<PAGE>
1997
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-1941
BETHLEHEM STEEL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 24-0526133
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
1170 EIGHTH AVENUE 18016-7699
BETHLEHEM, PENNSYLVANIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (610) 694-2424
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
<S> <C>
Common Stock--$1 par value per New York Stock Exchange
share 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
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
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: $1,690,740,420
The amount shown is based on the closing price of Bethlehem Common Stock on
the New York Stock Exchange Composite Tape on April 3, 1998. 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 April 3, 1998: 113,283,652
DOCUMENTS INCORPORATED BY REFERENCE:
Selected portions of the 1997 Annual Report to Stockholders of Bethlehem
Steel Corporation are incorporated by reference into Part I and Part II of
this Report on Form 10-K.
Selected portions of the 1998 Proxy Statement of Bethlehem Steel Corporation
are incorporated by reference into Part III of this Report on Form 10-K.
<PAGE>
PART I
ITEM 1. BUSINESS.
Bethlehem/1/ manufactures and sells a wide variety of steel mill products
and produces and sells coke and iron ore.
For financial reporting purposes, Bethlehem reports the results of its
operations and other financial information in two segments, Basic Steel
Operations and Steel Related Operations. Note B to the Consolidated Financial
Statements contains financial information relating to Bethlehem's industry
segments for 1997, 1996 and 1995. The following table shows the percentage of
net sales of each segment and of major classes of products:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Basic Steel Operations
Steel mill products:
Hot rolled sheets....................................... 14.9% 14.3% 15.9%
Cold rolled sheets...................................... 17.2 16.2 14.4
Coated sheets........................................... 31.5 32.3 29.7
Plates.................................................. 15.2 15.3 15.1
Tin mill products....................................... 7.4 6.9 6.1
Rail products........................................... 4.3 3.5 3.2
Structural shapes and piling............................ 1.3 3.8 6.7
Other steel mill products................................ 3.2 1.6 2.7
Other products and services (including raw materials)..... 3.9 3.6 4.2
----- ----- -----
98.9 97.5 98.0
Steel Related Operations.................................. 1.1 2.5 2.0
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
BASIC STEEL OPERATIONS
Operations
Bethlehem's Basic Steel Operations produces a wide variety of steel mill
products including hot rolled, cold rolled and coated sheets, plates, tin mill
products, rail, specialty blooms, carbon and alloy bars and large-diameter
pipe. Basic Steel Operations includes the Burns Harbor Division, the Sparrows
Point Division and Pennsylvania Steel Technologies, Inc. Also included in
Basic Steel Operations are iron ore operations (which provide raw materials to
Bethlehem's steelmaking facilities or sell such materials to trade customers),
railroad and trucking 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.
- --------
/1/ "Bethlehem" when used in this Report means Bethlehem Steel Corporation, a
Delaware corporation, and where applicable includes its consolidated
subsidiaries. Bethlehem was incorporated in Delaware in 1919.
1
<PAGE>
The following table shows production information for Bethlehem and for the
domestic steel industry. The information regarding the domestic steel industry
is based on data from the American Iron and Steel Institute ("AISI"):
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Domestic steel industry raw steel production
capability (million of net tons).................... 121.4 116.0 112.0
Domestic steel industry raw steel production (million
of net tons)........................................ 107.5* 105.3 104.9
Domestic steel industry average utilization rate..... 89% 91% 93%
Bethlehem's raw steel production capability (million
of net tons)........................................ 10.5 10.5 11.5
Bethlehem's raw steel production (million of net
tons)............................................... 9.6 9.4 10.4
Bethlehem's average utilization rate................. 91% 90% 91%
Bethlehem's production as a percent of the domestic
steel industry...................................... 8.9% 9.1% 10.0%
</TABLE>
- --------
* Preliminary
Of Bethlehem's 1997 raw steel production, 92 percent was produced by basic
oxygen furnaces and 8 percent by electric furnaces. Bethlehem's three
continuous slab casters for light flat rolled products and plates produced
about 91 percent of the slabs needed for these products in 1997 compared with
81 percent in 1996 and 84 percent in 1995.
