Capital expenditures for 1995 are currently estimated to be approximately $350 million. During 1994, one of Burns Harbor's two coke oven batteries was rebuilt and one of its two blast furnaces was relined. Burns Harbor's operating costs per ton were higher while these projects were under way due primarily to lower raw steel and coke production and increased costs for purchased slabs and coke. Work also was completed during 1994 on the construction of a coal injection facility that will lower the Division's operating costs through elimination of the use of natural gas as a blast furnace injectant and a reduction of the use of coke in the blast furnaces. This facility is expected to be fully operational in the first quarter of 1995. In late 1994, Pennsylvania Steel Technologies completed a modernization program which includes a state-of-the-art DC electric furnace, in-line rail head-hardening equipment, a ladle furnace and a vacuum degassing unit. Approximately $259 million of additional capital expenditures were authorized in 1994. At December 31, 1994, the estimated cost of completing authorized capital expenditures was approximately $325 million compared to $676 million at December 31, 1993. Such authorized capital expenditures are expected to be completed during the 1995-1997 period. Environmental Control and Cleanup Expenditures Bethlehem is subject to stringent federal, state and local environmental laws and regulations concerning, among other things, air emissions, waste water discharges, and solid and hazardous waste disposal. During the five years ended December 31, 1994, Bethlehem spent approximately $275 million for environmental control equipment. Expenditures for new environmental control equipment totaled approximately $44 million in 1994, $35 million in 1993 and $18 million in 1992. The costs incurred in 1994 to operate and maintain existing environmental control equipment were approximately $115 million (excluding interest costs but including depreciation charges of $18 million) compared to $125 million in 1993 and $130 million in 1992. In addition, Bethlehem has been required to pay various fines and penalties relating to violations or alleged violations of laws and regulations in the environmental control area. Bethlehem paid approximately $3.9 million in 1994, $3.7 million in 1993 and $5.8 million in 1992 for such fines and penalties. Under the Clean Air Act, as amended, coke-making facilities will have to meet progressively more stringent standards over the next 30 years. Bethlehem currently operates coke-making facilities at the Burns Harbor Division, Structural Products and at Lackawanna, New 6 8 York. While Bethlehem continues to evaluate the impact applicable emission control regulations will have on these operations, it believes that these operations will be able to comply. Negotiations between Bethlehem and federal and state regulatory agencies are being conducted to resolve differences in interpretation of certain environmental control requirements. In some instances, those negotiations are being held in connection with the resolution of pending environmental proceedings. Bethlehem believes that there will not be any significant curtailment or interruptions of any of its important operations as a result of these proceedings and negotiations. Existing environmental laws may be amended and new laws may be enacted by Congress and state legislatures and new environmental regulations may be issued by regulatory agencies. For these reasons, Bethlehem cannot predict the specific environmental control requirements that it will face in the future. Based on existing and anticipated regulations promulgated under presently enacted legislation, Bethlehem currently estimates that capital spending for installation of new environmental control equipment will range from $40 million to $50 million in each of the next two years. However, estimates of the future capital expenditures and operating costs required for environmental compliance are imprecise due to numerous uncertainties, including the evolving nature of the regulations, the possible imposition of more stringent requirements, the availability of new technologies and the timing of expenditures. Under the Resource Conservation and Recovery Act, as amended ("RCRA"), the owners of certain facilities that managed hazardous waste after 1980 are required to investigate and, if appropriate, remediate certain historic environmental contamination found at the facility. All of Bethlehem's major facilities are subject to this "Corrective Action Program", and Bethlehem is currently implementing the program at its facilities located in Steelton, Pennsylvania; Lackawanna, New York; and Burns Harbor, Indiana. At Steelton, Bethlehem has completed a RCRA Facility Investigation ("RFI"), a Corrective Measures Study ("CMS") and a remediation program, which program received formal approval of the United States Environmental Protection Agency (the "EPA") and was completed in 1994 at a cost of $316,000. At Lackawanna, Bethlehem is conducting an RFI which, due to regulatory delays and agency-initiated modifications to the original scope of work, will not be completed until April 1995 at the earliest. Bethlehem has requested formal approval from the EPA for extension of the investigation to incorporate work requested by the agency. If the extension is not granted, it is anticipated that an RFI report will be submitted to the EPA in April for its review and comment. At Burns Harbor, Bethlehem is negotiating its proposed scope of work for an RFI which, following EPA approval, will require several years to complete. Also, to date, the EPA has not promulgated a final rule to implement the corrective action program, and such a rule is not expected to be proposed until later this year at the earliest. Accordingly, the potential costs for possible remediation activities at Lackawanna and Burns Harbor and the timeframe for implementation of these activities cannot be reasonably estimated until the RFIs, and possibly the CMSs, have been completed and the final corrective action rule has been promulgated. 7 9 Under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA", also known as "Superfund"), the EPA has authority to impose liability for site remediation on waste generators, past and present site owners and operators, and transporters regardless of fault or the legality of the original disposal activity. Bethlehem has been advised that it may be considered a potentially responsible party under CERCLA or the corresponding state superfund legislation at a total of 21 sites. Based on its experience regarding site remediation and its knowledge of and extent of involvement in such sites, Bethlehem expects that its share of the costs for remediation of these sites will not be material. Although it is possible that Bethlehem's future results of operations in particular quarterly or annual periods could be materially affected by the future costs of environmental compliance, Bethlehem does not believe the future costs of environmental compliance will have a material adverse effect on its consolidated financial position or on its competitive position with respect to other integrated domestic steelmakers that are subject to the same environmental requirements. Raw Materials Bethlehem obtains the major portion of the iron ore and less than half of the coal essential to its steelmaking business from properties that are owned by it or in which it has substantial interests. The balance of Bethlehem's iron ore and coal requirements is purchased from commercial sources. See "ITEM 2. PROPERTIES--Properties Relating to the Basic Steel Operations Segment--Raw Material Properties and Interests" of this Report. Research and Development Bethlehem engages in its own research activities for the improvement of existing products and the development of new products and more efficient operating processes. During 1994, 1993 and 1992, Bethlehem incurred costs of approximately $24 million, $24 million and $27 million, respectively, in its research and development activities. Bethlehem owns a number of patents that relate to a wide variety of products and processes, has pending various patent applications and is licensed under a number of patents. During 1994, eight United States patents covering a variety of new developments were awarded to Bethlehem. Bethlehem believes that no one of its patents or licenses, which expire from time to time, or any group of patents or licenses relating to a particular product or process is of material importance in its overall business. Bethlehem also owns registered trademarks for certain of its products and services which, unlike patents and licenses, are renewable so long as they are continued in use and properly protected. During 1994, Bethlehem and U. S. Steel Group, a unit of USX Corporation, entered into a Cooperative Research and Development Agreement. Under the Agreement, Bethlehem and U. S. Steel are conducting joint research and development activities in the field of basic ironmaking and steelmaking technologies and processes, such as primary iron and steel process 8 10 development, finishing process development, and process instrumentation development. Notice of the Cooperative Research and Development Agreement was filed in accordance with the National Cooperative Research and Development Act of 1993. Employees and Employment Costs At year end 1994, Bethlehem had approximately 19,900 employees compared to approximately 20,600 employees at the end of 1993 and 22,600 employees at the end of 1992. Approximately two-thirds of Bethlehem's employees are covered by its labor agreements with the United Steelworkers of America (USWA). Under the terms of Bethlehem's 1993 labor agreements with the USWA, eligible employees at most steel operations received lump sum bonuses totaling $14 million during 1994. On March 1, 1995, each eligible employee received a bonus of either $500 or 25 shares of Bethlehem Common Stock, at the election of the employee and on August 1, 1995, each such employee will receive a $.50 per hour wage increase. Under the terms of the 1993 labor agreements, a new profit-sharing plan was established, effective January 1, 1994, equal to eight percent of corporate income before taxes as defined in the agreements, unusual items and expenses applicable to the plan plus two percent of adjusted profits of certain operations. Bethlehem and the USWA are currently having discussions concerning the implementation and possible modification of the profit-sharing plan. In addition, under other provisions of the labor agreements, Bethlehem is required to pay "shortfall amounts" each year up to 10% of the first $100 million and 20% in excess of $100 million of consolidated income before taxes, unusual items and expenses applicable to the plan. Shortfall amounts arise when employees terminate employment and ESOP Preference Stock, held in trust for employees in reimbursement for wage and benefit reductions in prior years, is converted into Common Stock and sold for amounts less than the stated value of the Preference Stock ($32 for Series A and $40 for Series B). Bethlehem expects to pay approximately $30 million for profit-sharing and shortfall amounts in early 1995. As of December 31, 1994, shortfall amounts to be paid out of future profits were about $7 million. In addition, eligible employees are entitled to receive a one-time special payment equal to $.50 per hour not to exceed $1,000 per eligible employee if Bethlehem's consolidated income, as calculated under the profit-sharing plan, is $250 million or more for 1995. The special payment would be paid to eligible employees in early 1996. Bethlehem may elect to pay the one-time special payment in cash or Bethlehem Common Stock. Under the terms of the profit-sharing plan provided for in the 1989 labor agreement with the USWA, no material profit-sharing payments were required for the 1992 and 1993 plan years. Under other provisions of that labor agreement, Bethlehem issued approximately 134,800 shares of Series B Preference Stock in 1994 and approximately 211,400 shares in 1993 to a trustee for the benefit of employees for 1993 and 1992, respectively, and expects to issue approximately 40,800 shares in early 1995 for the 1994 plan year. For further information with regard to Bethlehem's employment costs, see "Employment Cost Summary -- All Employees" under "Financial Review and Operating Analysis" in Bethlehem's 1994 Annual Report to Stockholders. As set forth on page 24 of this Report, such discussion is incorporated herein by reference. 9 11 Employee Postretirement Obligations Bethlehem has substantial financial obligations related to its employee postretirement plans for pensions and healthcare. Moreover, due to the excess of projected benefit obligations over pension fund assets, Bethlehem's annual pension expense is substantially higher on a per ton basis than that of most other domestic steel producers. This pension expense, combined with postretirement healthcare expense, puts Bethlehem at a competitive disadvantage with respect to such costs compared to most other domestic steel producers. As of December 31, 1994, Bethlehem's consolidated balance sheet reflects liabilities of $1.12 billion and $1.58 billion for the actuarial present value of unfunded accumulated benefit obligations for pensions and postretirement benefits other than pensions, respectively. The calculation of the actuarial present value of the accumulated benefit obligations for active employees assumes continued employment with projections for retirements, deaths, resignations and discharges. If the actual retirement of active employees is significantly earlier than projected (for plant closings or other reasons), the accumulated benefit obligations would increase substantially. The charges for employees terminated as a result of plant shutdowns or restructurings vary depending upon the demographics of the work force, but could be approximately $100,000 per employee. The recording of these charges could result in a material adverse impact on Bethlehem's financial condition because of the increase in recorded liabilities, decrease in stockholders' equity and increases in required contributions to the pension fund and retiree healthcare payments. During 1994, long-term interest rates in the United States increased about 150 basis points. As a result, Bethlehem increased the discount rate used to calculate the actuarial present value of its accumulated benefit obligation for pensions from the 7.5% used at December 31, 1993, to 9.0% at December 31, 1994. This increase in the discount rate reduced Bethlehem's accumulated benefit obligation for pensions by about $540 million and restored $60 million ($50 million after-tax) to additional paid-in capital as required by generally accepted accounting principles. For each 25 basis point change in such future discount rate, Bethlehem's accumulated benefit obligation for pensions changes by about $90 million. A decrease in interest rates at December 31, 1995, from December 31, 1994, would require Bethlehem to increase the actuarial present value of its accumulated benefit obligation for pensions and might again require Bethlehem to reduce additional paid-in capital depending on the then market value of Bethlehem's pension trust fund assets (which, at December 31, 1994, was $3.3 billion). For postretirement benefits other than pensions, principally healthcare and life insurance, the same increase in the discount rate as of December 31, 1994, and potential future changes also apply to the actuarial present value of Bethlehem's accumulated benefit obligation. However, because different accounting principles apply, there is no immediate change in the recorded liability or potential charge to equity. Bethlehem has contributed amounts to its pension fund substantially in excess of amounts required under current law and regulations, including net proceeds of approximately $355 million from the public offering in March 1994 of 17,250,000 shares of Bethlehem Common Stock. As a result, Bethlehem currently has a funding standard credit balance which would allow it under current law and regulations to defer all pension funding for about two years, although it presently 10 12 has no plans to do so. In December 1994 Congress passed new pension legislation. The new legislation is not expected to significantly increase Bethlehem's annual required minimum contribution to its pension plans for the next several years, but it will increase over time the annual premium due to the Pension Benefit Guaranty Corporation. Bethlehem adopted Financial Accounting Standards Board Statement No. 106, Accounting for Postretirement Benefits Other than Pensions, effective with its 1992 financial statements. See Note B to the Consolidated Financial Statements. Restructuring Activities As part of Bethlehem's efforts to make its business and operations more competitive, Bethlehem has implemented, and will continue to consider, a wide range of restructuring alternatives. Asset Sales. Since early 1986 Bethlehem has implemented an extensive program of asset sales. Approximately 35 businesses have been sold since the program began. Bethlehem cannot continue indefinitely to raise substantial cash from asset sales. Joint Ventures, Partnerships, Facility Sharing Arrangements and Mergers. Bethlehem has considered, and discussed with others, various opportunities for joint ventures, partnerships, facility sharing arrangements and mergers of all or part of Bethlehem. Bethlehem will continue to explore such opportunities. See "ITEM 2. PROPERTIES." of this Report for a description of joint ventures in which Bethlehem participates. Facility Shutdowns and Restructurings. During the last five years, Bethlehem has shut down or restructured facilities and operations and has reduced its annual steelmaking capability from 16.0 million tons to 11.5 million tons. Bethlehem has recorded charges of approximately $1.5 billion in connection with these actions, including a $350 million restructuring charge ($290 million after-tax) reflected in its results for 1993. See Note D to the Consolidated Financial Statements. Although Bethlehem has no current plans to do so, if it becomes necessary for Bethlehem to shut down or restructure additional businesses and operations in the future, it could incur substantial, additional charges in the process. The recording of these charges could have a material adverse impact on Bethlehem's financial condition because of the increase in recorded liabilities and decrease in stockholders' equity. 11 13 ITEM 2. PROPERTIES. PROPERTIES RELATING TO THE BASIC STEEL OPERATIONS SEGMENT Burns Harbor Division The principal operations of the Burns Harbor Division are located along the shore of Lake Michigan near Chicago, Illinois. The principal products of the Burns Harbor Division are hot rolled and cold rolled sheets and coated sheets for the automotive, service center, container, office furniture and appliance markets and plates for the construction, machinery and service center markets. Principal facilities include a sintering plant, two coke oven batteries, two blast furnaces including new coal injection facilities, three basic oxygen furnaces with a combined annual raw steel production capability of approximately five million tons, a vacuum degassing facility, two continuous slab casters with a combined annual production capability of four million tons, a 50 x 96-inch slabbing mill, two sheared plate mills (110-inch and 160-inch), an 80-inch hot-strip mill, an 80-inch five stand cold reducing mill, sheet finishing mills, a continuous heat treating line, batch annealing facilities, a 48-inch continuous electrogalvanizing line and a new 72-inch hot-dip galvanizing line. About 80 percent of the steel produced at Burns Harbor is continuously cast; the remaining 20 percent is ingot cast. Ingot cast slabs are used primarily to make steel plates. The Galvanized Products Division, an operating unit of the Burns Harbor Division, is located in Lackawanna, New York. Facilities of the Galvanized Products Division include a continuous pickling line, a four stand cold reducing mill, a sheet finishing complex and a 72-inch hot-dip galvanizing line. The Burns Harbor Division also operates coke-making facilities at Lackawanna, New York. The Burns Harbor Division's utilization of raw steel production capability was 92 percent during 1994, reflecting the reline of one of its two blast furnaces. See "ITEM 1. BUSINESS--General--Capital Expenditures" of this Report. Sparrows Point Division The operations of the Sparrows Point Division are located along the Chesapeake Bay near Baltimore, Maryland. The principal products of the Sparrows Point Division are hot rolled and cold rolled sheets, tin mill products, galvanized sheet, Galvalume(R) sheet and plates for service centers and the container, construction, appliance and other metals markets. Principal facilities include a sintering plant, three coke oven batteries (which are cold idled), a large blast furnace, two basic oxygen furnaces with an annual raw steel production capability of approximately 3.5 million tons, a two strand continuous slab caster with a present annual production capability of approximately 3.5 million tons, a 160-inch sheared plate mill, a 68-inch hot-strip mill, three cold reducing mills (66-inch, 56-inch and 48-inch), continuous and batch annealing facilities, a galvanizing line, two Galvalume(R) lines, tin mill facilities and a 48-inch hot-dip galvanizing line. 12 14 Sparrows Point is currently obtaining coke from Structural Products and from various commercial sources. The Division continuously casts essentially 100 percent of its total production volume. The Sparrows Point Division's utilization of raw steel production capability was 104 percent during 1994. Bethlehem Structural Products Corporation The operations of Bethlehem Structural Products Corporation are located in Bethlehem, Pennsylvania. Its principal products are structural steel shapes and piling products primarily for the building and construction markets and ingot molds for the metals industry. Principal facilities include three coke oven batteries, one blast furnace, two basic oxygen furnaces with a combined annual raw steel production capability of 1.5 million tons, one 40-inch blooming mill, a 48-inch structural rolling mill, a 44-inch structural rolling mill, and an ingot mold foundry. The existing iron and steelmaking operations, which include the blast furnace, basic oxygen furnaces, the 48-inch structural rolling mill and related facilities, will be discontinued during 1995. Structural Products' utilization of raw steel production capability was 72 percent during 1994. In 1994 Bethlehem announced a plan for Structural Products to reduce costs and improve competitiveness. Under the plan, Structural Products will focus on the production and sale of sheet piling, standard sections and light and medium wide-flange sections, which comprise about 80 percent of the wide-flange market in the United States. The plan is the result of a number of market developments, including a reduction in the demand for heavy wide-flange sections caused by reduced high-rise building construction activity, continued low occupancy rates in commercial buildings, trends toward lighter construction in buildings and delays in the rebuilding of the nation's infrastructure. Structural Products will continue to manufacture heavy wide-flange structurals until it phases out its iron and steelmaking operations. Its 44-inch structural rolling mill complex will be upgraded and modernized and will be sourced with continuously cast steel produced primarily at Pennsylvania Steel Technologies' newly modernized state-of-the-art operations in Steelton, Pennsylvania. The plan should make the division more competitive and should permit production of certain wide-flange sections up to 24 inches. Other benefits include higher utilization of the 44-inch structural rolling mill, higher utilization of the steelmaking facilities at Pennsylvania Steel Technologies, improved product quality and better utilization of Bethlehem's overall financial and other resources. Pennsylvania Steel Technologies, Inc. The operations of Pennsylvania Steel Technologies, Inc. are located near Harrisburg, Pennsylvania. Its principal products are railroad rails, specialty blooms, carbon and alloy bars, billets, special sections, and large diameter pipe. Its principal markets are rail transportation, forging, railroad axles, rerollers and oil and gas industries. 