<PAGE> 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:
<TABLE>
<CAPTION>
Name of each exchange on
Title of each class which registered
------------------- -------------------------
<S> <C>
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
</TABLE>
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.
<PAGE> 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:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
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%
======== ======== ========
</TABLE>
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
<PAGE> 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:
<TABLE>
<CAPTION>
RAW STEEL PRODUCTION
------------------------------------------
Domestic Bethlehem as a
Steel % of Domestic
Bethlehem Industry* Steel Industry
--------- -------- --------------
(millions of net tons)
<S> <C> <C> <C>
1994 . . . . . . . . . . . . . . . . . . . . . . 9.8 97.9** 10.0
1993 . . . . . . . . . . . . . . . . . . . . . . 10.3 97.9 10.5
1992 . . . . . . . . . . . . . . . . . . . . . . 10.5 92.9 11.3
</TABLE>
- --------------
* 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
<PAGE> 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:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
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%
======== ======== ========
</TABLE>
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
<PAGE> 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.
<TABLE>
<CAPTION>
1994* 1993 1992
----- ---- ----
<S> <C> <C> <C>
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
</TABLE>
- --------------
* 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
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<PAGE> 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
<PAGE> 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.
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<PAGE> 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.
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<PAGE> 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
<PAGE> 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
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<PAGE> 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.
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<PAGE> 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.
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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.
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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.
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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.
- -------------------------------
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EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers of Bethlehem as of March 15, 1995, are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
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)
</TABLE>
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<PAGE> 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.
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<PAGE> 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.
<TABLE>
<CAPTION>
1994 1993
------------------------- ---------------------------
SALES PRICES SALES PRICES
------------------------- ---------------------------
PERIOD HIGH LOW HIGH LOW
------ ---- --- ---- ---
<S> <C> <C> <C> <C>
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
</TABLE>
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.
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<PAGE> 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.
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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
<PAGE> 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
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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
</TABLE>
-----------------------
* Incorporated in this Report by reference from pages 11 to 20,
inclusive, of Bethlehem's 1994 Annual Report to Stockholders
referred to below.
26
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<TABLE>
<S> <C>
/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
</TABLE>
30
<PAGE> 32
<TABLE>
<S> <C>
* *
---------------------------------------- ----------------------------------------
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)
</TABLE>
31
<PAGE> 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
<PAGE> 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
<PAGE> 35
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(dollars in millions)
<TABLE>
<CAPTION>
Charged
Balance at (Credited) Deductions Balance at
Classification 12/31/93 to Income From Reserves Other 12/31/94
- -------------- ---------- ---------- ------------- ----- ----------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
Balance at Charged Deductions Balance at
Classification 12/31/92 to Income From Reserves Other 12/31/93
- -------------- ---------- ---------- ------------- ----- ----------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
Balance at Charged Deductions Balance at
Classification 12/31/91 to Income From Reserves Other 12/31/92
- -------------- ---------- ---------- ------------- ----- ----------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
(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
<PAGE> 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.
<PAGE> 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.
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 1
EXHIBIT (11)
BETHLEHEM STEEL CORPORATION
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
(dollars in millions and shares in thousands, except per share data)
<TABLE>
<CAPTION>
YEAR
ENDED DECEMBER 31
-----------------------------------------------
PRIMARY EARNINGS PER SHARE 1994 1993 1992
-------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
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)
=========== =========== ===========
</TABLE>
* ANTIDILUTIVE
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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:
<TABLE>
<CAPTION>
- -------------------------------------------------------------
INCREASE FROM PRIOR YEAR
- -------------------------------------------------------------
1994 1993
- -------------------------------------------------------------
<S> <C> <C>
Realized prices 5% 1%
Product mix 4 3
Volume 3 7
- -------------------------------------------------------------
Total Revenues 12% 11%
=============================================================
</TABLE>
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
<PAGE> 6
Bethlehem expects to benefit from higher shipments of premium head-hardened
rail, lower costs and improved quality.
<TABLE>
<CAPTION>
PERCENTAGE OF BETHLEHEM'S NET SALES
BY SEGMENT AND MAJOR PRODUCT
- -------------------------------------------------------------------------
1994 1993 1992
- -------------------------------------------------------------------------
<S> <C> <C> <C>
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%
=========================================================================
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF STEEL MILL PRODUCT
SHIPMENTS BY PRINCIPAL MARKET
- -------------------------------------------------------------------------
(Based on net tons shipped) 1994 1993 1992
- -------------------------------------------------------------------------
<S> <C> <C> <C>
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%
=========================================================================
</TABLE>
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
<PAGE> 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.
<TABLE>
<CAPTION>
COMMON STOCK MARKET AND DIVIDEND INFORMATION
- -----------------------------------------------------------------------------
1994 1993
- -----------------------------------------------------------------------------
PRICES* PRICES*
-------------------- ----------------------
PERIOD HIGH LOW HIGH LOW
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
=============================================================================
</TABLE>
*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
<PAGE> 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.