Bethlehem's operations are subject to planned and unplanned outages due to
required maintenance, equipment malfunctions, work stoppages, various hazards
(including explosions, fires and severe weather conditions) and the
availability of raw materials, supplies, utilities and other items needed for
the production of steel. These outages could result in reduced production and
increased costs.
Markets
The following table shows 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 manufacturing operations:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Service Centers, Distributors, Processors and
Converters (including semifinished)................. 46.9% 45.2% 41.0%
Transportation (including automotive)................ 24.9 26.0 24.8
Construction......................................... 11.0 12.6 14.2
Containers........................................... 5.8 5.2 5.2
Machinery............................................ 4.7 5.1 5.2
Other................................................ 6.7 5.9 9.6
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
Many of the markets Bethlehem supplies, such as automotive, machinery and
construction, are highly cyclical and subject to downturns in the U.S.
economy. Also, many of Bethlehem's customers and suppliers are subject to
collective bargaining agreements, and their ability to operate could be
impacted by a strike or work stoppage.
Bethlehem distributes steel products principally through its own sales
organization, which has sales offices at various locations in the United
States 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 Basic Steel Operations were 2 percent of total sales in 1997, 3
percent in 1996 and 5 percent in 1995.
Trade orders on hand for Basic Steel Operations were about $1.2 billion at
both December 31, 1997 and 1996. Substantially all of the orders on hand at
December 31, 1997, are expected to be filled in 1998.
2
<PAGE>
Steel Price Sensitivity
Bethlehem's financial results are significantly affected by relatively small
(on a percentage basis) variations in the realized prices for its products.
For example, Bethlehem shipped 8.8 million net tons of steel products and
recorded net sales of $4.6 billion during 1997, implying an average realized
price per ton of about $530. A one percent increase or decrease in this
implied average realized price during 1997 would, on a pro forma basis, have
resulted in an increase or decrease in net sales and pre-tax income of about
$46 million. Competitive pressures in the steel industry are severe. These
pressures could limit Bethlehem's ability to obtain price increases or could
lead to a decline in prices, which could have a material adverse effect upon
Bethlehem.
Cyclicality
The domestic steel industry is highly cyclical in nature. Domestic
integrated producers suffered substantial losses in the first half of the
1980s. During the second half of the 1980s, domestic steel producers benefited
from improved industry conditions, and in 1988, domestic industry earnings
reached record levels. Steel demand and pricing declined between 1989 and
1992, and the domestic industry reported substantial losses. Since 1993, there
has been a recovery in steel markets, and domestic steel producers have
reported improved results. Although Bethlehem believes that domestic steel
markets will be relatively strong in 1998, there can be no assurance as to the
extent of any future improvement in domestic steel industry earnings.
Competition
The domestic steel industry is highly competitive. This competition affects
the prices that Bethlehem can charge for its products, the utilization of its
production facilities, its ability to sell higher value products and
ultimately its profitability.
Capacity. There is excess world capacity for many of the products produced
by Bethlehem. Moreover, many foreign steel producers are owned, controlled or
subsidized by foreign governments. Decisions by these foreign producers to
continue marginal facilities may be influenced to a greater degree by
political and economic policy considerations than by prevailing market
conditions. In addition, overcapacity has been perpetuated by the continued
operation, modernization and upgrading of marginal domestic facilities through
bankruptcy reorganization proceedings and by the sale of marginal domestic
facilities to new owners, which operate such facilities with a lower cost
structure. Over the next several years, construction of additional flat rolled
production facilities could result in increased domestic capability of up to
10 million tons over 1997 levels.
Mini-mill Producers. Domestic integrated producers, such as Bethlehem, have
lost market share in recent years to domestic mini-mill producers. These
producers provide significant competition in certain product lines, including
hot rolled sheet products. Mini-mill producers are relatively efficient, low-
cost producers that produce steel from scrap in electric furnaces (which are
less expensive to build than integrated facilities), have low employment and
environmental costs per ton shipped and target regional markets. Through the
use of iron substitutes and thin slab casting technology, mini-mill producers
are increasingly able to compete directly with producers of higher value
products, including cold rolled and coated sheets. Most of the new flat rolled
facilities that will be constructed over the next several years will be
electric furnace facilities.