13 15 Pennsylvania Steel Technologies completed a modernization program in late 1994 designed to establish it as the low cost North American producer of high quality railroad rails, flat bars and specialty blooms. The program included a state-of-the-art DC electric furnace, a ladle furnace, a vacuum degassing unit, and in-line rail head-hardening equipment. Principal facilities include two electric arc furnaces with a combined annual raw steel production capability of about 1.2 million tons, a continuous bloom caster, a 44-inch blooming mill, a 20-inch bar mill, a 28-inch rail mill, finishing and shipping facilities for long-length (80 foot) rails and an electric fusion welded pipe mill. Pennsylvania Steel Technologies' utilization of raw steel production capability was 38 percent during 1994. Bethlehem also owns another rail mill located in Monessen, Pennsylvania, which is not operating. Bethlehem has announced it is seeking buyers for the production equipment of this mill. Joint Ventures Bethlehem participates in a joint venture, known as Double G Coatings Company, L.P., which operates a 270,000 ton per year sheet coating line near Jackson, Mississippi. The new line produces galvanized and Galvalume(R) coated sheets primarily for the construction market. Sparrows Point provides cold rolled coils for approximately half of Double G's annual capacity and is responsible for marketing its share of the finished product. Bethlehem also participates in a joint venture which owns and operates a 400,000 ton per year electrogalvanizing line at Walbridge, Ohio. This facility produces corrosion resistant sheet steel primarily for the automobile industry and other consumer durables markets. Burns Harbor provides cold rolled coils for 75 percent of Walbridge's annual capacity and is responsible for marketing its share of the finished product. In order to better serve the needs of the Burns Harbor Division's automotive customers, Bethlehem participates in a joint venture with a steel service center to produce tailored welded steel blanks for automotive stampings through use of a technologically advanced welding process. Bethlehem also has indirect equity interests in various iron ore properties. See "Raw Material Properties and Interests" below. Raw Material Properties and Interests Iron Ore. Bethlehem has indirect equity interests in various iron ore operating properties, which (excluding tonnages applicable to interests owned by others) it estimates contained recoverable reserves at December 31, 1994 sufficient to produce at least 14 million tons of direct shipping iron ore located in Brazil and 446 million tons of iron ore concentrates and pellets, of which 182 million tons are located in Minnesota and 264 million tons in Canada. In addition 14 16 to the estimated reserves at operating properties, Bethlehem also has indirect equity interests in undeveloped or nonoperating iron ore properties, which (excluding tonnages applicable to interests owned by others) it estimates contained recoverable reserves at December 31, 1994 sufficient to produce at least 29 million tons of direct shipping iron ore located in Brazil and 126 million tons of iron ore pellets located in Minnesota. The iron ore operating properties in which Bethlehem has interests have mining and processing facilities that are capable of supplying the major portion of Bethlehem's current annual iron ore requirements. However, taking into account the location of Bethlehem's steel operations and the iron ore products best suited to these facilities, Bethlehem has found it advantageous to engage in iron ore sales and exchanges with other consumers and to purchase a portion of its iron ore requirements. These purchases have been from various sources, including sources in which it has ownership interests, under a variety of contractual arrangements extending over varying periods of time. Bethlehem's share of the annual iron ore pellet production by enterprises in which it had ownership interests, for Bethlehem's use or sale to trade customers, was 13.8 million tons in 1994 and 12.5 million tons in 1993. In addition to these sources, Bethlehem purchased 1.6 million tons and 1.7 million tons of iron ore in 1994 and 1993, respectively, from sources in which it had no ownership interests. In 1994 Bethlehem obtained approximately 67 percent of its iron ore requirements from operations in which it had ownership interests, compared to 70 percent in 1993. Of the iron ore consumed by Bethlehem in 1994, approximately 56 percent consisted of pellets and 44 percent of sinter. Through December 31, 1995, Bethlehem is committed to purchase from sources in which it has ownership interests .4 million tons of iron ore in excess of such ownership interests. Bethlehem had trade sales of iron ore in 1994 and 1993 of 2.3 million tons and 2.0 million tons, respectively. Additional iron ore trade sales commitments through December 31, 1996 presently aggregate 1.1 million tons. The interests in foreign iron ore properties described above are subject to the risks associated with investments in foreign countries, including the risk of nationalization. Coal and Coke. Bethlehem owns and leases coal operating properties in West Virginia, which it estimates contained recoverable reserves at December 31, 1994 sufficient to produce at least 84 million tons of coal, of which approximately 26 percent and 74 percent, respectively, are metallurgical and steam coal. In addition to the estimated reserves at operating properties, Bethlehem also owns and leases undeveloped or nonoperating coal properties in Pennsylvania and West Virginia, which it 15 17 estimates contained recoverable reserves at December 31, 1994 sufficient to produce at least 168 million tons of coal, of which approximately 89 percent and 11 percent, respectively, are metallurgical and steam coal. Bethlehem's coal operations produced 3.9 million tons of coal in 1994 and in 1993. Trade shipments of coal were 2.7 million tons in 1994 compared to 2.5 million tons in 1993. In 1994 Bethlehem obtained approximately 33 percent of its coal requirements from its own mines, compared to 31 percent in 1993. The balance of Bethlehem's requirements is purchased from commercial sources. Bethlehem continues to operate coke-making facilities at Structural Products, Burns Harbor and at Lackawanna. During 1993 a rebuild was completed of one of the two coke oven batteries at Burns Harbor. Other Raw Materials. Bethlehem purchases its other raw material requirements from commercial sources. Transportation Bethlehem owns five subsidiary shortline railroads which primarily transport raw materials and semifinished steel products within various Bethlehem operations. Bethlehem also owns a flat-bed trucking company serving Bethlehem's steel operations and other facilities. The Burns Harbor Division operates two 1,000 foot ore vessels (one owned and one under long-term charter), which are used for the transportation of iron ore on the Great Lakes. PROPERTIES RELATING TO THE STEEL RELATED OPERATIONS SEGMENT BethForge, Inc. has a facility for the production of forgings and castings located in Bethlehem, Pennsylvania. An ingot teeming facility and vacuum stream degassing unit are being installed for BethForge's use at Pennsylvania Steel Technologies, Inc. in order to take advantage of the new DC electric arc furnace, ladle refining station and vacuum tank degassing unit recently installed as part of Pennsylvania Steel Technologies' modernization program. This new facility, with its lower cost, higher quality ingots, will replace BethForge's existing steelmaking facility during 1995. CENTEC has a facility for the production of centrifugally cast rolls located in Bethlehem, Pennsylvania. 16 18 Bethlehem's BethShip Division has marine construction facilities consisting of a ship repair yard at Sparrows Point, Maryland, and a dry dock facility for the repair and inspection of offshore drill rigs and other vessels at Port Arthur, Texas. The dry dock facility at Port Arthur, Texas is for sale. GENERAL While Bethlehem's principal operations and facilities are adequately maintained, they are of varying ages, technologies and operating efficiencies. Bethlehem believes that most of its operations and facilities currently are competitive with the operations and facilities of its principal competitors. Bethlehem will continue to make capital expenditures to maintain the competitiveness of its operations and facilities. See "ITEM 1. BUSINESS--General--Capital Expenditures" of this Report for a discussion of Bethlehem's capital expenditures. All principal operations and facilities are owned in fee by Bethlehem except for two continuous casters at Sparrows Point and Burns Harbor, a coal cleaning and processing facility at High Power Mountain in West Virginia and the drill rig repair facility at Port Arthur, Texas, each of which is being leased. As discussed in Note F to the Consolidated Financial Statements, Bethlehem capitalized the expenditures related to the leases for two continuous casters, and financed the construction of two new hot-dip galvanizing lines at its Burns Harbor and Sparrows Point operations. These two facilities are pledged as collateral for the borrowings. ITEM 3. LEGAL PROCEEDINGS. Bethlehem is a party to numerous legal proceedings incurred in the ordinary course of its business, including the matters specifically discussed below. On October 4, 1990, the State of Maryland Department of the Environment (the "MDE") filed a civil action against Bethlehem in the Circuit Court of Baltimore County, Maryland seeking civil penalties for alleged violations of the Maryland air pollution regulations arising out of exceedances of the visible emissions standards established for various sources at the Sparrows Point Division by an October 1987 Consent Order, as amended in June 1989. On April 30, 1991, the MDE filed a complaint in intervention in a civil action filed on April 25, 1991 by the Justice Department on behalf of the United States Environmental Protection Agency (the "EPA") against Bethlehem, alleging violations of the Clean Air Act resulting from alleged violations of Maryland air pollution regulations at the Sparrows Point Division. The complaint in intervention, which was approved by the Court on June 14, 1991, incorporated all of the violations alleged in the MDE complaint. On May 1, 1992, a settlement between the parties to the EPA action was memorialized in a Consent Decree, which was entered by the Court on July 1, 1992. The Consent Decree resolved all of the issues in both the federal and state actions except for a single count in the MDE action dealing with alleged violations from the basic oxygen furnace. Bethlehem and the MDE have entered into discussions concerning potential settlement of the remaining count in the MDE action. 17 19 On October 16, 1990, the Justice Department on behalf of the EPA filed a civil action against Bethlehem in the United States District Court for the Northern District of Indiana seeking injunctive relief and civil penalties for alleged violations of the Resource Conservation and Recovery Act, as amended ("RCRA") and the Safe Drinking Water Act with respect to the Burns Harbor Division, including failure to manage certain of the operation's sludges as hazardous wastes, and failure to begin a corrective action program pursuant to the terms of a previously issued underground injection permit. On March 19, 1993, the Court issued a Memorandum Opinion and Order granting Partial Summary Judgment for the government concerning the liability issues in the case and ordering Bethlehem to comply with interim status requirements of RCRA for its terminal polishing lagoons and landfill and to comply with the corrective action requirements of Bethlehem's underground injection well permits. A hearing on the civil penalty issue was concluded on July 21, 1993, and on August 31, 1993, the Court entered a judgment against Bethlehem for $6 million. This sum consisted of $4.2 million for alleged permit violations and $1.8 million for the alleged landfill violations. Bethlehem filed separate Notices of Appeal with the United States Court of Appeals for the Seventh Circuit appealing the trial court's grant of summary judgment and its penalty determination. On September 26, 1994, the Seventh Circuit issued a decision reversing the trial court's summary judgment with respect to the alleged violations concerning the terminal polishing lagoons and landfill, holding that the sludges are not subject to regulation as hazardous waste under RCRA. The decision affirmed the summary judgment with respect to the alleged permit violations. Bethlehem's appeal of the $4.2 million civil penalty amount for the alleged permit violations remains pending before the Seventh Circuit. On May 28, 1992, the New York State Department of Environmental Conservation ("DEC") sent Bethlehem a proposed Order on Consent to resolve various alleged violations of the New York air pollution control regulations for emissions from the Lackawanna coke ovens. The Order, which originally covered alleged violations for the period from May 1, 1990 through October 7, 1991, has been supplemented to cover all alleged violations of state air pollution regulations up to the date of execution of the proposed Order and to cite Bethlehem for failure to properly operate its sulfur recovery system in the coal chemical by-products plant and failure to properly certify opacity monitors on the under fire stacks of the coke oven batteries. In addition, the currently proposed Order includes a civil penalty of $1.1 million. Bethlehem has entered into negotiations with the DEC to attempt to resolve this matter. If those negotiations are unsuccessful, Bethlehem believes it has meritorious defenses and will vigorously defend the action. BethEnergy Mines Inc. (formerly Bethlehem Minerals Company), a subsidiary of Bethlehem, is a party to an action entitled Church and Mullins, et al v. Bethlehem Minerals Company, et al. The case involves a dispute concerning title to coal mined by Bethlehem under a parcel of land in eastern Kentucky. The trial court opinion, delivered February 25, 1987, held that the coal in question was owned by the Church and Mullins interests and awarded damages in the amount of $16.9 million. On appeal, on January 12, 1990, the Kentucky Court of Appeals reversed the trial court judgment in part and affirmed it in part, essentially upholding the trial court's finding on the issue of title but limiting the award of damages. The Court of Appeals decision was further appealed to the Supreme Court of Kentucky, and on June 4, 1992, the Supreme Court of Kentucky, by a vote of four to three, reinstated the decision of the trial court. On June 24, 1992, Bethlehem petitioned the Kentucky Supreme Court to reconsider its ruling. 18 20 On December 23, 1994, the Court denied the Motion, upholding the original verdict, plus interest. Bethlehem has paid $37.6 million, representing the full amount of the judgment, including interest, into the trial court and intends to seek review by the U. S. Supreme Court. An adverse final resolution of the case will not have any other effect on Bethlehem's results of operations because Bethlehem sold its Kentucky coal operations in 1988. The Justice Department, the EPA and the Texas Natural Resource Conservation Commission (formerly Texas Water Commission) have instituted a criminal investigation into certain environmental practices involving the operations of the BethShip Sabine Yard in Port Arthur, Texas. The basic operations of the Yard comprise the drydocking of marine vessels to clean and paint exterior surfaces and internal tanks, as well as performing steel hull plate repairs and other general repairs. These operations use blasting grit, paint thinner and other materials. The investigation includes the above operations and the usage, treatment, storage and disposal of those materials. Bethlehem has cooperated with the authorities as to the conduct of the investigation. The Department of Justice has indicated that it intends to institute a criminal action against BethShip Sabine Yard, and Bethlehem is engaged in discussions seeking a resolution of the issues involved. On January 13, 1993, the EPA issued an Administrative Complaint alleging that Bethlehem had failed to report certain spills of hazardous substances from various locations at the Burns Harbor Division as required by Section 103 of the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"). The EPA proposed a civil penalty of $207,750. Bethlehem and the EPA entered into discussions concerning potential settlement of the action. Following meetings in which Bethlehem demonstrated to the EPA that none of the spills involved reportable quantities, the EPA filed motions with the Administrative Law Judge to withdraw all counts of the complaint. On December 14, 1994, the Administrative Law Judge dismissed the complaint. On June 9, 1994, the EPA issued an administrative Complaint and Notice of Opportunity for Hearing alleging several violations of the polychlorinated biphenyl (PCB) regulations under the Toxic Substance Control Act by Bethlehem at the Sparrows Point Division. The Complaint sets forth a proposed civil penalty of $145,500. On June 30, 1994, Bethlehem filed its Answer and Request for Hearing. Settlement discussions have been initiated between Bethlehem and the EPA. If such discussions do not succeed, Bethlehem believes it has meritorious defenses and will vigorously defend the action. See "ITEM 1. BUSINESS--General--Environmental Control and Cleanup Expenditures" of this Report for a discussion of Bethlehem's potential responsibilities for environmental cleanup at certain sites under RCRA and CERCLA. Bethlehem cannot predict with any certainty the outcome of any legal proceedings to which it is a party. However, in the opinion of Bethlehem's management, adequate reserves have been recorded for losses which are likely to result from these proceedings. To the extent that such reserves prove to be inadequate, Bethlehem would incur a charge to earnings which could be material to its future results of operations in particular quarterly or annual periods. The outcome of these proceedings, however, is not currently expected to have a material adverse effect on Bethlehem's consolidated financial position. 19 21 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There were no matters submitted to a vote of security holders during the fourth quarter of 1994. - ------------------------------- 20 22 EXECUTIVE OFFICERS OF THE REGISTRANT. The executive officers of Bethlehem as of March 15, 1995, are as follows:
NAME AGE POSITION ---- --- -------- Curtis H. Barnette 60 Chairman (Chief Executive Officer) Roger P. Penny 58 President (Chief Operating Officer) Gary L. Millenbruch 57 Executive Vice President (Chief Financial Officer) and Treasurer John A. Jordan, Jr. 59 Senior Vice President (Administration) David P. Post 61 Senior Vice President (Commercial) Lonnie A. Arnett 49 Vice President and Controller (Accounting) Dr. Walter N. Bargeron 52 President, Services Division (Chief Technology Officer) Stephen G. Donches 49 Vice President (Public Affairs) Duane R. Dunham 53 President, Sparrows Point Division Joseph F. Emig 57 President, Burns Harbor Division Andrew R. Futchko 52 President, Pennsylvania Steel Technologies, Inc. William H. Graham 49 Vice President (Law), General Counsel and Secretary John L. Kluttz 52 Vice President (Union Relations) Timothy Lewis 57 President, Bethlehem Structural Products Corporation Dr. Carl F. Meitzner 55 Vice President (Planning) Dr. Augustine E. Moffitt, Jr. 49 Vice President (Safety, Health and Environment) William E. Wickert, Jr. 63 Vice President (Federal Government Affairs)
21 23 All of the executive officers have held responsible management or professional positions with Bethlehem or its subsidiaries for more than the past five years. The By-laws of Bethlehem provide that the officers shall be chosen annually by the Board of Directors and that each officer shall hold office until his successor shall have been elected and shall qualify or until his earlier death or his earlier resignation or removal in the manner provided in the By-laws. 22 24 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS. As of March 15, 1995, there were 110,056,163 shares of Bethlehem Common Stock outstanding held by approximately 40,000 stockholders of record. The principal market for Bethlehem Common Stock is the New York Stock Exchange. Bethlehem Common Stock is also listed on the Chicago Stock Exchange. Dividends on Bethlehem Common Stock are paid quarterly when declared by Bethlehem's Board of Directors. Under the provisions of Bethlehem's 10-3/8% Senior Notes due 2003, Bethlehem's ability to pay dividends on its Common Stock is restricted. See Note L to the Consolidated Financial Statements. At March 15, 1995, $435 million was available for the payment of Common Stock dividends under these provisions. Bethlehem has not paid a dividend on its Common Stock since the fourth quarter of 1991. In accordance with Bethlehem's policy, future dividends will be determined by the Board of Directors (subject to any applicable restrictions) on the basis of attained results and the business outlook. The following table sets forth, for the periods indicated, the high and low sales prices of Bethlehem Common Stock as reported in the consolidated transaction reporting system. The closing sale price of Bethlehem Common Stock on March 15, 1995, as reported in the consolidated transaction reporting system, was $15.625.