<TABLE>
<CAPTION>
EMPLOYMENT COST SUMMARY--ALL EMPLOYEES
- ----------------------------------------------------------------------------
(Dollars in millions) 1994 1993 1992
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
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%
============================================================================
</TABLE>
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
<PAGE> 9
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
- -------------------------------------------------------------------------------------------------------------
(Dollars in millions, except per share data) 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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)
=============================================================================================================
</TABLE>
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
- --------------------------------------------------------------------------------
BETHLEHEM STEEL CORPORATION 11
<PAGE> 10
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
DECEMBER 31
- -------------------------------------------------------------------------------------------------------------
(Dollars in millions, except per share data) 1994 1993
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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
=============================================================================================================
</TABLE>
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
- --------------------------------------------------------------------------------
12 BETHLEHEM STEEL CORPORATION
<PAGE> 11
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
- ---------------------------------------------------------------------------------------------------------------------------
(Dollars in millions) 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Excludes Financing Activities and Investing Activities.
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
- --------------------------------------------------------------------------------
BETHLEHEM STEEL CORPORATION 13
<PAGE> 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:
<TABLE>
<CAPTION>
- -----------------------------------------------------------
DECEMBER 31
- -----------------------------------------------------------
(Dollars in millions) 1994 1993
- -----------------------------------------------------------
<S> <C> <C>
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
===========================================================
</TABLE>
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
<PAGE> 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
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
(Dollars in millions) 1994 1993 1992
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
====================================================================================================
</TABLE>
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:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
(Dollars in millions) 1994 1993 1992
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
====================================================================================================
</TABLE>
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:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
(Dollars in millions) 1994 1993 1992
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
====================================================================================================
</TABLE>
(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
<PAGE> 14
The components of our net deferred income tax asset are
as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------
DECEMBER 31
- -------------------------------------------------------------
(Dollars in millions) 1994 1993
- -------------------------------------------------------------
<S> <C> <C>
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
=============================================================
</TABLE>
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
<PAGE> 15
In addition to income taxes, we incurred costs for certain other taxes as
follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
(Dollars in millions) 1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
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
===============================================================================
</TABLE>
F. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
DECEMBER 31
- -----------------------------------------------------------------------------
(Dollars in millions) 1994 1993
- -----------------------------------------------------------------------------
<S> <C> <C>
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
=============================================================================
</TABLE>
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
<PAGE> 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:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
DECEMBER 31
- ----------------------------------------------------------------------------------------------------
(Dollars in millions) 1994 1993
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
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
====================================================================================================
</TABLE>
The assumptions used in each year and the components of our annual pension
cost are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
(Dollars in millions) 1994 1993 1992
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
18 BETHLEHEM STEEL CORPORATION
<PAGE> 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:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
DECEMBER 31
- ----------------------------------------------------------------------------------------------------
(Dollars in millions) 1994 1993
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
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
====================================================================================================
</TABLE>
The assumptions used in each year and the components of
our postretirement benefit cost follow:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
(Dollars in millions) 1994 1993 1992
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
=================================================================================================
</TABLE>
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:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
OPTION
NUMBER OF PRICE
OPTIONS OR RANGE
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
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
==================================================================================================
</TABLE>
1,689,298 options outstanding were exercisable at December 31, 1994.
- --------------------------------------------------------------------------------
BETHLEHEM STEEL CORPORATION 19
<PAGE> 18
L. STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(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
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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)
================================================================================================================================
</TABLE>
Preferred and Preference Stock issued and outstanding:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
December 31
- --------------------------------------------------------------------------------------------------------------
(Shares in thousands) 1994 1993
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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
- --------------------------------------------------------------------------------------------------------------
</TABLE>
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)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
(Dollars in millions,
except per share data) 1994 1993
- --------------------------------------------------------------------------------------------------------
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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)
- ---------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
20 BETHLEHEM STEEL CORPORATION
<PAGE> 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
<PAGE> 20
FIVE-YEAR FINANCIAL AND OPERATING SUMMARIES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
(Dollars in millions, except per share) 1994 1993 1992 1991 1990
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------------------------------------------------------------------------
22 BETHLEHEM STEEL CORPORATION
<PAGE> 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.
<TABLE>
<CAPTION>
State or Other Jurisdiction
Name of Subsidiary In Which Incorporated
- ------------------ ---------------------------
<S> <C>
BethEnergy Mines Inc.* West Virginia
Bethlehem Steel International Corporation Delaware
Bethlehem Hibbing Corporation Minnesota
</TABLE>
* 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.
<PAGE> 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
<PAGE> 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
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 160
<SECURITIES> 0
<RECEIVABLES> 538
<ALLOWANCES> 19
<INVENTORY> 883
<CURRENT-ASSETS> 1569
<PP&E> 6927
<DEPRECIATION> 4168
<TOTAL-ASSETS> 5782
<CURRENT-LIABILITIES> 1011
<BONDS> 668
<COMMON> 112
0
14
<OTHER-SE> 1030
<TOTAL-LIABILITY-AND-EQUITY> 5782
<SALES> 4819
<TOTAL-REVENUES> 4819
<CGS> 4287
<TOTAL-COSTS> 4686
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46
<INCOME-PRETAX> 95
<INCOME-TAX> 14
<INCOME-CONTINUING> 81
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 81
<EPS-PRIMARY> .35
<EPS-DILUTED> .35
</TABLE>