Imports. Domestic steel producers also face significant competition from
foreign producers and have been, and may continue to be, adversely affected by
unfairly traded imports. In certain cases, foreign producers may be pricing
their products below their production costs. Imports of finished steel
products accounted for about 18 percent of the domestic market in 1997 and
about 17 percent in both 1996 and 1995.
3
<PAGE>
The following table, which is based on data reported by the AISI, shows the
percentage of the domestic apparent consumption of steel mill products
supplied by imports for various classes of products.
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Rail.......................................................... 26% 26% 28%
Plates........................................................ 21 26 22
Tin mill products............................................. 15 14 15
Hot rolled and cold rolled sheets............................. 22 19 19
Coated sheets................................................. 11 10 9
All products*................................................. 24 23 21
</TABLE>
- --------
* 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 about 24.8
million tons in 1997, 21.6 million tons in 1996 and 19.2 million tons in 1995.
Antidumping and countervailing duty orders covering imports of corrosion
resistant sheet from six countries, cold rolled sheet from three countries and
plates from 11 countries, which resulted from unfair trade cases filed by
Bethlehem and 11 other companies in 1992, remain in place. Imports of flat
rolled steel from countries not subject to orders, including particularly the
Commonwealth of Independent States (formerly the USSR), eastern European
countries and the People's Republic of China, have increased significantly. In
December 1997, the International Trade Commission ruled that imports of cut-
to-length plate from the People's Republic of China, Russia, the Ukraine and
South Africa were causing or threatening to cause material injury to the
domestic steel industry. Antidumping duty orders covering imports of cut-to-
length plate from these countries were suspended by agreements limiting the
quantity of plate imports for a five-year period, except for South Africa,
which is subject to a price floor. Violation of the suspension agreements by
these countries would result in the antidumping duty orders becoming
effective. Bethlehem continues to be concerned about the high levels of
unfairly traded imports which could adversely affect the profitability of
Bethlehem.
The major restructuring of the domestic steel industry, which began in the
late 1970s and early 1980s, has removed the steelmaking capacity that once
existed to meet market demand during peak periods. During the last few years,
domestic producers have met a portion of the demand that exceeded steelmaking
capacity by importing semifinished slabs for rolling into finished products in
their own mills. Increased imports of finished products met the remaining
demand, which could not be met by domestic rolling mills.
Substitute Materials. For many steel products, there is substantial
competition from manufacturers of products other than steel, including
aluminum, ceramics, concrete, glass, plastic and wood. Changes to the relative
competitiveness of these substitute materials and the emergence of additional
substitute materials could adversely affect future prices and demand for
Bethlehem's products.
STEEL RELATED OPERATIONS
Bethlehem's Steel Related Operations included BethForge, Inc. and CENTEC
Roll Corporation, which manufactured and fabricated forged steel and cast iron
products, and BethShip, Inc., which repaired and serviced ships and fabricated
industrial products. All of these facilities were sold during 1997.
GENERAL
Capital Expenditures
Capital expenditures were $228 million in 1997 compared with $259 million in
1996 and $267 million in 1995. Capital expenditures for 1998 are currently
estimated to be about $300 million.
4
<PAGE>
Major projects during 1997 included improvements at Burns Harbor's hot strip
mill and 160-inch plate mill.
About $630 million of capital expenditures were authorized in 1997 including
the construction of a $300 million cold rolling mill complex at Sparrows
Point. At December 31, 1997, the estimated cost of completing authorized
capital expenditures was about $751 million compared with $386 million at
December 31, 1996. Such authorized capital expenditures are expected to be
completed during the 1998-2000 period.
The domestic integrated steel industry is very capital intensive. As
discussed under "ITEM 2. PROPERTIES -- General" of this Report, Bethlehem's
principal operations and facilities are of varying ages, technologies and
operating efficiencies. Bethlehem will need to continue to make significant
capital expenditures in the future to maintain and improve the competitiveness
of its operations and facilities.