1994 1993 ------------------------- --------------------------- SALES PRICES SALES PRICES ------------------------- --------------------------- PERIOD HIGH LOW HIGH LOW ------ ---- --- ---- --- First Quarter $24.125 $19.875 $20.000 $14.875 Second Quarter 21.875 16.875 21.000 16.375 Third Quarter 23.750 18.875 19.125 12.875 Fourth Quarter 20.625 16.500 20.625 13.750
ITEM 6. SELECTED FINANCIAL DATA. The information required by this Item is incorporated by reference from page 22 of Bethlehem's 1994 Annual Report to Stockholders. With the exception of the information specifically incorporated by reference, the 1994 Annual Report to Stockholders is not to be deemed filed as part of this Report for purposes of this Item. 23 25 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information required by this Item is incorporated by reference from pages 2 to 5 and 7 to 10, inclusive, of Bethlehem's 1994 Annual Report to Stockholders. With the exception of the information specifically incorporated by reference, the 1994 Annual Report to Stockholders is not to be deemed filed as part of this Report for purposes of this Item. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The information required by this Item is incorporated by reference from pages 11 to 20, inclusive, of Bethlehem's 1994 Annual Report to Stockholders. With the exception of the information specifically incorporated by reference, the 1994 Annual Report to Stockholders is not to be deemed filed as part of this Report for purposes of this Item. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 24 26 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. In addition to the information set forth under the caption "Executive Officers of the Registrant" in Part I of this Report, the information required by this Item is incorporated by reference from pages 2 to 6, inclusive, of Bethlehem's Proxy Statement for the 1995 Annual Meeting of Stockholders. With the exception of the information specifically incorporated by reference, Bethlehem's Proxy Statement is not to be deemed filed as part of this Report for purposes of this Item. ITEM 11. EXECUTIVE COMPENSATION. The information required by this Item is incorporated by reference from pages 10 to 16, inclusive, of Bethlehem's Proxy Statement for the 1995 Annual Meeting of Stockholders. With the exception of the information specifically incorporated by reference, Bethlehem's Proxy Statement is not to be deemed filed as part of this Report for purposes of this Item. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by this Item is incorporated by reference from pages 7 and 17 to 18, inclusive, of Bethlehem's Proxy Statement for the 1995 Annual Meeting of Stockholders. With the exception of the information specifically incorporated by reference, Bethlehem's Proxy Statement is not to be deemed filed as part of this Report for purposes of this Item. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required by this Item is incorporated by reference from the material appearing under the heading "Indemnification Assurance Agreements" appearing on page 17 of Bethlehem's Proxy Statement for the 1995 Annual Meeting of Stockholders. With the exception of the information specifically incorporated by reference, Bethlehem's Proxy Statement is not to be deemed filed as part of this Report for purposes of this Item. 25 27 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) DOCUMENTS FILED AS PART OF THIS REPORT: The following is an index of the financial statements, schedules and exhibits included in this Report or incorporated herein by reference. (1) FINANCIAL STATEMENTS. BETHLEHEM STEEL CORPORATION AND CONSOLIDATED SUBSIDIARIES
PAGE ---- Consolidated Statements of Income for the years 1994, 1993 and 1992 . . . . . . . . . * Consolidated Balance Sheets, December 31, 1994 and December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . * Consolidated Statements of Cash Flows for the years 1994, 1993 and 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . * Notes to Consolidated Financial Statements (Including Quarterly Financial Data) . . . . . . . . . . . . . . . . . . . . . . . * (2) CONSOLIDATED FINANCIAL STATEMENT SCHEDULES. Report of Independent Auditors On Consolidated Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1 Schedules: II -- Valuation and Qualifying Accounts and Reserves, years ended December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . F-3
----------------------- * Incorporated in this Report by reference from pages 11 to 20, inclusive, of Bethlehem's 1994 Annual Report to Stockholders referred to below. 26 28 The Consolidated Financial Statements, together with the report thereon of Price Waterhouse LLP dated January 25, 1995, appearing on pages 11 to 21, inclusive, of the 1994 Annual Report to Stockholders are incorporated by reference in this Form 10-K Annual Report. With the exception of those pages, the 1994 Annual Report to Stockholders is not to be deemed filed as part of this Report for purposes of this Item. The Schedules listed above should be read in conjunction with the consolidated financial statements in such 1994 Annual Report to Stockholders. Schedules not included have been omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto. Separate financial statements of subsidiaries not consolidated and 50 per cent or less owned persons accounted for by the equity method have been omitted because considered in the aggregate as a single subsidiary they do not constitute a significant subsidiary. (3) EXHIBITS. The following is an index of the exhibits included in this Report or incorporated herein by reference. (3)(a) Second Restated Certificate of Incorporation (Incorporated by reference from Exhibit 3 to Bethlehem's quarterly report on Form 10-Q for the quarter ended March 31, 1994). (b) By-laws of Bethlehem Steel Corporation, as amended October 1, 1988 (Incorporated by reference from Exhibit (3)(b) to Bethlehem's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). (4)(a) Rights Agreement, dated as of September 28, 1988, between Bethlehem Steel Corporation and Morgan Shareholder Services Trust Company (Incorporated by reference from Exhibit (4)(a) to Bethlehem's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). *(10)(a) Excess Benefit Plan of Bethlehem Steel Corporation and Subsidiary Companies, as amended July 29, 1992 (Incorporated by reference from Exhibit 10(a) to Bethlehem's quarterly report on Form 10-Q for the quarter ended June 30, 1992). *(b) 1988 Stock Incentive Plan of Bethlehem Steel Corporation (Incorporated by reference from Exhibit 10(b) to Bethlehem's Annual Report on Form 10-K for the fiscal year ended December 31, 1992). - -------------------------- * Compensatory plans in which Bethlehem's directors and executive officers participate. 27 29 *(c) 1994 Stock Incentive Plan of Bethlehem Steel Corporation (Incorporated by reference from Exhibit 1 to Bethlehem's Proxy Statement in connection with its Annual Meeting of Shareholders held on April 26, 1994). *(d) 1994 Non-Employee Directors Stock Plan of Bethlehem Steel Corporation (Incorporated by reference from Exhibit 2 to Bethlehem's Proxy Statement in connection with its Annual Meeting of Shareholders held on April 26, 1994). *(e) Special Incentive Compensation Plan of Bethlehem Steel Corporation, which is contained in Article Seven of the Second Restated Certificate of Incorporation referred to in Exhibit 3(a) to this Report. *(f) Supplemental Benefits Plan of Bethlehem Steel Corporation and Subsidiary Companies, as amended July 29, 1992 (Incorporated by reference from Exhibit 10(b) to Bethlehem's quarterly report on Form 10-Q for the quarter ended June 30, 1992). *(g) Post-Retirement Retainer Plan for Non-Officer Directors (Incorporated by reference from Exhibit (10)(o) to Bethlehem's Annual Report on Form 10-K for the fiscal year ended December 31, 1992). (h) Form of Indemnification Assurance Agreement between Bethlehem Steel Corporation and each of its directors and executive officers listed on Schedule A thereto. (11) Statement regarding computation of per share earnings. (13) Those portions of the 1994 Annual Report to Stockholders of Bethlehem Steel Corporation which are incorporated by reference into this Form 10-K Annual Report. (21) Subsidiaries of Bethlehem Steel Corporation. (23) Consent of Independent Auditors (included on page F-2 of this Report). (24) Power of Attorney. (27) Financial Data Schedule. - -------------------------- * Compensatory plans in which Bethlehem's directors and executive officers participate. 28 30 (B) REPORTS ON FORM 8-K. During the quarter ended December 31, 1994, no reports on Form 8-K were filed by Bethlehem. 29 31 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, Bethlehem Steel Corporation has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 23rd day of March, 1995. BETHLEHEM STEEL CORPORATION, by /s/ Lonnie A. Arnett -------------------------------------- Lonnie A. Arnett Vice President and Controller Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of Bethlehem Steel Corporation and in the capacities indicated on the 23rd day of March, 1995. /s/ Curtis H. Barnette * ---------------------------------------- ---------------------------------------- Curtis H. Barnette John B. Curcio Chairman and Director Director (principal executive officer) /s/ Gary L. Millenbruch * ---------------------------------------- ---------------------------------------- Gary L. Millenbruch William C. Hittinger Executive Vice President, Treasurer Director and Director (principal financial officer) /s/ Lonnie A. Arnett * ---------------------------------------- ---------------------------------------- Lonnie A. Arnett Thomas L. Holton Vice President and Controller Director (principal accounting officer) * * ---------------------------------------- ---------------------------------------- Benjamin R. Civiletti Lewis B. Kaden Director Director * * ---------------------------------------- ---------------------------------------- Worley H. Clark Harry P. Kamen Director Director * * ---------------------------------------- ---------------------------------------- Herman E. Collier, Jr. Winthrop Knowlton Director Director
30 32 * * ---------------------------------------- ---------------------------------------- Robert McClements, Jr. William A. Pogue Director Director * * ---------------------------------------- ---------------------------------------- Roger P. Penny John F. Ruffle Director Director * ---------------------------------------- Dean P. Phypers Director *By /s/ Lonnie A. Arnett ------------------------------------ Lonnie A. Arnett (Attorney-in-Fact)
31 33 REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULES To the Board of Directors and Stockholders of Bethlehem Steel Corporation Our audits of the consolidated financial statements referred to in our report dated January 25, 1995 appearing on page 21 of the 1994 Annual Report to Stockholders of Bethlehem Steel Corporation (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedules listed in Item 14(a)(2) of this Form 10-K. In our opinion, these Financial Statement Schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ PRICE WATERHOUSE LLP 1177 Avenue of the Americas New York, NY 10036 January 25, 1995 F-1 34 CONSENT OF INDEPENDENT AUDITORS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 2-90795, No. 2-71699, No. 2-53880, No. 2-90796, No. 2-67314, No. 33-23516, No. 33-23688, No. 33-52267, No. 33-58019 and No. 33-58021) of our report dated January 25, 1995, appearing on page 21 of the 1994 Annual Report to Stockholders of Bethlehem Steel Corporation which is incorporated by reference in Bethlehem Steel Corporation's Annual Report on Form 10-K for the year ended December 31, 1994. We also consent to the incorporation by reference of our report on the Financial Statement Schedules, which appears on page F-1 of this Form 10-K. /s/ PRICE WATERHOUSE LLP 1177 Avenue of the Americas New York, NY 10036 March 23, 1995 F-2 35 SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (dollars in millions)
Charged Balance at (Credited) Deductions Balance at Classification 12/31/93 to Income From Reserves Other 12/31/94 - -------------- ---------- ---------- ------------- ----- ---------- Allowance for doubtful receivables and returns..... $16.3 $2.4 ($0.1)(a) $ - $18.6 Allowance for long-term receivables................ 4.5 - - - 4.5 Allowance for deferred income tax asset............ 406.7 (13.0) - (10.5)(b) 383.2
Balance at Charged Deductions Balance at Classification 12/31/92 to Income From Reserves Other 12/31/93 - -------------- ---------- ---------- ------------- ----- ---------- Allowance for doubtful receivables and returns..... $15.7 $7.5 ($6.9)(a) $ - $16.3 Allowance for long-term receivables................ 5.3 - (0.8)(a) - 4.5 Allowance for deferred income tax asset............ 309.2 87.0 - 10.5(b) 406.7
Balance at Charged Deductions Balance at Classification 12/31/91 to Income From Reserves Other 12/31/92 - -------------- ---------- ---------- ------------- ----- ---------- Allowance for doubtful receivables and returns..... $18.1 $6.0 ($8.4)(a) $ - $15.7 Allowance for long-term receivables................ 4.9 1.2 (0.8)(a) - 5.3 Allowance for deferred income tax asset............ - 309.2 - - 309.2
(a) Amounts written-off less collections and reinstatements. (b) Represents the valuation allowance recorded for a $60.5 million ($50 million after-tax) adjustment to equity required to recognize the minimum pension liability. See Note H to the Consolidated Financial Statements. F-3 36 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION ----------- ----------- (3)(a) Second Restated Certificate of Incorporation (Incorporated by reference from Exhibit 3 to Bethlehem's quarterly report on Form 10-Q for the quarter ended March 31, 1994). (b) By-laws of Bethlehem Steel Corporation, as amended October 1, 1988 (Incorporated by reference from Exhibit (3)(b) to Bethlehem's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). (4)(a) Rights Agreement, dated as of September 28, 1988, between Bethlehem Steel Corporation and Morgan Shareholder Services Trust Company (Incorporated by reference from Exhibit (4)(a) to Bethlehem's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). *(10)(a) Excess Benefit Plan of Bethlehem Steel Corporation and Subsidiary Companies, as amended July 29, 1992 (Incorporated by reference from Exhibit 10(a) to Bethlehem's quarterly report on Form 10-Q for the quarter ended June 30, 1992). *(b) 1988 Stock Incentive Plan of Bethlehem Steel Corporation (Incorporated by reference from Exhibit 10(b) to Bethlehem's Annual Report on Form 10-K for the fiscal year ended December 31, 1992). - -------------------------- * Compensatory plans in which Bethlehem's directors and executive officers participate. 37 *(c) 1994 Stock Incentive Plan of Bethlehem Steel Corporation (Incorporated by reference from Exhibit 1 to Bethlehem's Proxy Statement in connection with its Annual Meeting of Shareholders held on April 26, 1994). *(d) 1994 Non-Employee Directors Stock Plan of Bethlehem Steel Corporation (Incorporated by reference from Exhibit 2 to Bethlehem's Proxy Statement in connection with its Annual Meeting of Shareholders held on April 26, 1994). *(e) Special Incentive Compensation Plan of Bethlehem Steel Corporation, which is contained in Article Seven of the Second Restated Certificate of Incorporation referred to in Exhibit 3(a) to this Report. *(f) Supplemental Benefits Plan of Bethlehem Steel Corporation and Subsidiary Companies, as amended July 29, 1992 (Incorporated by reference from Exhibit 10(b) to Bethlehem's quarterly report on Form 10-Q for the quarter ended June 30, 1992). *(g) Post-Retirement Retainer Plan for Non-Officer Directors (Incorporated by reference from Exhibit (10)(o) to Bethlehem's Annual Report on Form 10-K for the fiscal year ended December 31, 1992). (h) Form of Indemnification Assurance Agreement between Bethlehem Steel Corporation and each of its directors and executive officers listed on Schedule A thereto. (11) Statement regarding computation of per share earnings. (13) Those portions of the 1994 Annual Report to Stockholders of Bethlehem Steel Corporation which are incorporated by reference into this Form 10-K Annual Report. (21) Subsidiaries of Bethlehem Steel Corporation. (23) Consent of Independent Auditors (included on page F-2 of this Report). (24) Power of Attorney. (27) Financial Data Schedule. - -------------------------- * Compensatory plans in which Bethlehem's directors and executive officers participate. EX-10.H 2 FORM OF INDEMNIFICATION ASSURANCE AGREEMENT 1 Exhibit 10(h) FORM OF INDEMNIFICATION ASSURANCE AGREEMENT [BETHLEHEM STEEL CORPORATION] [Name and Address of Director or Officer] Dear : This letter will confirm the agreement and understanding between Bethlehem Steel Corporation (the "Company") and you regarding your service as a [Director/Officer] of the Company. It is and has been the policy of the Company to indemnify its officers and directors against any costs, expenses and other liabilities to which they may become subject by reason of their service to the Company, and to insure its directors and officers against such liabilities, as and to the extent permitted by applicable law and in accordance with the principles of good corporate governance. In this regard, the Company's By-laws (Article IX) require that the Company indemnify and advance costs and expenses to (collectively, "indemnify") its directors and officers as permitted by Delaware law. A copy of the relevant provisions of the Company's By-laws, as amended, is attached hereto. In consideration of your service as a [Director/Officer] of the Company, the Company shall indemnify you, and hereby confirms its agreement to indemnify you, to the full extent provided by applicable law and the By-laws of the Company as currently in effect. In particular, as provided by the By-laws, the Company shall make any necessary determination as to your entitlement to indemnification in respect of any liability within 60 days of receiving a written request from you for indemnification against such liability. You have agreed to provide the Company with such information or documentation as the Company may reasonably request to evidence the liabilities against which indemnification is sought or as may be necessary to permit the Company to submit a claim in respect thereof under any applicable directors and officers liability insurance or other liability insurance policy. You have further agreed to cooperate with the Company in the making of any determination regarding your entitlement to indemnification. If the Company does not make a determination within the required 60-day period, a favorable determination will be deemed to be made, and you shall be entitled to payment, subject only to your written agreement to refund such payment if a contrary determination is later made and the delay was by reason of the inability of the Company to make such determination within the 60-day period. In the event the 2 Company shall determine that you are not entitled to indemnification, the Company shall give you written notice thereof specifying the reason therefor, including any determinations of fact or conclusions of law relied upon in reaching such determination. Notwithstanding any determination made by the Company that you are not entitled to indemnification, you shall be entitled to seek a de novo judicial determination of your right to indemnification under the By-laws and this agreement by commencing an appropriate action therefor within 180 days after the Company shall notify you of its determination. The Company shall not oppose any such action by reason of any prior determination made by it as to your right to indemnification or, except in good faith, raise any objection not specifically relating to the merits of your indemnification claim or not considered by the Company in making its own determination. In any such proceeding, the Company shall bear the burden of proof in showing that your conduct did not meet the applicable standard of conduct required by the By-laws or applicable law for indemnification. It is understood that, as provided in Section 4 of Article IX of the By-laws, any expenses incurred by you in any investigation or proceeding by the Company or before any court commenced for the purpose of making any such determination shall be reimbursed by the Company. No future amendment of the By-laws shall diminish your rights under this agreement, unless you shall have consented to such amendment. Your right to indemnification as aforesaid shall be in addition to any right to remuneration to which you may from time to time be entitled as a [Director/Officer]. It is understood and agreed that your right to indemnification shall not entitle you to continue in your present position with the Company or any future position to which you may be appointed or elected and that you shall be entitled to indemnification under the By-laws only in respect to liabilities arising out of acts or omissions or alleged acts or omissions by you as a [Director/Officer] or as otherwise provided by the By-laws, but you shall be entitled to such indemnification with respect to any such liability, whether incurred or arising during or after your service as a [Director/Officer] and whether before or after the date of this letter, in respect of any claim, cause, action, proceeding or investigation, whether commenced, accruing or arising during or after your service as a [Director/Officer] and whether before or after the date of this letter. In further consideration of your service as a [Director/Officer] of the Company, the Company in connection with its indemnification policy has arranged for the issuance of, and you shall be entitled to the benefits of, an "Irrevocable Straight Standby Letter of Credit" issued by Morgan Guaranty Trust Company of New York. Said letter of credit has been arranged for the purpose of assuring payment to you, certain other current and former directors and officers of the Company and future directors, officers and employees of the Company and its affiliates designated by the Board of Directors of the Company ("Indemnitees") of any amounts to which you and they may become entitled as 2 3 indemnification pursuant to the By-laws in the event that, for any reason, the Company shall fail promptly to pay to you, upon written request therefor, any such indemnification, said assurance for all Indemnitees being limited at any time to $5,000,000 in aggregate amount. The Company understands that there has been established an irrevocable trust, the Bethlehem Indemnification Trust, for which First Valley Bank, Bethlehem, Pennsylvania, acts as trustee, for the purpose, among other things, of administering the respective interests of the Indemnitees in said letter of credit, and the Company has consented to the issuance and delivery of said letter of credit to the Bethlehem Indemnification Trust. Unless renewed or replaced by a comparable letter of credit in the amount of $5,000,000, the full undrawn amount of said letter of credit may be drawn upon prior to the expiration thereof. Drawings on said letter of credit may be arranged through the Bethlehem Indemnification Trust, as provided by the trust agreement therefor, by contacting the First Valley Bank, One Bethlehem Plaza, Bethlehem, Pennsylvania 18018. You have agreed to repay to the Bethlehem Indemnification Trust any amount paid to you by such trust (i) if it shall ultimately be determined (by the Company and upon expiration of the 180-day period for commencement of a judicial proceeding for a de novo determination or by a final judicial determination) that you are not entitled under this agreement or otherwise to indemnification from Bethlehem in respect of the liability for which you shall have received payment or (ii) if you shall subsequently receive payment in respect of such liability from any liability insurer or from Bethlehem or any successor thereto. It is agreed that, in addition to the rights of any other person to do so, the Company shall have the right to compel any repayment to the Bethlehem Indemnification Trust so required. This agreement shall terminate upon the later of (i) the tenth anniversary of the date on which you shall cease to be a director or officer of the Company or (ii) the final termination or resolution of all actions, suits, proceedings or investigations commenced within such ten-year period and relating to the Company or any of its affiliates or your services thereto to which you may be or become a party and of all claims for indemnification by you under this agreement or against the Bethlehem Indemnification Trust asserted within such ten-year period. This agreement supersedes any and all prior agreements between the Company and you relating to the subject matter hereof. It is understood and agreed that this agreement is binding upon the Company and its successors and shall inure to your benefit and that of your heirs, distributees and legal representatives. This agreement, and the interpretation and enforcement hereof, shall be governed by the laws of the State of Delaware. In confirmation of the provisions of the Company's By-laws, the Company hereby agrees to pay, and you shall be held harmless from and indemnified against, any costs and expenses (including attorneys' fees) which you may reasonably incur in connection with any challenge to the validity of, or the performance and enforcement of, 3 4 this agreement, in the same manner as provided by the Company's By-laws. If the foregoing is in accordance with your understanding of our agreement, kindly countersign the enclosed copies of this letter, whereupon this letter shall become a binding agreement in accordance with the laws of the State of Delaware. Very truly yours, BETHLEHEM STEEL CORPORATION By: ---------------------------------- - -------------------------------- [Signature of Director/Officer] 4 5 Schedule A 1. Indemnification Assurance Agreement dated August 22, 1986 between Bethlehem Steel Corporation and Curtis H. Barnette. 2. Indemnification Assurance Agreement dated August 22, 1986 between Bethlehem Steel Corporation and Silas S. Cathcart. 3. Indemnification Assurance Agreement dated August 22, 1986 between Bethlehem Steel Corporation and George P. Jenkins. 4. Indemnification Assurance Agreement dated August 22, 1986 between Bethlehem Steel Corporation and Reginald H. Jones. 5. Indemnification Assurance Agreement dated August 22, 1986 between Bethlehem Steel Corporation and Winthrop Knowlton. 6. Indemnification Assurance Agreement dated August 22, 1986 between Bethlehem Steel Corporation and Russell E. Palmer. 7. Indemnification Assurance Agreement dated August 22, 1986 between Bethlehem Steel Corporation and Ellmore C. Patterson. 8. Indemnification Assurance Agreement dated August 22, 1986 between Bethlehem Steel Corporation and Dean P. Phypers. 9. Indemnification Assurance Agreement dated August 22, 1986 between Bethlehem Steel Corporation and William W. Scranton. 10. Indemnification Assurance Agreement dated August 22, 1986 between Bethlehem Steel Corporation and Donald H. Trautlein. 11. Indemnification Assurance Agreement dated August 22, 1986 between Bethlehem Steel Corporation and Walter F. Williams. 12. Indemnification Assurance Agreement dated August 22, 1986 between Bethlehem Steel Corporation and Lonnie A. Arnett. 13. Indemnification Assurance Agreement dated August 22, 1986 between Bethlehem Steel Corporation and D. Sheldon Arnot. 6 14. Indemnification Assurance Agreement dated August 22, 1986 between Bethlehem Steel Corporation and Robert W. Cooney. 15. Indemnification Assurance Agreement dated August 22, 1986 between Bethlehem Steel Corporation and Frank S. Dickerson, III. 16. Indemnification Assurance Agreement dated August 22, 1986 between Bethlehem Steel Corporation and George T. Fugere. 17. Indemnification Assurance Agreement dated August 22, 1986 between Bethlehem Steel Corporation and John A. Jordan, Jr. 18. Indemnification Assurance Agreement dated August 22, 1986 between Bethlehem Steel Corporation and James F. Kegg. 19. Indemnification Assurance Agreement dated August 22, 1986 between Bethlehem Steel Corporation and David H. Klinges. 20. Indemnification Assurance Agreement dated August 22, 1986 between Bethlehem Steel Corporation and Edward H. Kottcamp, Jr. 21. Indemnification Assurance Agreement dated August 22, 1986 between Bethlehem Steel Corporation and James H. Leonard. 22. Indemnification Assurance Agreement dated August 22, 1986 between Bethlehem Steel Corporation and Gary L. Millenbruch. 23. Indemnification Assurance Agreement dated August 22, 1986 between Bethlehem Steel Corporation and C. Adams Moore. 24. Indemnification Assurance Agreement dated August 22, 1986 between Bethlehem Steel Corporation and Reynold Nebel. 25. Indemnification Assurance Agreement dated August 22, 1986 between Bethlehem Steel Corporation and James C. Van Vliet. 26. Indemnification Assurance Agreement dated August 22, 1986 between Bethlehem Steel Corporation and Robert C. Wilkins. 27. Indemnification Assurance Agreement dated December 29, 1986 between Bethlehem Steel Corporation and Larry L. Adams. 2 7 28. Indemnification Assurance Agreement dated December 29, 1986 between Bethlehem Steel Corporation and Benjamin C. Boylston. 29. Indemnification Assurance Agreement dated January 28, 1987 between Bethlehem Steel Corporation and Herman E. Collier. 30. Indemnification Assurance Agreement dated January 28, 1987 between Bethlehem Steel Corporation and Edwin A. Gee. 31. Indemnification Assurance Agreement dated January 28, 1987 between Bethlehem Steel Corporation and Thomas L. Holton. 32. Indemnification Assurance Agreement dated March 1, 1987 between Bethlehem Steel Corporation and Roger P. Penny. 33. Indemnification Assurance Agreement dated May 27, 1987 between Bethlehem Steel Corporation and Andrew M. Weller. 34. Indemnification Assurance Agreement dated January 27, 1988 between Bethlehem Steel Corporation and John B. Curcio. 35. Indemnification Assurance Agreement dated January 27, 1988 between Bethlehem Steel Corporation and William C. Hittinger. 36. Indemnification Assurance Agreement dated January 27, 1988 between Bethlehem Steel Corporation and William A. Pogue. 37. Indemnification Assurance Agreement dated September 27, 1989 between Bethlehem Steel Corporation and Robert McClements, Jr. 38. Indemnification Assurance Agreement dated September 27, 1989 between Bethlehem Steel Corporation and John L. Kluttz. 39. Indemnification Assurance Agreement dated June 27, 1990 between Bethlehem Steel Corporation and Duane R. Dunham. 40. Indemnification Assurance Agreement dated September 26, 1990 between Bethlehem Steel Corporation and John F. Ruffle. 41. Indemnification Assurance Agreement dated May 1, 1991 between Bethlehem Steel Corporation and Carl F. Meitzner. 3 8 42. Indemnification Assurance Agreement dated July 1, 1991 between Bethlehem Steel Corporation and Walter N. Bargeron. 43. Indemnification Assurance Agreement dated March 1, 1992 between Bethlehem Steel Corporation and David P. Post. 44. Indemnification Assurance Agreement dated November 1, 1992 between Bethlehem Steel Corporation and Stephen G. Donches. 45. Indemnification Assurance Agreement dated November 1, 1992 between Bethlehem Steel Corporation and William H. Graham. 46. Indemnification Assurance Agreement dated November 1, 1992 between Bethlehem Steel Corporation and G. Penn Holsenbeck. 47. Indemnification Assurance Agreement dated March 1, 1993 between Bethlehem Steel Corporation and Benjamin R. Civiletti. 48. Indemnification Assurance Agreement dated March 1, 1993 between Bethlehem Steel Corporation and Worley H. Clark. 49. Indemnification Assurance Agreement dated March 1, 1993 between Bethlehem Steel Corporation and Harry P. Kamen. 50. Indemnification Assurance Agreement dated April 28, 1993 between Bethlehem Steel Corporation and Joseph F. Emig. 51. Indemnification Assurance Agreement dated April 28, 1993 between Bethlehem Steel Corporation and Andrew R. Futchko. 52. Indemnification Assurance Agreement dated April 28, 1993 between Bethlehem Steel Corporation and Timothy Lewis. 53. Indemnification Assurance Agreement dated April 28, 1993 between Bethlehem Steel Corporation and William E. Wickert, Jr. 54. Indemnification Assurance Agreement dated March 1, 1994 between Bethlehem Steel Corporation and Augustine E. Moffitt, Jr. 55. Indemnification Assurance Agreement dated March 16, 1994 between Bethlehem Steel Corporation and Lewis B. Kaden. 4 EX-11 3 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT (11) BETHLEHEM STEEL CORPORATION STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE (dollars in millions and shares in thousands, except per share data)
YEAR ENDED DECEMBER 31 ----------------------------------------------- PRIMARY EARNINGS PER SHARE 1994 1993 1992 -------------------------- ----------- ----------- ----------- NET INCOME (LOSS) $80.5 ($266.3) ($550.3) LESS DIVIDEND REQUIREMENTS: $2.50 Preferred Dividend (10.0) (10.0) (10.0) $5.00 Preferred Dividend (12.5) (12.5) (12.5) $3.50 Preferred Dividend (17.9) (14.8) - 5% Preference Dividend (2.7) (2.5) (1.8) ----------- ----------- ----------- TOTAL PREFERRED AND PREFERENCE DIVIDENDS (43.1) (39.8) (24.3) ----------- ----------- ----------- NET INCOME (LOSS) APPLICABLE TO COMMON STOCK $37.4 ($306.1) ($574.6) =========== =========== =========== AVERAGE SHARES OF COMMON STOCK AND EQUIVALENTS OUTSTANDING: Common Stock 105,826 90,940 81,980 Stock Options 227 * * ----------- ----------- ----------- TOTAL 106,053 90,940 81,980 =========== =========== =========== PRIMARY EARNINGS PER SHARE $0.35 ($3.37) ($7.01) =========== =========== =========== FULLY DILUTED EARNINGS PER SHARE -------------------------------- NET INCOME (LOSS) $80.5 ($266.3) ($550.3) LESS DIVIDEND REQUIREMENTS: $2.50 Preferred Dividend (10.0) (10.0) (10.0) $5.00 Preferred Dividend (12.5) (12.5) (12.5) $3.50 Preferred Dividend (17.9) (14.8) - 5% Preference Dividend (2.7) (2.5) (1.8) ----------- ----------- ----------- NET INCOME (LOSS) APPLICABLE TO COMMON STOCK $37.4 ($306.1) ($574.6) =========== =========== =========== AVERAGE SHARES OF COMMON STOCK AND EQUIVALENTS AND OTHER POTENTIALLY DILUTIVE SECURITIES OUTSTANDING: Common Stock 105,826 90,940 81,980 Stock Options 227 * * $2.50 Preferred Stock * * * $5.00 Preferred Stock * * * $3.50 Preferred Stock * * * 5% Preference Stock * * * ----------- ---------- ----------- TOTAL 106,053 90,940 81,980 =========== =========== =========== FULLY DILUTED EARNINGS PER SHARE $0.35 ($3.37) ($7.01) =========== =========== ===========
* ANTIDILUTIVE EX-13 4 PORTIONS OF THE BETHLEHEM STEEL 1994 ANNUAL REPORT 1 CHAIRMAN'S LETTER 1994 was a year of profitability and significant progress. We returned to profitability for the first year since 1989. For 1995 and the years ahead, our primary objective is to achieve sustained profitability and rates of return that will increase stockholder value. A few of the highlights for 1994 include: - - We earned $81 million. - - Revenues grew by about 12 percent and our operating cash flow increased about 90 percent. - - Partnership activities among employees were expanded. - - Progress was made toward rebuilding our financial strength. - - Business Divisions became firmly established as separate business centers. - ---------------------------- OUR OBJECTIVES ARE WELL DEFINED--TO INCREASE STOCKHOLDER VALUE, TO SERVE OUR CUSTOMERS, TO HAVE PARTNERSHIPS AMONG OUR EMPLOYEES, AND TO BE GOOD CITIZENS. - ---------------------------- - - Total Quality and cost reduction efforts were intensified. - - Burns Harbor and Pennsylvania Steel Technologies successfully completed major modernization projects. - - Sparrows Point returned to profitability and the Double G Coatings joint venture in Mississippi came on-line to provide additional coated sheet capacity. - - Bethlehem Structural began to implement plans for improving its competitiveness in the light and medium structural business and transitioning from integrated steelmaking. - - Long-term contracts were established with our major automotive, construction and machinery customers. - - Corporate overhead was reduced. We are making steady progress toward achieving Bethlehem's Vision and Objectives by implementing our Strategy. Our Vision is clear--to be the premier steel Company. Our Objectives are well defined--to increase stockholder value, to serve our customers, to have partnerships among our employees, and to be good citizens. Our Strategy for achieving our Vision and Objectives is straightforward--to concentrate on steel, to rebuild our financial strength, and to continuously improve our performance--in all aspects of our business through total quality, with a special focus on safety. We believe our Strategy is sound, with the following areas of particular strategic focus. CONCENTRATING ON STEEL Our Business Divisions are separate businesses, and during 1995 our sales organization will be directly aligned with the Business Divisions. We continue our focus on improving productivity and quality while reducing our costs. Currently, we have two highly competitive Divisions at Burns Harbor and Sparrows Point that account for over 80 percent of our steel segment sales. These Divisions produce flat rolled steel products for markets that we expect to remain strong. Our basic objective is to be the low-cost producer in our markets and to move toward the higher value added products. Our shipments of sheets, including high value added products such as coated sheets and tin plate, accounted for 68 percent of our steel segment sales in 1994, an improvement from 61 percent in 1992. We are the country's largest producer of steel plate, which accounted for 14 percent of steel segment sales last year. In 1994, the Burns Harbor Division shipped a record 5.1 million tons of sheet and plate products to serve very strong customer demand. Even with the consequences of completing three major modernization projects, the Division achieved this record and continued to improve its quality performance. The projects, which totaled more than $435 million, included rebuilding a coke oven battery, relining a blast furnace, and installing a facility to inject granulated coal into the Division's two blast furnaces. These three projects will strengthen Burns Harbor's position as one of the world's most efficient producers of high quality steel products well into the 21st Century. - -------------------------------------------------------------------------------- 2 BETHLEHEM STEEL CORPORATION 2 - ---------------------------- IN 1994, THE BURNS HARBOR DIVISION SHIPPED A RECORD 5.1 MILLION TONS OF SHEET AND PLATE PRODUCTS TO SERVE VERY STRONG CUSTOMER DEMAND. - ---------------------------- The Sparrows Point Division was profitable in 1994 and improved its performance in many areas including productivity, quality and customer service. Its blast furnace produced a record 3.3 million tons of iron last year, while its two-strand continuous caster set a North American monthly record of 327,924 tons and a Division annual record of 3.6 million tons. In addition to operating four coating lines at the Division, Sparrows Point is now shipping cold rolled sheet to our new Double G Coatings joint venture near Jackson, Mississippi. This coating facility, which went into production in 1994, produces high valued galvanized and Galvalume(R) sheet products for the growing light construction market in the South-Central states. Among our other Divisions, Pennsylvania Steel Technologies (PST) is this country's largest rail producer. It recently completed an $80 million modernization program--including new steelmaking and rail head-hardening facilities--to establish it as the low cost North American producer of high quality railroad rails, flat bars and specialty blooms. These new facilities went into production in 1994, and PST is now shipping premium head-hardened rails and high quality blooms to its customers. As we previously announced, we will be discontinuing integrated iron and steel production and heavy beam production at our Bethlehem Structural Products Corporation (BSPC) in Bethlehem, Pennsylvania in 1995. BSPC is now implementing plans for improving its combination mill that will allow it to continue to produce a wide variety of light and medium structural products, including structural shapes, sheet piling and special sections. A significant amount of the semifinished blooms that will be rolled on BSPC's combination mill will come from PST. While 1994 was a year of considerable progress, we also had some disappointments. The severe winter weather early in the year impaired our results. Some of our Divisions did not perform as well as others, and we have developed and are implementing plans for improving their performance. REBUILDING OUR FINANCIAL STRENGTH We made significant progress in 1994 toward rebuilding our financial strength. We increased our operating cash flow by about 90 percent to $384 million. We also increased our revolving credit agreement by $100 million to a total of $500 million. With respect to our capital structure, one of our highest priorities is to fund our pension obligation as quickly as possible. In 1994, we contributed over $470 million to our pension fund, largely as a result of a $355 million Common Stock offering. This contribution, and the rise in interest rates, resulted in improving the funding status of our pension obligation to about 75 percent of our total pension obligation. As a result of our net income, the issuance of common stock and the