Environment
Bethlehem is subject to various 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, 1997, Bethlehem spent about $160 million for environmental
control equipment. Expenditures for new environmental control equipment
totaled about $15 million in 1997, $29 million in 1996 and $36 million in
1995. The costs incurred in 1997 to operate and maintain existing
environmental control equipment were about $112 million (excluding interest
costs but including depreciation charges of $14 million) compared with $115
million in 1996 and $120 million in 1995. 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 about $830,000 in 1997, $160,000 in 1996 and $5.9 million in
1995 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 25 years. Bethlehem
currently operates coke-making facilities in Burns Harbor, Indiana and
Lackawanna, New York. Operations at the Coke Division in Bethlehem,
Pennsylvania were discontinued by March 31, 1998. Bethlehem will continue to
evaluate the impact of future emission control regulations on its Burns Harbor
and Lackawanna operations but believes that these operations will be able to
comply.
Bethlehem and federal and state regulatory agencies conduct negotiations to
resolve differences in interpretation of environmental control requirements.
In some instances, those negotiations are held in connection with the
resolution of pending environmental proceedings. Bethlehem believes there will
not be any significant curtailment or interruptions of any of its important
operations as a result of these proceedings and negotiations.
Bethlehem cannot predict the future specific environmental control
requirements. Based on existing and anticipated regulations under current
legislation, Bethlehem estimates that capital expenditures for new
environmental control equipment will average about $20 million per year over
the next two years. However, estimates of future capital expenditures and
operating costs required for environmental compliance are subject to numerous
uncertainties, including the evolving nature of regulations, possible
imposition of more stringent requirements, 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 may be subject to this "Corrective Action Program", and Bethlehem
has implemented or is currently implementing the program at its facilities
located in Steelton, Pennsylvania; Lackawanna, New York; Burns Harbor,
Indiana; and Sparrows Point, Maryland. At Steelton, Bethlehem completed a RCRA
Facility Investigation ("RFI"), a Corrective Measures Study ("CMS") and a
remediation program approved by the United States Environmental Protection
Agency (the "EPA") and completed the remediation in 1994. At Lackawanna,
Bethlehem is conducting an RFI which is expected to be completed later this
year. At Burns Harbor, Bethlehem received EPA
5
<PAGE>
approval of its proposed scope of work for an RFI which will require several
years to complete. At Sparrows Point, Bethlehem, the EPA and the Maryland
Department of the Environment have agreed to a phased RFI as part of a
comprehensive multimedia pollution prevention agreement which was entered by
the U. S. District Court for Maryland on October 8, 1997. The potential costs
for possible remediation activities, if any, at Lackawanna, Burns Harbor and
Sparrows Point and the timeframe for implementation of these activities cannot
be reasonably estimated until the RFIs, and possibly the CMSs, have been
completed and approved.
Under the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended ("CERCLA", also known as "Superfund"), the EPA can
impose liability for site remediation on generators and transporters of waste,
as well as past and present owners and operators of the sites where the waste
was disposed of, regardless of fault or the legality of the disposal
activities. Bethlehem is actively involved at 25 sites where it has been
advised that it may be considered a potentially responsible party under CERCLA
or corresponding State Superfund legislation. 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 quarterly or annual results
of operations 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. To the extent that competitors are not required to
undertake equivalent costs, Bethlehem's competitive position could be
adversely affected.
Purchased Materials and Services
Bethlehem purchases about $3 billion per year of raw materials, energy,
equipment, goods and services from commercial sources in about 40 countries.
Bethlehem's profitability could be affected by difficulties in obtaining these
items and the prices paid for them. These difficulties could include such
things as labor strikes, political instability and natural disasters.
Bethlehem made significant progress in 1997 through its Strategic Sourcing
initiatives and expects further progress in 1998. Strategic Sourcing's
objectives are to forge a strong, competitive base of supply partners who
share Bethlehem's commitment to deliver superior value to customers; to
realize significant, immediate and sustainable improvements in the total cost,
quality and value of purchased goods and services; and to establish mutual
commitments to continuous improvement. See "ITEM 2. PROPERTIES -- Properties
Relating to the Basic Steel Operations Segment -- Raw Material Properties and
Interests" of this Report for a further description of the sources of raw
materials essential to Bethlehem's steelmaking business.
Technology
Bethlehem performs research to improve existing products, develop new
products and make operating processes more efficient. During 1997, 1996 and
1995, Bethlehem spent about $22 million, $25 million and $25 million,
respectively, for research and development. Bethlehem owns a number of U.S.
and foreign patents that relate to a wide variety of products and processes,
has pending patent applications and is licensed under a number of patents.