reduction in our long-term obligations, principally pension, our total debt and other long-term obligations to invested capital ratio improved significantly, from 86 to 76 percent. These actions are directed toward increasing Bethlehem's stockholder value over the longer term. CONTINUOUSLY IMPROVING Our employees know that we must continuously improve our performance every day in everything that we do. This is especially important in the areas of serving our customers, dealing with suppliers, increasing the productivity of our facilities, having partnerships among our employees, and improving quality and safety. Customers We know that customers are at the very core of our business and our success depends upon their success. That's why we are working very hard at establishing partnerships with them. We recognize that their problems are our problems and that we can often help them in developing solutions. One of the ways we are able to do this is through extensive research, technical and operating support services. - -------------------------------------------------------------------------------- BETHLEHEM STEEL CORPORATION 3 3 - ---------------------------- PARTNERSHIP ACTIVITIES AMONG OUR EMPLOYEES ARE ESSENTIAL. WE KNOW THAT IN ORDER FOR US TO BE SUCCESSFUL, OUR EMPLOYEES MUST WORK CONSTRUCTIVELY TOGETHER. - ---------------------------- When our customers buy steel from us, they are buying a customized product from a customer-driven corporation dedicated to quality and service. For example, with our automotive customers, it means our early involvement with them to help specify optimum grades of steel for new models. We have also recently established a joint venture to produce tailored welded blanks for complex auto body stampings to achieve more efficient design. Suppliers Bethlehem has strengthened its procurement activities by aligning Corporate and Business Divisions along their respective core competencies. Additionally, in the past year, a Procurement Council has been formed to provide strategic direction to our sourcing of materials, supplies, services and capital equipment, and to aggressively initiate and coordinate process changes to increase our competitiveness throughout the corporation. We are systematically reviewing each area of procurement for opportunities to increase value and reduce costs through a combination of expanding global sourcing, increasing and benefiting from our purchasing leverage, improving joint processes with suppliers, partnering with selected suppliers, aligning our sourcing and transportation, and improving our information base to support discussions with suppliers. Our overall objectives are to increase value and reduce the costs associated with purchased materials, supplies, capital equipment and services. We intend to strengthen our relationships with selected suppliers who demonstrate a willingness and ability to work with us to achieve mutual objectives. Production and Finishing Capability As part of our objective to continuously improve, Bethlehem has operated its Burns Harbor and Sparrows Point steelmaking facilities over much of the last two years at a rate higher than their rated capability. This has been accomplished primarily through process improvements that have required no capital investments. We have plans under study to further enhance our existing steelmaking capability at these locations with several selective low-capital investments. Our finishing capability has also been expanded with the addition of new coating lines that have enhanced our value added product mix. Employee Partnerships Partnership activities among our employees are essential. We know that in order for us to be successful, our employees must work constructively together. For example, at Sparrows Point, 24 Area Partnership Committees were formed and trained. In addition, departmental committees began to implement productivity initiatives, and 30 problem-solving teams have been formed. We are also making progress with partnership activities at Burns Harbor. It now has 17 area and 16 safety partnership coordinators and 18 problem-solving teams. Employees there have developed more than 9,000 suggestions for improvements, half of which have been implemented. An important part of the partnership effort with the United Steelworkers of America (USWA) was the election of Lewis B. Kaden to our Board of Directors. In 1994, he was designated by the USWA for consideration as a director under the terms of the 1993 labor agreement between Bethlehem and the USWA. Another significant initiative was the development of a Financial Management course for our employees. We believe that every employee should know why we must achieve sufficient earnings to justify our stockholders' investment and how their performance relates directly to the achievement of our plans. The course was started in 1994, and we plan for all employees to complete it over the next few years. Quality Our Burns Harbor Division is a major supplier of the high quality sheet steel required for the automotive industry's most demanding applications. Burns - -------------------------------------------------------------------------------- 4 BETHLEHEM STEEL CORPORATION 4 Harbor supplies steel for 80 models of 1995 cars, vans and pickups produced in the United States. Burns Harbor has won the top quality awards from the "Big Three" automakers and foreign automakers with operations in the United States. A very important step for our future, particularly in an increasingly global market, is ISO Certification. The International Organization for Standardization was founded to develop common standards for trade, manufacturing and communications. Most steel customers are now, or soon will be, specifying that products be manufactured under rigorous ISO quality standards. Four of our operations have now achieved ISO-9002 quality certification--Sparrows Point, Burns Harbor, Lackawanna Galvanized Products, and BethShip, Sparrows Point Yard. Other Bethlehem Business Divisions are also well on their way to achieving ISO Certification. - ---------------------------- AS WE ENTER 1995, DEMAND CONTINUES TO BE STRONG IN NEARLY ALL OF OUR MARKETS DESPITE HIGHER INTEREST RATES. - ---------------------------- Safety In 1994, we advanced our commitment throughout the corporation to improving workplace safety and environmental compliance. We also formed a Corporate Council on Safety, Health and Environment and established a new and separate Department for Safety, Health and Environment headed by a principal corporate officer. OUTLOOK The economy and steel markets showed considerable strength in 1994, resulting in improved steel prices and shipments. However, imports of steel products entered our market at record levels during 1994 resulting in high year-end inventories. As we enter 1995, demand continues to be strong in nearly all of our markets despite higher interest rates. We expect domestic steel consumption this year to be about the same as in 1994. Our markets will be supported by an expanding world economy that should increase export demand for our customers' products in foreign markets and reduce imported steel into the United States. We currently estimate that industry shipments in 1995 may decline somewhat from the 95 million tons in 1994, primarily as a result of a reduction in customer inventories early in the year. On international trade, Bethlehem has supported both NAFTA and GATT because we believe those measures are good for our country, our customers and our corporation. We are a customer-driven corporation, and our customers in the automotive, machinery, construction, equipment and other industries export large amounts of products containing steel. What helps our customers increase their exports will help our steel businesses, our employees and our stockholders. We continue to be concerned about the high level of unfairly traded steel imports, and have under continuous review appropriate actions to deal with them. There are opportunities for the domestic low cost producers of high quality steel. These include new uses of steel such as in residential housing, shipments into the export market, and displacing imports into this market. As previously described, Bethlehem is pursuing these opportunities by increasing our steelmaking and finishing capabilities within certain of our existing Business Divisions.We expect to realize higher steel prices during the year, and we believe our costs will improve as our newly modernized facilities at Burns Harbor and PST become fully operational. We are well positioned for the future and are committed to achieving our Vision and Objectives by effectively implementing our Strategy. Bethlehem's success ultimately depends on the skill, dedication and support of our employees. On behalf of the Board of Directors, I especially want to thank them for their outstanding efforts in 1994. /s/ HANK BARNETTE - ------------------ Curtis H. Barnette, Chairman January 25, 1995 - -------------------------------------------------------------------------------- BETHLEHEM STEEL CORPORATION 5 5 FINANCIAL REVIEW AND OPERATING ANALYSIS GENERAL Bethlehem reported net income of $81 million in 1994 compared to net losses of $266 million in 1993 and $550 million in 1992. Excluding the effects in 1993 and 1992 of the restructuring charges and changes in accounting discussed below, Bethlehem had net income of $24 million in 1993 and a net loss of $210 million in 1992. The improvement in results for 1994 compared to 1993 was primarily due to strong demand from the automotive, light construction and machinery markets that improved our realized prices, volume and mix. The net loss for 1993 included a $350 million restructuring charge ($290 million after-tax). See Note D, Estimated Restructuring Losses, to the Consolidated Financial Statements. In addition, 1993 results included a one-time tax benefit of $25 million resulting from new tax legislation (see Note E, Taxes, to the Consolidated Financial Statements) and approximately $20 million in unusual costs incurred in connection with the labor contracts negotiated during 1993. See "Employees and Employment Costs" on page 9. The net loss for 1992 included a $340 million net charge for the cumulative effect of changes in accounting, a $25 million litigation charge and a $31 million gain at the BethShip Division for recovery of losses reported in prior years on a United States Navy contract. SEGMENT RESULTS Basic Steel Operations. The Basic Steel Operations segment had income from operations of $166 million in 1994 compared to losses from operations of $274 million in 1993 and $214 million in 1992. Excluding the effect in 1993 of the previously mentioned restructuring charge, this segment had income from operations of $76 million in 1993. The improvement in this segment's operating results for the year 1994 compared to the year 1993 (excluding the restructuring charge) was due to higher realized steel prices, increased shipments and an improved product mix for flat rolled products. Average realized prices on a constant mix basis were 5% higher in 1994 than in 1993. This segment shipped 9.3 million net tons of steel products in 1994 compared to 9.0 million net tons in 1993 and 8.4 million net tons in 1992. Raw steel production of the Basic Steel Operations segment, excluding discontinued facilities, was 9.8 million net tons in 1994 compared to 10.3 million net tons in 1993 and 10.0 million net tons in 1992. The effects of changes in average realized prices, product mix and volume on total steel mill product revenues during the last two years were as follows:
- ------------------------------------------------------------- INCREASE FROM PRIOR YEAR - ------------------------------------------------------------- 1994 1993 - ------------------------------------------------------------- Realized prices 5% 1% Product mix 4 3 Volume 3 7 - ------------------------------------------------------------- Total Revenues 12% 11% =============================================================
The benefit of these improvements in revenues in 1994 was partially offset by higher operating costs incurred in connection with capital projects at Burns Harbor and Pennsylvania Steel Technologies (PST) and severe winter weather early in the year, as well as losses at Bethlehem Structural Products Corporation (BSPC) and PST. Employment costs were also higher, principally from profit-sharing and pension expense. The Burns Harbor Division shipped a record 5.1 million tons of steel products in 1994 compared to 4.8 million tons in 1993 and 4.4 million tons in 1992 and incurred approximately $120 million in higher operating costs in connection with a blast furnace reline and a coke oven rebuild. While these projects were under way, raw steel and coke production were reduced and we incurred significantly higher costs for purchased slabs and coke. The Sparrows Point Division shipped 2.9 million tons of steel products in 1994 compared to 2.8 million tons in 1993 and 2.7 million tons in 1992, and in 1994 realized the benefit of significant capital investments made in recent years for a modernized hot-strip mill and a new hot-dip galvanizing line. In 1994, BSPC incurred operating problems at its blast furnace operations, weak demand for heavy structural shapes and higher costs resulting from severe winter weather. As previously announced, BSPC will phase out its iron and steelmaking operations, production of heavy structural shapes, and foundry operations in 1995. Future structural shapes production will be consolidated on the 44-inch rolling mill, which is being upgraded and which will be sourced with continuously cast steel produced primarily at PST's newly modernized steelmaking facilities. PST completed a modernization program in late 1994 designed to establish it as the low cost North American producer of high quality railroad rails, flat bars and specialty blooms. Start-up costs incurred in connection with the modernization program, higher scrap costs and costs resulting from severe winter weather, combined with lower shipments of rail products in 1994, hampered their results. As PST's modernized facilities achieve their design capability, - -------------------------------------------------------------------------------- BETHLEHEM STEEL CORPORATION 7 6 Bethlehem expects to benefit from higher shipments of premium head-hardened rail, lower costs and improved quality.
PERCENTAGE OF BETHLEHEM'S NET SALES BY SEGMENT AND MAJOR PRODUCT - ------------------------------------------------------------------------- 1994 1993 1992 - ------------------------------------------------------------------------- Basic Steel Operations Steel mill products: Sheets and tin mill products 66.1% 63.1% 59.1% Plates 14.0 13.6 13.3 Structural shapes and piling 6.7 8.5 9.6 Rail products 2.8 3.6 2.8 Bars, rods and semifinished 1.2 1.2 2.6 Other steel mill products 1.3 .8 1.2 Other products and services (including raw materials) 5.5 6.8 7.5 - ------------------------------------------------------------------------- 97.6 97.6 96.1 Steel Related Operations 2.4 2.4 3.9 - ------------------------------------------------------------------------- 100.0% 100.0% 100.0% =========================================================================
PERCENTAGE OF STEEL MILL PRODUCT SHIPMENTS BY PRINCIPAL MARKET - ------------------------------------------------------------------------- (Based on net tons shipped) 1994 1993 1992 - ------------------------------------------------------------------------- Principal Market Service Centers, Processors and Converters (including semifinished customers) 45.9% 47.3% 46.3% Transportation (including automotive) 24.2 22.2 19.9 Construction 14.7 15.5 16.0 Containers 5.7 5.4 4.8 Machinery 4.9 5.1 5.5 Other 4.6 4.5 7.5 - ------------------------------------------------------------------------- 100.0% 100.0% 100.0% =========================================================================
Includes shipments to Bethlehem's manufacturing and fabricating operations. Steel Related Operations. The Steel Related Operations segment (comprising the BethShip Division, BethForge, Inc. and CENTEC) reported a loss from operations of $32 million in 1994 compared to a loss from operations of $22 million in 1993 and income from operations of $11 million in 1992. The businesses of this segment experienced losses in 1994 due to a weak ship repair market, costs related to severe winter weather and higher operating costs, primarily related to BethForge's modernization program. Losses in 1993 were due to weak market conditions and costs incurred at the BethShip Division in connection with a new labor agreement. The 1992 results at the BethShip Division included a $31 million gain for recovery of losses reported in prior years on a United States Navy contract. In 1995, the BethForge modernization program should improve cost and quality competitiveness. BethForge will discontinue operating its electric furnace steelmaking and ingot production facilities in Bethlehem later this year. Lower cost, higher quality ingots will then be supplied from PST's newly modernized steelmaking facilities. Also, the ship repair market has recently shown some improvement. LIQUIDITY At December 31, 1994, total liquidity, comprising cash, cash equivalents and available borrowings under bank commitments, was $566 million compared to $523 million at December 31, 1993. Cash and cash equivalents were $160 million at December 31, 1994 compared to $229 million at December 31, 1993, and $406 million was available under Bethlehem's revolving credit agreement. Cash provided from operating activities in 1994 was $384 million compared to $203 million in 1993 and $135 million in 1992. Principal uses of cash during 1994 were for pension funding, capital expenditures and debt repayments. Bethlehem contributed $472 million to its pension fund in 1994 compared to $261 million in 1993 and $40 million in 1992. Contributions included net proceeds of $355 million from a public offering of Common Stock in March 1994. As a result of these contributions and the increase in long-term interest rates, Bethlehem's pension liability decreased to $1.1 billion at December 31, 1994 from $1.6 billion at December 31, 1993. The decrease in pension liability arising from the increase in long-term interest rates resulted in an increase in stockholders' equity of $50 million at December 31, 1994. See Note L, Stockholders' Equity, to the Consolidated Financial Statements. In December 1994, Congress passed new pension legislation. The new legislation is not expected to significantly increase Bethlehem's annual required minimum contribution to its pension plans for the next several years, but it will increase over time the annual premium due to the Pension Benefit Guaranty Corporation. Bethlehem has contributed amounts to its pension fund substantially in excess of amounts required under current law and regulations. As a result, Bethlehem currently has a funding standard credit balance which would allow it under current law and regulations to defer all pension funding for about two years, although it presently has no plans to do so. - -------------------------------------------------------------------------------- 8 BETHLEHEM STEEL CORPORATION 7 Bethlehem realized net cash proceeds from asset sales of $32 million in 1994, primarily from the sale of the remaining assets of its former Bar, Rod and Wire Division. During 1994, Bethlehem issued approximately $31 million in new debt, principally to fund the construction of a solid waste facility at Burns Harbor, and refinanced about $103 million in tax-exempt revenue bonds. The proceeds were used to refund existing bonds that would have matured over the next several years. During 1994, Bethlehem received additional bank commitments under its 1992 revolving credit agreement raising its total borrowing capacity to $500 million from $400 million. Bethlehem's accounts receivable and inventories are pledged as collateral under the agreement. This agreement expires at the end of 1996. At December 31, 1994, no amounts were outstanding under Bethlehem's 1992 revolving credit agreement and $94 million was used for letters of credit. At December 31, 1993, there were no borrowings under the agreement and $106 million in letters of credit were outstanding. During 1994, Bethlehem repaid about $100 million in debt and capital lease obligations. Major uses of funds in 1995 include an estimated $350 million of capital expenditures, repayment of approximately $90 million of debt and capital lease obligations, and contributions to its pension fund. Bethlehem expects to maintain an adequate level of liquidity throughout 1995 from cash flow from operations, reductions in working capital and available borrowings under its revolving credit agreement.
COMMON STOCK MARKET AND DIVIDEND INFORMATION - ----------------------------------------------------------------------------- 1994 1993 - ----------------------------------------------------------------------------- PRICES* PRICES* -------------------- ---------------------- PERIOD HIGH LOW HIGH LOW - ----------------------------------------------------------------------------- First Quarter $24.125 $19.875 $20.000 $14.875 Second Quarter 21.875 16.875 21.000 16.375 Third Quarter 23.750 18.875 19.125 12.875 Fourth Quarter 20.625 16.500 20.625 13.750 =============================================================================
*The principal market for Bethlehem Common Stock is the New York Stock Exchange. Bethlehem Common Stock is also listed on the Chicago Stock Exchange. The high and low sales prices of the Common Stock as reported in the consolidated transaction reporting system are shown. The trading symbol for Bethlehem Common Stock is BS. Bethlehem has not paid a dividend on its Common Stock since the fourth quarter of 1991. CAPITAL EXPENDITURES Capital expenditures were $445 million in 1994 compared to $327 million in 1993 and $329 million in 1992. During 1994, one of Burns Harbor's two coke oven batteries was rebuilt and one of its two blast furnaces was relined. Burns Harbor's operating costs per ton were higher while these projects were under way due primarily to lower raw steel and coke production and increased costs for purchased slabs and coke. Work also progressed during 1994 on the construction of a coal injection facility that will lower the Division's operating costs through elimination of the use of natural gas as a blast furnace injectant and a reduction of the use of coke in the blast furnaces. This facility is expected to be operational in the first quarter of 1995. In late 1994, PST completed a modernization program which includes a 1.2 million ton state-of-the-art DC electric furnace, in-line rail head-hardening equipment, a ladle furnace and a vacuum degassing unit. Approximately $259 million of additional capital expenditures were authorized in 1994. At December 31, 1994, the estimated cost of completing authorized capital expenditures was approximately $325 million compared to $676 million at December 31, 1993. Such authorized capital expenditures are expected to be completed during the 1995-1997 period. EMPLOYEES AND EMPLOYMENT COSTS At year-end 1994, Bethlehem had approximately 19,900 employees compared to approximately 20,600 employees at the end of 1993 and 22,600 employees at the end of 1992. Approximately two-thirds of Bethlehem's employees are covered by its labor agreements with the United Steelworkers of America (USWA). Under the terms of Bethlehem's 1993 labor agreements with the USWA, eligible employees at most steel operations received lump-sum bonuses totaling $14 million during 1994. On March 1, 1995, each eligible employee will receive a bonus of either $500 or 25 shares of Bethlehem Common Stock, at the election of the employee, and on August 1, 1995, each such employee will receive a $.50 per-hour wage increase. Under the terms of the 1993 labor agreements, a new profit-sharing plan was established, effective January 1, 1994, equal to 8% of consolidated income before taxes, unusual items and expenses applicable to the plan plus 2% of adjusted profits of certain operations. In addition, under other provisions of the labor agreements, Bethlehem is required to pay "shortfall amounts" each year up to 10% of - -------------------------------------------------------------------------------- BETHLEHEM STEEL CORPORATION 9 8 the first $100 million and 20% in excess of $100 million of consolidated income before taxes, unusual items and expenses applicable to the plan. Shortfall amounts arise when employees terminate employment and ESOP Preference Stock, held in trust for employees in reimbursement for wage and benefit reductions in prior years, is converted into Common Stock and sold for amounts less than the stated value of the Preference Stock ($32 for Series A and $40 for Series B). Bethlehem expects to pay approximately $30 million for profit-sharing and shortfall amounts in early 1995. As of December 31, 1994, shortfall amounts to be paid out of future profits were about $7 million. Under the terms of the profit-sharing plan provided for in the 1989 labor agreement with the USWA, no material profit-sharing payments were required for the 1992 and 1993 plan years. Under other provisions of that labor agreement, Bethlehem issued approximately 134,800 shares of Series B Preference Stock in 1994 and approximately 211,400 shares in 1993 to a trustee for the benefit of employees for 1993 and 1992, respectively, and expects to issue approximately 40,900 shares in early 1995 for the 1994 plan year. For additional information concerning Bethlehem's employment costs, see the table below.
EMPLOYMENT COST SUMMARY--ALL EMPLOYEES - ---------------------------------------------------------------------------- (Dollars in millions) 1994 1993 1992 - ---------------------------------------------------------------------------- Salaries and Wages $ 999.3 $ 950.9 $1,058.0 Employee Benefits (including retirees): Pension Plans: Actives 108.0 84.3 87.3 Retirees 95.1 99.3 101.4 Medical and Insurance: Actives 152.2 140.9 143.2 Retirees 114.5 110.9 111.6 Payroll Taxes 90.1 89.1 88.7 Workers' Compensation 46.3 43.8 48.6 Supplemental Unemployment, Savings Plan and Other 27.5 27.9 25.2 - ---------------------------------------------------------------------------- Total Benefit Costs 633.7 596.2 606.0 - ---------------------------------------------------------------------------- Total Employment Costs $1,633.0 $1,547.1 $1,664.0 ============================================================================ Employment Costs as a Percent of Net Sales 33.9% 35.8% 41.5% ============================================================================
ENVIRONMENTAL MATTERS Bethlehem is subject to stringent federal, state and local environmental laws and regulations concerning, among other things, air emissions, waste water discharges and solid and hazardous waste disposal. During the five years ended December 31, 1994, Bethlehem spent approximately $275 million for environmental control equipment. Expenditures for new environmental control equipment totaled approximately $44 million in 1994, $35 million in 1993 and $18 million in 1992. The costs incurred in 1994 to operate and maintain existing environmental control equipment were approximately $115 million (excluding interest costs but including depreciation charges of $18 million) compared to $125 million in 1993 and $130 million in 1992. Negotiations between Bethlehem and federal and state regulatory agencies are being conducted to resolve differences in interpretation of certain environmental control requirements. In some instances, those negotiations are being held in connection with the resolution of pending environmental proceedings. Bethlehem believes that there will not be any significant curtailment or interruptions of any of its important operations as a result of these proceedings and negotiations. Existing environmental laws may be amended, new laws may be enacted by Congress and state legislatures, and new environmental regulations may be issued by regulatory agencies. For these reasons, Bethlehem cannot predict the specific environmental control requirements that it will face in the future. Based on existing and anticipated regulations promulgated under presently enacted legislation, Bethlehem currently estimates that capital spending for installation of new environmental control equipment will range from $40 million to $50 million in each of the next two years. However, estimates of future capital expenditures and operating costs required for environmental compliance are imprecise due to numerous uncertainties, including the evolving nature of regulations, possible imposition of more stringent requirements, availability of new technologies and the timing of expenditures. Although it is possible that Bethlehem's future results of operations in particular quarterly or annual periods could be materially affected by the future costs of environmental compliance, Bethlehem believes that the future costs of environmental compliance will not have a material adverse effect on its consolidated financial position or on its competitive position with respect to other integrated domestic steelmakers that are subject to the same environmental requirements. - -------------------------------------------------------------------------------- 10 BETHLEHEM STEEL CORPORATION 9 CONSOLIDATED STATEMENTS OF INCOME
- ------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31 - ------------------------------------------------------------------------------------------------------------- (Dollars in millions, except per share data) 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------- NET SALES $4,819.4 $4,323.4 $4,007.9 - ------------------------------------------------------------------------------------------------------------- COSTS AND EXPENSES: Cost of sales 4,287.3 3,834.2 3,789.9 Depreciation (Note A) 261.1 277.5 261.7 Selling, administration and general expense 137.4 156.9 159.3 Estimated restructuring losses (Note D) -- 350.0 -- - ------------------------------------------------------------------------------------------------------------- TOTAL COSTS AND EXPENSES 4,685.8 4,618.6 4,210.9 - ------------------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM OPERATIONS 133.6 (295.2) (203.0) FINANCING INCOME (EXPENSE): Interest and other financing costs (Note A) (46.2) (63.2) (57.2) Interest income 7.1 7.1 4.9 - ------------------------------------------------------------------------------------------------------------- INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING 94.5 (351.3) (255.3) BENEFIT (PROVISION) FOR INCOME TAXES (NOTE E) (14.0) 85.0 45.0 - ------------------------------------------------------------------------------------------------------------- INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING-$.35, ($3.37) AND ($2.86) PER SHARE 80.5 (266.3) (210.3) CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING- ($4.15) PER SHARE (NOTE B) -- -- (340.0) - ------------------------------------------------------------------------------------------------------------- NET INCOME (LOSS) 80.5 (266.3) (550.3) DIVIDENDS ON PREFERRED AND PREFERENCE STOCK 43.1 39.8 24.3 - ------------------------------------------------------------------------------------------------------------- NET INCOME (LOSS) APPLICABLE TO COMMON STOCK-$.35, ($3.37) AND ($7.01) PER SHARE $ 37.4 $ (306.1) $ (574.6) =============================================================================================================
The accompanying Notes are an integral part of the Consolidated Financial Statements. - -------------------------------------------------------------------------------- BETHLEHEM STEEL CORPORATION 11 10 CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------------------------------------- DECEMBER 31 - ------------------------------------------------------------------------------------------------------------- (Dollars in millions, except per share data) 1994 1993 - ------------------------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS: Cash and cash equivalents (Note A) $ 159.5 $ 228.9 Receivables, less allowances of $18.6 and $16.3 (Note F) 519.5 503.2 Inventories (Notes A and F) Raw materials and supplies 331.9 341.9 Finished and semifinished products 534.9 494.8 Contract work in progress less billings of $2.3 and $10.3 16.1 15.8 - ------------------------------------------------------------------------------------------------------------- Total Inventories 882.9 852.5 Other current assets 7.2 6.5 - ------------------------------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 1,569.1 1,591.1 PROPERTY, PLANT AND EQUIPMENT less accumulated depreciation of $4,167.9 and $4,107.0 (Note A) 2,759.3 2,634.3 INVESTMENTS AND MISCELLANEOUS ASSETS (NOTE A) 124.2 124.0 DEFERRED INCOME TAX ASSET-NET (NOTE E) 903.2 926.7 INTANGIBLE ASSET-PENSIONS (NOTE H) 426.6 600.6 - ------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $5,782.4 $5,876.7 ============================================================================================================= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 387.0 $ 360.9 Accrued employment costs 165.8 130.1 Postretirement benefits other than pensions (Note I) 138.0 132.3 Accrued taxes (Note E) 67.6 65.4 Debt and capital lease obligations (Note F) 88.9 95.5 Other current liabilities 163.9 130.0 - ------------------------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 1,011.2 914.2 PENSION LIABILITY (NOTES D AND H) 1,117.1 1,613.6 POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (NOTES D AND I) 1,441.4 1,448.3 LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS (NOTE F) 668.4 718.3 OTHER LONG-TERM LIABILITIES 388.5 485.7 STOCKHOLDERS' EQUITY (NOTES J, K, AND L): Preferred Stock-at $1 per share par value (aggregate liquidation preference of $481.2); Authorized 20,000,000 shares 11.6 11.6 Preference Stock-at $1 per share par value (aggregate liquidation preference of $89.0); Authorized 20,000,000 shares 2.6 2.8 Common Stock-at $1 per share par value; Authorized 150,000,000 shares; Issued, 111,882,276 and 93,412,852 shares 111.9 93.4 Held in Treasury, 1,996,715 and 2,003,760 shares at cost (59.5) (59.7) Additional Paid-in Capital 1,948.6 1,588.4 Accumulated Deficit (859.4) (939.9) - ------------------------------------------------------------------------------------------------------------- TOTAL STOCKHOLDERS' EQUITY 1,155.8 696.6 - ------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $5,782.4 $5,876.7 =============================================================================================================
The accompanying Notes are an integral part of the Consolidated Financial Statements. - -------------------------------------------------------------------------------- 12 BETHLEHEM STEEL CORPORATION 11 CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31 - --------------------------------------------------------------------------------------------------------------------------- (Dollars in millions) 1994 1993 1992 - --------------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES: Net Income (Loss) $ 80.5 $(266.3) $(550.3) Adjustments for items not affecting cash from operating activities: Depreciation 261.1 277.5 261.7 Deferred income taxes 13.0 (87.0) (45.0) Other-net 15.8 19.6 26.5 Estimated restructuring losses (Note D) -- 350.0 -- Cumulative effect of changes in accounting (Note B) -- -- 340.0 Working capital*: Receivables (22.7) (99.9) 5.2 Inventories (28.1) -- 172.8 Accounts payable 20.6 -- (59.2) Employment costs and other 45.8 (5.6) (17.6) Other-net (2.3) 14.9 1.0 - --------------------------------------------------------------------------------------------------------------------------- CASH PROVIDED FROM OPERATING ACTIVITIES 383.7 203.2 135.1 - --------------------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES: Capital expenditures (444.6) (327.1) (328.7) Cash proceeds from sales of businesses and assets 32.4 15.2 124.9 Other-net (1.4) 5.6 7.2 - --------------------------------------------------------------------------------------------------------------------------- CASH USED FOR INVESTING ACTIVITIES (413.6) (306.3) (196.6) - ---------------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES: Pension financing (funding) (Note H): Pension expense 203.1 183.6 188.7 Pension funding (472.3) (261.1) (40.2) Revolving and other credit borrowings (payments)-net -- (80.0) (74.0) Long-term debt borrowings (Note F) 31.1 171.2 104.0 Long-term debt and capital lease payments (Note F) (99.9) (73.8) (105.3) Cash dividends paid (Note L) (40.4) (36.1) (22.5) Preferred Stock issued (Note L) -- 248.4 -- Common Stock issued (Note L) 355.3 -- 171.3 Other payments (16.4) (28.4) (36.1) - --------------------------------------------------------------------------------------------------------------------------- CASH PROVIDED FROM (USED FOR) FINANCING ACTIVITIES (39.5) 123.8 185.9 - --------------------------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (69.4) 20.7 124.4 CASH AND CASH EQUIVALENTS-BEGINNING OF PERIOD 228.9 208.2 83.8 - --------------------------------------------------------------------------------------------------------------------------- -END OF PERIOD $ 159.5 $ 228.9 $ 208.2 =========================================================================================================================== SUPPLEMENTAL CASH PAYMENT INFORMATION: Interest, net of amount capitalized $ 41.6 $ 55.7 $ 57.1 Income taxes (Note E) $ .2 $ 3.7 $ 1.3 - ---------------------------------------------------------------------------------------------------------------------------
*Excludes Financing Activities and Investing Activities. The accompanying Notes are an integral part of the Consolidated Financial Statements. - -------------------------------------------------------------------------------- BETHLEHEM STEEL CORPORATION 13 12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. ACCOUNTING POLICIES Principles of Consolidation-The consolidated financial statements include the accounts of Bethlehem Steel Corporation and all majority-owned subsidiaries and joint ventures. Cash and Cash Equivalents-Cash equivalents consist primarily of overnight investments, certificates of deposit and other short-term, highly liquid instruments generally with original maturities at the time of acquisition of three months or less. Cash equivalents are stated at cost plus accrued interest, which approximates market. Inventories-Inventories are valued at the lower of cost (principally FIFO) or market. Contract work in progress is valued at cost less billings. Estimated losses are recognized when first apparent and partial profits are based on percentage of completion. Investments-Investments in associated enterprises accounted for by the equity method were $47 million and $59 million at December 31, 1994 and 1993. Associated enterprises are primarily 50% or less interests in steel sheet coating and mining operations. Property, Plant and Equipment-Property, plant and equipment is stated at cost. Maintenance, repairs and renewals which neither materially add to the value of the property nor appreciably prolong its life are charged to expense. Gains or losses on dispositions of property, plant and equipment are recognized in income. Interest is capitalized on significant construction projects and totaled $31, $9 and $17 million in 1994, 1993 and 1992. Our property, plant and equipment by major classification is:
- ----------------------------------------------------------- DECEMBER 31 - ----------------------------------------------------------- (Dollars in millions) 1994 1993 - ----------------------------------------------------------- Land (net of depletion) $ 38.8 $ 50.9 Buildings 682.9 670.1 Machinery and equipment: Steel manufacturing 5,364.8 4,960.2 Other 639.2 739.5 - ----------------------------------------------------------- 6,725.7 6,420.7 Accumulated depreciation (4,167.9) (4,107.0) - ----------------------------------------------------------- 2,557.8 2,313.7 Construction-in-progress 201.5 320.6 - ----------------------------------------------------------- Total $ 2,759.3 $ 2,634.3 ===========================================================
Depreciation-Depreciation, which includes amortization of assets under capital leases, is based upon the estimated useful lives of each asset group. The estimated useful life is 18 years for most steel producing assets. Steel assets, other than blast furnace linings, and most raw material producing assets are depreciated on a straight-line basis adjusted by an activity factor. This factor is based on the ratio of production and shipments for the current year to the average production and shipments for the current and preceding four years at each operating location. Annual depreciation after adjustment for this activity factor is not less than 75% nor more than 125% of straight-line depreciation. Depreciation after adjustment for this activity factor was $10 million more than straight-line in 1994 and $4 million more than straight-line in 1993 and $6 million less than straight-line in 1992. Through December 31, 1994, $28 million less accumulated depreciation has been recorded under this method than would have been recorded under straight-line depreciation. The cost of blast furnace linings is depreciated on a unit-of-production basis. All other assets are depreciated on a straight-line basis. Foreign Currency, Interest Rate and Commodity Price Risk Management-Periodically, we enter into (1) foreign currency exchange contracts principally to manage the cost of firm purchase commitments for capital equipment or other purchased goods and services denominated in a foreign currency, (2) interest rate swap agreements to fix the interest rate on certain floating rate debt and (3) commodity (principally natural gas, zinc and other metals) contracts to fix the cost of a portion of our related annual requirements. Generally, foreign currency and commodity contracts are for periods of less than a year. The gains or losses on these contracts are reflected in the cost of goods or services purchased. Net payments or receipts on interest rate swaps are reflected in interest expense. Gains or losses on swaps settled or terminated are deferred and amortized to interest expense over the life of the related debt. Currency and commodity contracts outstanding during the years and at year end were not material. Also, see Note F, Long-term Debt and Capital Lease Obligations. B. ACCOUNTING CHANGES During 1992, we adopted two new Financial Accounting Standards Board Statements, No. 106, Accounting for Postretirement Benefits Other Than Pensions and No. 109, Accounting for Income Taxes. The cumulative effect of these changes in accounting recorded as of January 1, 1992 was a $340 million net charge to income. Prior years' financial statements were not restated for these changes. Statement No. 106 requires postretirement benefits other than pensions, principally health care and life insurance, to be accrued as an expense over the period active employees become eligible for the benefits. Previously, such - -------------------------------------------------------------------------------- 14 BETHLEHEM STEEL CORPORATION 13 retiree benefits were generally expensed as claims were incurred. The cumulative effect of adopting Statement No. 106 was a $745 million charge, net of a $380 million deferred income tax benefit. Statement No. 109 requires financial statements to reflect deferred taxes for the future tax consequences of events recognized in different years for financial reporting and tax reporting purposes. The cumulative effect of adopting Statement No. 109 was a $405 million credit for the net deferred income tax asset. C. INDUSTRY SEGMENT INFORMATION