During 1997, 13 U.S. patents covering a variety of new developments were
awarded to Bethlehem. However, Bethlehem believes that no single or group of
patents or licenses is of material importance in its overall business.
Bethlehem also owns registered trademarks for certain of its products and
service marks for certain of its services which, unlike patents and licenses,
are renewable so long as they are continued in use and properly protected.
In 1994, Bethlehem and U. S. Steel Group, a unit of USX Corporation, entered
into a Cooperative Research and Development Agreement. During 1997, Bethlehem
and U. S. Steel Group continued to conduct joint research and development
activities under the Agreement in the field of basic ironmaking and
steelmaking technologies and processes, such as primary iron and steel process
development, finishing process development and process instrumentation
development. Bethlehem believes that the joint research and development
activities meet the
6
<PAGE>
Agreement's goals, including expediting technological developments and
improvements, enhancing Bethlehem's domestic and worldwide competitiveness and
reducing research and development costs and time periods. Bethlehem,
therefore, intends to continue the joint research and development activities
in 1998 and has filed appropriate notices.
Bethlehem is taking steps to address the "Year 2000" computer issue. The
issue involves the once common programming practice of storing date
information using only the last two digits to indicate the year. Storing the
year 2000 as "00" could cause errors in sorting, comparing or manipulating
information. Bethlehem anticipates being substantially Year 2000 compliant by
the end of 1998. It is also working with its customers and suppliers to assess
their compliance. Bethlehem's costs associated with solving the Year 2000
issue will not be material.
Employment
At the end of 1997, Bethlehem had about 15,600 employees, three-quarters of
whom are covered by agreements with the United Steelworkers of America
("USWA"). The agreement covering most of Bethlehem's USWA represented
employees expires in 1999. A strike or work stoppage could impact Bethlehem's
ability to operate if it is unable to negotiate a new agreement with its
represented employees when the existing agreement expires in 1999. Also,
Bethlehem's profitability could be adversely affected if increased costs
associated with any future contract are not recoverable through productivity
improvements or price increases.
For further information with regard to Bethlehem's employment-related
matters, see "Employment" under "Financial Review and Operating Analysis" in
Bethlehem's 1997 Annual Report to Stockholders. As set forth on page 14 of
this Report, such discussion is incorporated herein by reference.
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 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,
1997, Bethlehem's consolidated balance sheet reflected liabilities of $440
million and $1,595 million, recognized in accordance with generally accepted
accounting principles, for postretirement pensions and benefits other than
pensions, respectively. The calculation of the actuarial present value of the
accumulated benefit obligations and recorded liabilities for active employees
assumes continued employment with projections for retirements, deaths,
resignations and discharges. If actual terminations of active employees occur
significantly earlier than projected (as a result of facility shutdowns,
restructurings or other reasons), the accumulated benefit obligations and
recorded liabilities would increase substantially. The charges for employees
terminated as a result of facility shutdowns or restructurings vary depending
upon the demographics of the workforce, but could be $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.
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 laws and regulations to defer all pension funding for more than
two years, although it presently has no plans to do so.
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.
7
<PAGE>
Merger with Lukens Inc. Bethlehem will acquire Lukens Inc. in a merger
transaction expected to close by early second quarter 1998, subject to
approval by Lukens' stockholders and regulatory authorities. For further
information regarding the merger, see "Financial Review and Operating
Analysis" in Bethlehem's 1997 Annual Report to Stockholders. As set forth on
page 14 of this Report, such discussion is incorporated herein by reference.
Also see "Capital Structure" below.
Restructuring Activities
Facility Shutdowns and Restructurings. During the last five years, Bethlehem
has shut down or restructured several facilities and operations. Since 1993,
Bethlehem recorded charges of $815 million in connection with these actions
including restructuring charges of $465 million ($382 million after-tax) in
1996 for the exit of Bethlehem Structural, the Eagle Nest coal operation,
BethForge, CENTEC and BethShip and the write-off of the assets of the Coke
Division located in Bethlehem, Pennsylvania as an impaired asset. Eagle Nest,
BethForge, CENTEC and BethShip were sold and Bethlehem Structural ended
operations by the end of 1997. Also during 1997, Bethlehem sold its High Power
Mountain coal assets and its equity interest in Iron Ore Company of Canada.