- -------------------------------------------------------------------------------------------------- (Dollars in millions) 1994 1993 1992 - -------------------------------------------------------------------------------------------------- SALES: Trade: Basic Steel Operations $4,702.4 $4,217.5 $3,849.7 Steel Related Operations 117.0 105.9 158.2 Intersegment: Basic Steel Operations 3.8 1.7 8.1 Steel Related Operations 19.4 13.7 21.6 Eliminations (23.2) (15.4) (29.7) - ---------------------------------------------------------------------------------------------------- Total $4,819.4 $4,323.4 $4,007.9 ==================================================================================================== ESTIMATED RESTRUCTURING LOSSES: Basic Steel Operations $ -- $ 350.0 $ -- ==================================================================================================== INCOME (LOSS) FROM OPERATIONS: Basic Steel Operations $ 166.0 $ (273.6) $ (214.3) Steel Related Operations (32.4) (21.6) 11.3 - ---------------------------------------------------------------------------------------------------- Total $ 133.6 $ (295.2) $ (203.0) ==================================================================================================== SHIPMENTS (tons in thousands): Basic Steel Operations 9,251 8,997 8,431 ==================================================================================================== IDENTIFIABLE ASSETS: Basic Steel Operations $4,106.0 $3,930.6 $3,896.3 Steel Related Operations 102.7 119.9 139.0 Corporate 1,573.7 1,826.2 1,457.7 - ---------------------------------------------------------------------------------------------------- Total $5,782.4 $5,876.7 $5,493.0 ==================================================================================================== DEPRECIATION: Basic Steel Operations $ 252.6 $ 271.9 $ 256.0 Steel Related Operations 8.5 5.6 5.7 - ---------------------------------------------------------------------------------------------------- Total $ 261.1 $ 277.5 $ 261.7 ==================================================================================================== CAPITAL EXPENDITURES: Basic Steel Operations $ 432.1 $ 323.8 $ 325.8 Steel Related Operations 12.5 3.3 2.9 - ---------------------------------------------------------------------------------------------------- Total $ 444.6 $ 327.1 $ 328.7 ====================================================================================================
A general description of our segments and their products and services is contained under the heading "Bethlehem's Segments" on page 6 of this Report. Intersegment sales are generally at market prices. Corporate assets consist primarily of cash and cash equivalents, investments, deferred income tax asset and intangible asset-pensions. D. ESTIMATED RESTRUCTURING LOSSES On January 26, 1994, we announced a revised modernization plan for our Bethlehem Structural Products subsidiary that phases out the production of raw steel and heavy structural shapes in 1995. In total, we now expect to reduce our workforce by 1,700 employees by 1996. Also, based on our review of the current and projected coke market, we concluded that we could not recover both the remaining book value and required future investment if we rebuild and operate the coke plant at our Sparrows Point Division that was idled in 1991. Accordingly, we recorded a restructuring loss in 1993 of $350 million ($290 million after-tax or $3.19 per share). This loss included $215 million for the net book value of certain equipment, $115 million for employee benefit related costs ($75 million for pensions, $20 million for postretirement benefits other than pensions and $20 million for severance and other benefits) and $20 million for future contractual and other costs. The amounts for severance and other costs charged to the restructuring liability in 1994 were not significant. E. TAXES Our benefit (provision) for income taxes consisted of:
- ---------------------------------------------------------------------------------------------------- (Dollars in millions) 1994 1993 1992 - ---------------------------------------------------------------------------------------------------- Federal-deferred $(13.0) $87.0 $45.0 State and foreign-current (1.0) (2.0) -- - ---------------------------------------------------------------------------------------------------- Total benefit (provision) $(14.0) $85.0 $45.0 ====================================================================================================
The benefit (provision) for income taxes differs from the amount computed by applying the federal statutory rate to pre-tax income (loss). The computed amounts and the items comprising the total differences follow:
- ---------------------------------------------------------------------------------------------------- (Dollars in millions) 1994 1993 1992 - ---------------------------------------------------------------------------------------------------- Pre-tax income (loss): United States $ 86.9 $ (353.3) $ (260.4) Foreign 7.6 2.0 5.1 - ---------------------------------------------------------------------------------------------------- Total $ 94.5 $ (351.3) $ (255.3) ==================================================================================================== Computed amounts $ (33.1) $ 123.0 $ 86.8 Effect of change in rate on prior years (a) -- 50.0 -- Valuation allowance 13.0 (87.0) (50.4) Percentage depletion 7.7 5.6 6.8 Dividend received deduction 2.6 2.4 2.7 State and foreign taxes (1.0) (2.0) -- Other differences-net (3.2) (7.0) (.9) - ---------------------------------------------------------------------------------------------------- Total benefit (provision) $ (14.0) $ 85.0 $ 45.0 ====================================================================================================
(a) The 1993 Omnibus Budget Reconciliation Act increased the federal corporate income tax rate to 35% from 34%. This increase in the tax rate resulted in an increase in our deferred income tax asset of $25 million, net of a valuation allowance, which we recorded in 1993. - -------------------------------------------------------------------------------- BETHLEHEM STEEL CORPORATION 15 14 The components of our net deferred income tax asset are as follows:
- ------------------------------------------------------------- DECEMBER 31 - ------------------------------------------------------------- (Dollars in millions) 1994 1993 - ------------------------------------------------------------- Temporary differences: Employee benefits $ 870 $ 980 Depreciable assets (250) (240) Other 66 44 - ------------------------------------------------------------- Total 686 784 Operating loss carryforward 600 550 - ------------------------------------------------------------- Deferred income tax asset 1,286 1,334 Valuation allowance (383) (407) - ------------------------------------------------------------- Deferred income tax asset-net $ 903 $ 927 =============================================================
Temporary differences represent the cumulative taxable or deductible amounts recorded in our financial statements in different years than recognized in our tax returns. Our employee benefits temporary difference includes amounts expensed in our financial statements for pensions, health care, life insurance and other postretirement benefits which become deductible in our tax return upon payment or funding in qualified trusts. The depreciable assets temporary difference represents generally tax depreciation in excess of financial statement depreciation. Other temporary differences represent principally various expenses accrued for financial reporting purposes which are not deductible for tax reporting purposes until paid. At December 31, 1994, we had regular tax net operating loss carryforwards of $1.7 billion and alternative minimum tax loss carryforwards of $900 million. Regular federal tax net operating loss carryforwards of $420 million expire in 1998, with the balance expiring in varying amounts from 1999 through 2009. Statement No. 109 requires that we record a valuation allowance when it is "more likely than not that some portion or all of the deferred tax assets will not be realized." It further states, "forming a conclusion that a valuation allowance is not needed is difficult when there is negative evidence such as cumulative losses in recent years." The ultimate realization of this deferred tax asset depends on our ability to generate sufficient taxable income in the future. Bethlehem reported income before income taxes, restructuring charges and extraordinary gains in 1987 through 1990 and incurred higher costs in 1991 and 1992 relating to unusual repair costs at a coke plant that has subsequently been idled and start-up costs of certain modernized facilities. Bethlehem has undergone substantial restructuring and made substantial strategic capital expenditures during the last several years. As a result, Bethlehem has a significantly lower and more competitive cost structure and our income from operations before restructuring charges improved significantly in both 1994 and 1993 from the prior year. Also, we have significant tax planning opportunities to manage taxable income including selection of depreciation methods and timing of contributions to our pension trust. While we believe that our total deferred tax asset will be fully realized by future operating results together with tax planning opportunities, our losses from operations before restructuring charges in 1991 and 1992 make it appropriate to record a valuation allowance. Accordingly, we have provided a valuation allowance at December 31, 1994 and 1993 equal to 50% of the total deferred tax asset related to our operating loss carryforward and our temporary differences exclusive of postretirement benefits other than pensions. We expect our annual financial statement expense for postretirement benefits other than pensions to exceed the annual amount deductible in our tax returns for several years. Furthermore, if we have a tax loss in any year in which our tax deduction exceeds our financial statement expense, the tax law currently provides for a 15-year carryforward of that loss against future taxable income. Under current law, we have a very long time to realize these future tax benefits. We believe, therefore, a valuation allowance is not necessary for the deferred tax asset related to our temporary difference for postretirement benefits other than pensions. If we are unable to generate sufficient taxable income in the future through operating results or tax-planning opportunities, we will be required to increase our valuation allowance through a charge to expense (reducing our stockholders' equity). On the other hand, if we achieve sufficient profitability to use all of our deferred income tax asset, we will reduce the valuation allowance through a decrease to expense (increasing our stockholders' equity). - -------------------------------------------------------------------------------- 16 BETHLEHEM STEEL CORPORATION 15 In addition to income taxes, we incurred costs for certain other taxes as follows:
- ------------------------------------------------------------------------------- (Dollars in millions) 1994 1993 1992 - ------------------------------------------------------------------------------- Employment taxes $ 90.1 $ 89.1 $ 88.7 Property taxes 24.7 27.5 26.7 State and foreign taxes 9.1 9.0 11.2 Federal excise tax on coal 3.1 3.3 5.3 - ------------------------------------------------------------------------------- Total other taxes $ 127.0 $128.9 $131.9 ===============================================================================
F. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
- ----------------------------------------------------------------------------- DECEMBER 31 - ----------------------------------------------------------------------------- (Dollars in millions) 1994 1993 - ----------------------------------------------------------------------------- 5.69%-5.99% Galvanizing lines financing $224.6 $262.0 Notes and loans: 10 3/8% Senior Notes, Due 2003 105.0 105.0 2%-12 3/4%, Due 1995-2009 31.3 34.8 Debentures: 6 7/8% Due 1999 16.0 18.8 9% Due 2000 36.0 39.9 8 3/8% Due 2001 41.6 41.6 8.45% Due 2005 90.7 90.7 Pollution control and industrial revenue bonds: 7 1/2%-8%, Due 2015-2024 128.9 78.1 Variable interest at 50%-70% of prime rate, Due 1995-1996 -- 27.0 Capital lease obligations 84.8 117.9 Unamortized debt discount (1.6) (2.0) - ----------------------------------------------------------------------------- Total 757.3 813.8 Amounts due within one year (88.9) (95.5) - ----------------------------------------------------------------------------- Long-term $668.4 $718.3 =============================================================================
Maturities and sinking fund requirements at December 31, 1994 for the next five years were $89 million in 1995, $98 million in 1996, $56 million in 1997, $52 million in 1998 and $51 million in 1999. The hot-dip galvanizing lines financing is collateralized by the coating lines at our Sparrows Point and Burns Harbor Divisions and will be repaid in equal semiannual installments through 2000. The 10 3/8% Senior Notes are senior in right of payment to all existing and future subordinated indebtedness of Bethlehem. As unsecured senior obligations of Bethlehem, the Notes will effectively be subordinate to secured senior indebtedness of Bethlehem. These Notes contain covenants which impose certain limitations on Bethlehem's ability to incur or repay debt, to pay dividends and make other distributions on or redeem capital stock, or to sell, merge, transfer or encumber assets. See Note L, Stockholders' Equity. Our revolving credit agreement, which expires on December 29, 1996, is non-reducing with total commitments of $500 million as of December 31, 1994. Borrowings under the revolver are subject to collateral coverage requirements and incur interest based on the prime rate, Federal Funds rate, certificate of deposit rates or LIBOR. Our accounts receivable and inventories are pledged as collateral for borrowings and letters of credit under the credit agreement and certain other obligations to participating banks. No borrowings were outstanding at December 31, 1994 and 1993. We pay five-eighths of 1% per annum commitment fee on the unused available credit. Our revolving credit and hot-dip galvanizing lines financing agreements contain restrictive covenants which require Bethlehem to maintain a minimum adjusted tangible net worth. At December 31, 1994, our adjusted tangible net worth exceeded the more restrictive of these requirements by about $1.4 billion. At December 31, 1994 and 1993, the estimated fair value of our debt was less than the recorded amount by approximately $32 million and $7 million. At December 31, 1994, outstanding interest rate swap agreements with notional amounts totaling $75 million effectively fix the interest rate on a like amount of our floating rate debt and caster leases at 8.39% to 8.70%. These agreements expire in 2000 and 2001. At December 31, 1994 and 1993, the estimated fair value of our interest rate swap agreements represents an unrecorded obligation of approximately $2 million and $31 million. The ultimate amounts paid or received under these agreements, however, depend on future interest rates. We based our estimates of fair value on market prices or current rates offered for debt and swaps with similar terms and maturities. We lease certain manufacturing facilities and equipment under capital leases, the most significant of which covers the two continuous casters at our Sparrows Point and Burns Harbor Divisions. The casters lease requires quarterly rental payments of $9 million plus interest at 1 1/4% above LIBOR. The amounts included in property, plant and equipment for capital leases were $291 million (net of $247 million accumulated amortization) and $320 million (net of $222 million accumulated amortization) at December 31, 1994 and 1993. - -------------------------------------------------------------------------------- BETHLEHEM STEEL CORPORATION 17 16 Future minimum payments under noncancellable operating leases at December 31, 1994 were $23 million in 1995, $21 million in 1996, $14 million in 1997, $11 million in 1998, $8 million in 1999 and $30 million thereafter. Total rental expense under operating leases was $38, $41 and $50 million in 1994, 1993 and 1992. G. COMMITMENTS AND CONTINGENT LIABILITIES Based generally on our proportionate ownership in an iron ore associated enterprise, we are entitled to receive our share of certain ore produced and are committed to pay our share of their costs. We received 2.7 million net tons of such iron ore in each of the years 1994, 1993 and 1992 at a net cost of $82, $89 and $89 million. At December 31, 1994, we had outstanding approximately $120 million of purchase orders for additions and improvements to our properties. We, as well as other steel companies, are subject to various environmental laws and regulations imposed by federal, state and local governments. Because of the continuing evolution of the specific regulatory requirements and available technology to comply with the requirements, we cannot reasonably estimate the future capital expenditures and operating costs required to comply with these laws and regulations. Although it is possible that our future operating results in a particular quarterly or annual period could be materially affected by the future costs of environmental compliance, we do not believe the future costs of environmental compliance will have a material adverse effect on our consolidated financial position or on our competitive position with respect to other integrated domestic steelmakers subject to the same environmental requirements. In the ordinary course of our business, we are involved in various pending or threatened legal actions. In our opinion, adequate reserves have been recorded for losses which are likely to result from these proceedings. If such reserves prove to be inadequate, however, we would incur a charge to earnings which could be material to the results of operations in a particular future quarterly or annual period. We believe that any ultimate liability arising from these actions will not have a material adverse effect on our consolidated financial position. H. POSTRETIREMENT PENSION BENEFITS We have noncontributory defined benefit pension plans which provide benefits for substantially all employees. Defined benefits are based on years of service and the five highest consecutive years of pensionable earnings during the last ten years prior to retirement or a minimum amount based on years of service. We fund annually the amount required under ERISA minimum funding standards plus additional amounts as appropriate. The following sets forth the plans' actuarial assumptions used and funded status at year end together with amounts recognized in our consolidated balance sheets:
- ---------------------------------------------------------------------------------------------------- DECEMBER 31 - ---------------------------------------------------------------------------------------------------- (Dollars in millions) 1994 1993 - ---------------------------------------------------------------------------------------------------- Assumptions: Discount rate 9.0% 7.5% Average rate of compensation increase 3.1% 2.9% Actuarial present value of benefit obligations: Vested benefit obligation $4,246.9 $4,816.4 Accumulated benefit obligation 4,392.9 4,979.4 Projected benefit obligation 4,578.8 5,208.6 Plan assets at fair value: Fixed income securities 1,758.6 1,955.0 Equity securities 1,371.4 1,232.2 Cash and marketable securities 145.8 178.6 - ---------------------------------------------------------------------------------------------------- Total plan assets $3,275.8 $3,365.8 - ---------------------------------------------------------------------------------------------------- Projected benefit obligation in excess of plan assets 1,303.0 1,842.8 Unrecognized net loss (82.1) (289.7) Remaining unrecognized net obligation resulting from adoption of Statement No. 87 (255.2) (293.5) Unrecognized prior service cost from plan amendments (275.2) (307.1) Adjustment required to recognize minimum liability-Intangible asset 426.6 600.6 -Additional paid-in capital (pre-tax) (Note L) -- 60.5 - ---------------------------------------------------------------------------------------------------- Pension liability $1,117.1 $1,613.6 ====================================================================================================
The assumptions used in each year and the components of our annual pension cost are as follows:
- ---------------------------------------------------------------------------------------------------- (Dollars in millions) 1994 1993 1992 - ---------------------------------------------------------------------------------------------------- Assumptions: Return on plan assets 8.75% 9.50% 9.50% Discount rate 7.50% 8.50% 8.50% Pension cost: Service cost-benefits earned during the period $ 51.9 $ 39.3 $ 45.0 Interest on projected benefit obligation 375.7 380.4 394.2 Return on plan assets-actual 60.3 (308.8) (250.0) -deferred (365.3) 4.3 (62.2) Amortization of initial net obligation 36.7 37.7 37.8 Amortization of unrecognized prior service cost from plan amendments 32.7 19.8 18.8 - ------------------------------------------------------------------------------------------------ Total defined benefit plans 192.0 172.7 183.6 PBGC premiums, administration fees, etc. 11.1 10.9 5.1 - ------------------------------------------------------------------------------------------------ Total cost $ 203.1 $ 183.6 $ 188.7 ================================================================================================
- -------------------------------------------------------------------------------- 18 BETHLEHEM STEEL CORPORATION 17 I. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS In addition to providing pension benefits, we currently provide health care and life insurance benefits for most retirees and their dependents. Information regarding our plans' actuarial assumptions, funded status and liability follows:
- ---------------------------------------------------------------------------------------------------- DECEMBER 31 - ---------------------------------------------------------------------------------------------------- (Dollars in millions) 1994 1993 - ---------------------------------------------------------------------------------------------------- Assumptions: Discount rate 9.0% 7.5% Trend rate-beginning 9.0% 9.0% -ending (year 2000) 4.6% 4.6% Accumulated postretirement benefit obligation: Retirees $1,427.6 $1,506.7 Fully eligible active plan participants 99.7 126.8 Other active plan participants 160.4 236.1 - ---------------------------------------------------------------------------------------------------- Total 1,687.7 1,869.6 Plan assets at fair value: Fixed income securities 135.5 158.5 - ---------------------------------------------------------------------------------------------------- Accumulated postretirement benefit obligation in excess of plan assets 1,552.2 1,711.1 Unrecognized net gain (loss) 27.2 (130.5) - ---------------------------------------------------------------------------------------------------- Total obligation 1,579.4 1,580.6 Current portion (138.0) (132.3) - ---------------------------------------------------------------------------------------------------- Long-term obligation $1,441.4 $1,448.3 ====================================================================================================
The assumptions used in each year and the components of our postretirement benefit cost follow:
- -------------------------------------------------------------------------------------------------- (Dollars in millions) 1994 1993 1992 - -------------------------------------------------------------------------------------------------- Return on plan assets 8.75% 9.50% 9.50% Discount rate 7.50% 8.50% 8.50% Trend rate-beginning 9.00% 9.50% 9.50% -ending (2000) 4.60% 5.50% 5.50% Service cost $ 11.1 $ 9.0 $ 9.0 Interest on accumulated postretirement benefit obligation 138.8 144.1 139.0 Return on plan assets-actual 4.7 (17.9) (18.4) -deferred (17.6) 3.8 4.5 - ------------------------------------------------------------------------------------------------- Total cost $137.0 $139.0 $134.1 =================================================================================================
A 1% increase or decrease in the assumed health care trend rate would increase or decrease the accumulated postretirement benefit obligation by about $120 million and 1994 expense by about $20 million. J. STOCKHOLDER RIGHTS PLAN We have a Stockholder Rights Plan under which holders of Common Stock have rights to purchase a new series of Preference Stock. When exercisable, each right entitles the holder to purchase a hundredth of a share of Series A Junior Participating Preference Stock at an exercise price of $80 per unit. The rights will become exercisable only if a person or group acquires 20% or more of Common Stock or begins a tender offer or exchange offer which would result in that person or group beneficially owning 20% or more of Common Stock. Subsequently, upon the occurrence of certain events, holders of rights will be entitled to purchase Common Stock of Bethlehem or a third-party acquiror worth twice the right's exercise price. Until the rights become exercisable, we will be able to redeem them at one cent per right. The rights expire on October 18, 1998. K. STOCK OPTIONS At December 31, 1994, we had options outstanding under our Stock Option Plans. The 1994 Stock Incentive Plan was approved by our stockholders on April 26, 1994 and replaces the 1988 Stock Incentive Plan. New options can be granted only under the 1994 Plan, which reserved 4,000,000 shares of Common Stock for such use. At December 31, 1994, options on 3,211,200 shares of Common Stock were available for granting under the 1994 Plan. The option price is the fair market value of our Common Stock on the date the option is granted. Options issued under the 1994 Plan become exercisable either two or four years after the date granted and expire ten years from the date granted. Exercisable options may be surrendered for the difference between the option price and the fair market value of the Common Stock on the date of surrender. Depending on the circumstances, option holders receive either Common Stock, cash, or a combination of Common Stock and cash. Changes in options outstanding during 1994 and 1993 under the Plans were as follows:
- -------------------------------------------------------------------------------------------------- OPTION NUMBER OF PRICE OPTIONS OR RANGE - -------------------------------------------------------------------------------------------------- Balance December 31, 1992 2,911,319 7 3/4-27 1/8 Granted 532,600 19 Terminated or cancelled (348,102) 8-27 1/8 Surrendered or exercised (215,902) 7 3/4-17 5/8 - -------------------------------------------------------------------------------------------------- Balance December 31, 1993 2,879,915 8-26 1/8 Granted 561,900 20 3/8 Terminated or cancelled (256,264) 14 1/8-26 1/8 Surrendered or exercised (685,303) 8-21 3/4 - -------------------------------------------------------------------------------------------------- Balance December 31, 1994 2,500,248 8-21 3/4 ==================================================================================================
1,689,298 options outstanding were exercisable at December 31, 1994. - -------------------------------------------------------------------------------- BETHLEHEM STEEL CORPORATION 19 18 L. STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------ (Shares in thousands PREFERRED STOCK PREFERENCE STOCK COMMON STOCK COMMON STOCK ADDITIONAL and dollars in millions, S1.00 PAR VALUE $1.0O PAR VALUE $1.0O PAR VALUE HELD IN TREASURY PAID-IN ACCUMULATED except per share data) SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE DECEMBER 31, 1991 6,500 $ 6.5 2,713 $ 2.7 78,377 $ 78.4 1,997 $59.6 $1,281.4 $(123.3) Net loss for year (550.3) Preferred Stock dividends (22.5) Preference Stock: Stock dividend 133 .1 (.1) Issued 256 .3 3.3 Converted (233) (.2) 233 .2 Common Stock: Stock acquired 5 .1 Issued 13,901 13.9 158.7 - -------------------------------------------------------------------------------------------------------------------------------- BALANCE DECEMBER 31, 1992 6,500 6.5 2,869 2.9 92,511 92.5 2,002 59.7 1,420.8 (673.6) Net loss for year (266.3) Minimum pension liability adjustment (Note H) (50.0) Preferred Stock: Dividends (36.2) Issued 5,123 5.1 243.2 Preference Stock: Stock dividend 138 .1 (.1) Issued 211 .2 3.2 Converted (407) (.4) 407 .4 Common Stock: Stock acquired 2 Issued 495 .5 7.5 - -------------------------------------------------------------------------------------------------------------------------------- BALANCE DECEMBER 31, 1993 11,623 11.6 2,811 2.8 93,413 93.4 2,004 59.7 1,588.4 (939.9) Net income for year 80.5 Minimum pension liability adjustment (Note H) 50.0 Preferred Stock Dividends (40.4) Preference Stock: Stock dividend 135 .1 (.1) Issued 134 .1 2.6 Converted (461) (.4) 461 .4 Common Stock Issued 18,008 18.1 (7) (.2) 348.1 - -------------------------------------------------------------------------------------------------------------------------------- BALANCE DECEMBER 31, 1994 11,623 $11.6 2,619 $ 2.6 111,882 $111.9 1,997 $59.5 $1,948.6 $(859.4) ================================================================================================================================
Preferred and Preference Stock issued and outstanding:
- -------------------------------------------------------------------------------------------------------------- December 31 - -------------------------------------------------------------------------------------------------------------- (Shares in thousands) 1994 1993 - -------------------------------------------------------------------------------------------------------------- Preferred Stock-Authorized 20,000 shares $5.00 Cumulative Convertible Preferred Stock 2,500 2,500 $2.50 Cumulative Convertible Preferred Stock 4,000 4,000 $3.50 Cumulative Convertible Preferred Stock 5,123 5,123 Preference Stock-Authorized 20,000 shares Series "A" 5% Cumulative Convertible Preference Stock 1,966 2,171 Series "B" 5% Cumulative Convertible Preference Stock 653 640 - --------------------------------------------------------------------------------------------------------------
During 1993, we issued 5.1 million shares of $3.50 Cumulative Convertible Preferred Stock for $248 million. Each share is convertible into 2.39 shares of Common Stock, subject to certain events. Each share of the $5.00 Cumulative Convertible Preferred Stock and the $2.50 Cumulative Convertible Preferred Stock issued in 1983 is convertible into 1.77 and .84 shares of Common Stock, respectively, subject to certain events. In accordance with our labor agreements, we issue Preference Stock to a trustee under the Employee Investment Program. Series "A" and Series "B" of Preference Stock have a cumulative dividend of 5% per annum payable at our option in cash, Common Stock or additional shares of Preference Stock. Each share of Preference Stock is entitled to vote with Common Stock on all matters and is convertible into one share of Common Stock. Under the covenants of our 10 3/8% Senior Notes, we can pay future dividends on our Common Stock, among certain other restrictions, only if such cumulative dividends do not exceed the aggregate net cash proceeds from the sale of capital stock plus 50% of a consolidated net income and minus 100% of a consolidated net loss since the second quarter of 1993, excluding certain restructuring charges. The amount available at December 31, 1994 under this covenant was $435 million. M. QUARTERLY FINANCIAL DATA (UNAUDITED)
- -------------------------------------------------------------------------------------------------------- (Dollars in millions, except per share data) 1994 1993 - -------------------------------------------------------------------------------------------------------- 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q - -------------------------------------------------------------------------------------------------------- Net sales $1,131.2 $1,230.5 $1,233.2 $1,224.5 $1,020.4 $1,117.4 $1,055.3 $1,130.3 Cost of sales 1,005.2 1,087.9 1,120.9 1,073.3 946.4 1,010.6 924.4 952.8 Estimated Restructuring losses -- -- -- -- -- -- -- 350.0 - --------------------------------------------------------------------------------------------------------- Net income (loss) 12.9 26.0 10.3 31.3 (40.8) (13.6) 30.7 (242.6) Net income (loss) per Common Share $ .02 $ .14 $ -- $ .19 $ (.53) $ (.27) $ .22 $ (2.78) - ---------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 20 BETHLEHEM STEEL CORPORATION 19 REPORT OF INDEPENDENT AUDITORS TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF BETHLEHEM STEEL CORPORATION We have audited the accompanying consolidated balance sheets of Bethlehem Steel Corporation and its subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of income and of cash flows for each of the three years in the period ended December 31, 1994. 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 consolidated financial statements audited by us present fairly, in all material respects, the financial position of Bethlehem Steel Corporation and its subsidiaries at December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. As discussed in Note B to the financial statements, the Company changed its methods of accounting for income taxes and postretirement benefits other than pensions in 1992. /s/ PRICE WATERHOUSE LLP - -------------------------- 1177 Avenue of the Americas New York, New York 10036 January 25, 1995 - -------------------------------------------------------------------------------- BETHLEHEM STEEL CORPORATION 21 20 FIVE-YEAR FINANCIAL AND OPERATING SUMMARIES
- -------------------------------------------------------------------------------------------------------------------------------- (Dollars in millions, except per share) 1994 1993 1992 1991 1990 - -------------------------------------------------------------------------------------------------------------------------------- EARNING STATISTICS Net Sales $ 4,819.4 $4,323.4 $4,007.9 $4,317.9 $4,899.2 - -------------------------------------------------------------------------------------------------------------------------------- Costs and Expenses Employment costs 1,633.0 1,547.1 1,664.0 1,720.8 1,752.0 Materials and services 2,754.8 2,404.2 2,242.0 2,444.3 2,679.3 Depreciation 261.1 277.5 261.7 241.4 305.7 Taxes (other than employment and income taxes) 36.9 39.8 43.2 51.3 51.3 Estimated restructuring losses -- 350.0 -- 635.0 550.0 - -------------------------------------------------------------------------------------------------------------------------------- Total Costs and Expenses 4,685.8 4,618.6 4,210.9 5,092.8 5,338.3 - -------------------------------------------------------------------------------------------------------------------------------- Income (loss) from operations 133.6 (295.2) (203.0) (774.9) (439.1) Financing income (expense): Interest and other financing costs (46.2) (63.2) (57.2) (45.5) (44.1) Interest income 7.1 7.1 4.9 9.7 29.9 Benefit (provision) for income taxes (14.0) 85.0 45.0 (2.0) (6.0) Cumulative effect of changes in accounting -- -- (340.0) -- -- - -------------------------------------------------------------------------------------------------------------------------------- Net income (loss) 80.5 (266.3) (550.3) (812.7) (459.3) Dividends on Preferred and Preference Stock 43.1 39.8 24.3 24.7 24.2 - -------------------------------------------------------------------------------------------------------------------------------- Net income (loss) applicable to Common Stock $ 37.4 $ (306.1) $ (574.6) $ (837.4) $ (483.5) ================================================================================================================================ Net income (loss) per Common share $ .35 $ (3.37) $ (7.01) $ (11.01) $ (6.39) Dividends per Common share -- -- -- .40 .40 Dividends paid on Common Stock -- -- -- 30.4 30.3 - -------------------------------------------------------------------------------------------------------------------------------- BALANCE SHEET STATISTICS Cash and cash equivalents $ 159.5 $ 228.9 $ 208.2 $ 83.8 $ 273.5 Receivables, inventories and other current assets 1,409.6 1,362.2 1,261.3 1,454.0 1,494.7 Current liabilities (1,011.2) (914.2) (893.2) (931.0) (831.4) - -------------------------------------------------------------------------------------------------------------------------------- Working capital $ 557.9 $ 676.9 $ 576.3 $ 606.8 $ 936.8 Current ratio 1.6 1.7 1.6 1.7 2.1 Property, plant and equipment-net $ 2,759.3 $2,634.3 $2,804.5 $2,864.8 $2,796.4 Total assets 5,782.4 5,876.7 5,493.0 4,708.3 4,947.1 Total debt and capital lease obligations 757.3 813.8 796.0 871.2 663.8 Stockholders' equity 1,155.8 696.6 789.4 1,186.1 2,046.0 Total debt as a percent of invested capital 40% 54% 50% 42% 24% - -------------------------------------------------------------------------------------------------------------------------------- OTHER STATISTICS Capital expenditures $ 444.6 $ 327.1 $ 328.7 $ 563.9 $ 488.0 Raw steel production capability (net tons in thousands) 11,500 11,500 16,000 16,000 16,000 Raw steel production (net tons in thousands) 9,817 10,303 10,544 10,022 10,924 Steel products shipped (net tons in thousands) 9,262 9,016 9,062 8,376 8,865 Pensioners receiving benefits at year end 71,700 70,900 70,500 70,200 70,500 Average number of employees receiving pay 19,900 20,700 24,900 27,500 29,600 Common Stock outstanding at year end (shares in thousands) 109,886 91,409 90,509 76,380 75,867 Common stockholders at year end 41,000 43,000 46,000 50,000 52,000 - --------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------ 22 BETHLEHEM STEEL CORPORATION EX-21 5 SUBSIDIARIES OF BETHLEHEM STEEL 1 Exhibit 21 Subsidiaries of Bethlehem Steel Corporation Unless otherwise stated, the following subsidiaries were 100% owned and were consolidated by the Corporation at December 31, 1994.
State or Other Jurisdiction Name of Subsidiary In Which Incorporated - ------------------ --------------------------- BethEnergy Mines Inc.* West Virginia Bethlehem Steel International Corporation Delaware Bethlehem Hibbing Corporation Minnesota
* BethEnergy Mines Inc. does business in the Commonwealth of Pennsylvania and the State of West Virginia under the name "Bethlehem Mines Corporation". - ------------------- The names of other subsidiaries, both consolidated and unconsolidated, have been omitted as these unnamed subsidiaries, considered in the aggregate as a single subsidiary, do not constitute a significant subsidiary. EX-24 6 POWER OF ATTORNEY 1 Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that each of the undersigned directors and officers of Bethlehem Steel Corporation, a Delaware corporation, constitutes and appoints Curtis H. Barnette, Gary L. Millenbruch, and Lonnie A. Arnett, and each of them, with full power to act without the others, as his true and lawful attorney-in-fact and agent, with full and several power of substitution, for him and in his name, place and stead, in any and all capacities, to sign Bethlehem Steel Corporation's Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, including any amendments thereto, with the Securities and Exchange Commission under the provisions of the Securities and Exchange Act of 1934, as amended, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as they or he might or could do in person, hereby ratifying and confirming all the said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned have hereunto set their hands and seals as of the 20th day of March, 1995. /s/ Curtis H. Barnette /s/ Gary L. Millenbruch - --------------------------------- ----------------------------------- Curtis H. Barnette Gary L. Millenbruch Chairman, Chief Executive Officer Executive Vice President (principal executive officer) (principal financial officer) and Director and Director 2 - 2 - /s/ Lonnie A. Arnett /s/ Harry P. Kamen - ----------------------------------- ---------------------------------- Lonnie A. Arnett Harry P. Kamen, Director Vice President and Controller (principal accounting officer) /s/ Benjamin R. Civiletti /s/ Winthrop Knowlton - ----------------------------------- --------------------------------- Benjamin R. Civiletti, Director Winthrop Knowlton, Director /s/ Worley H. Clark /s/ Robert McClements, Jr. - ----------------------------------- --------------------------------- Worley H. Clark, Director Robert McClements, Jr., Director /s/ Herman E. Collier, Jr. /s/ Roger P. Penny - ----------------------------------- ----------------------------------- Herman E. Collier, Jr., Director Roger P. Penny, Director /s/ John B. Curcio /s/ Dean P. Phypers - ------------------------------------ ----------------------------------- John B. Curcio, Director Dean P. Phypers, Director /s/ William C. Hittinger /s/ William A. Pogue - ----------------------------------- ----------------------------------- William C. Hittinger, Director William A. Pogue, Director /s/ Thomas L. Holton /s/ John F. Ruffle - ----------------------------------- ------------------------------------- Thomas L. Holton, Director John F. Ruffle, Director /s/ Lewis B. Kaden - ------------------------------------ Lewis B. Kaden, Director EX-27 7 FINANCIAL DATA SCHEDULE
5 1,000,000 YEAR DEC-31-1994 DEC-31-1994 160 0 538 19 883 1569 6927 4168 5782 1011 668 112 0 14 1030 5782 4819 4819 4287 4686 0 0 46 95 14 81 0 0 0 81 .35 .35
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