Operations at the Bethlehem Coke Division were discontinued by March 31, 1998.
If it becomes necessary for Bethlehem to exit 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, decrease in stockholders' equity and possible increases
in required contributions to the pension fund and retiree heathcare payments.
Except as previously announced, Bethlehem does not currently anticipate any
additional facility shutdowns, restructurings or other reasons why active
Bethlehem employees might be terminated. Bethlehem anticipates further
workforce reductions in the range of 900 employees at its Sparrows Point
Division over the next three to four years as part of its previously-announced
comprehensive plan to achieve and sustain a superior rate of return on the
capital invested at this facility.
In connection with the proposed Lukens merger, Bethlehem currently intends
to close Lukens' Coatesville 206" plate mill and Bethlehem's Sparrows Point
160" plate mill, and increase the output of existing facilities at Bethlehem's
Burns Harbor Division and Lukens' 110" Conshohocken Steckel mill, both of
which are currently underutilized, at a future time that will be determined on
a basis consistent with customer requirements and other factors. The existing
Lukens workforce will be reduced as a result of increased operating and
administrative efficiencies. The timing and extent of the reductions will not
be finalized until after the merger.
Capital Structure
Bethlehem's capital structure is highly leveraged reflecting its recorded
liabilities for pensions and other postretirement obligations. Although
Bethlehem believes it has sufficient access to funds for the operation of its
business, its existing obligations and below investment grade credit ratings
may limit its ability to raise capital in the future.
Bethlehem expects to finance the cash consideration to be paid in connection
with the Lukens' merger discussed above with available cash and with the sale
of Lukens' stainless and distribution businesses. Bethlehem has already signed
an agreement to sell certain assets of Lukens to Allegheny Teledyne
Incorporated for $175 million. If the sale of assets contemplated by the
agreement with Allegheny and/or the potential sales of other Lukens assets are
not consummated at or prior to the closing of the Lukens' merger, Bethlehem
may incur additional debt by entering into a short-term borrowing arrangement
and by drawing on its current revolving credit arrangement to finance the
remaining portion of the cash consideration to be paid in connection with the
merger.
FORWARD-LOOKING STATEMENTS
Bethlehem and its representatives may from time to time make forward-looking
statements in reports filed with the Securities and Exchange Commission,
reports to stockholders, press releases, other written documents and oral
presentations. These forward-looking statements may include, among others,
statements concerning projected levels of sales, shipments and income, pricing
trends, cost-reduction strategies, product mix, anticipated capital
expenditures and other future plans and strategies.
8
<PAGE>
As permitted by the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, Bethlehem is identifying in this Report
important factors that could cause Bethlehem's actual results to differ
materially from those projected in these forward-looking statements. These
factors include, but are not necessarily limited to:
. the effect of planned and unplanned outages on Bethlehem's operations;
. the highly cyclical nature of the domestic steel industry and many of
the markets supplied by Bethlehem and the effect of that cyclicality on
prices and volume;
. the potential impact of strikes or work stoppages at facilities of
Bethlehem's customers and suppliers;
. the sensitivity of Bethlehem's results to relatively small changes in
the prices obtained by Bethlehem for its products;
. intense competition due to world steel overcapacity, new domestic
capacity over the next several years, low-cost mini-mill facilities,
imports and substitute materials;
. the high capital requirements associated with integrated steel
facilities;
. the significant costs associated with environmental controls and
remediation expenditures and the uncertainty of future environmental
control requirements;
. availability and prices associated with raw materials, supplies,
utilities and other services and items required by Bethlehem's
operations;
. employment matters, including costs and uncertainties associated with
Bethlehem's collective bargaining agreements, and employee
postretirement obligations;
. the effect of possible future restructuring activities;
. Bethlehem's highly leveraged capital structure;
. the effect of Bethlehem's customers and suppliers not becoming Year 2000
compliant in a timely manner; and
. the effect of existing and possible future lawsuits filed against
Bethlehem.
"ITEM 1. BUSINESS" and "ITEM 3. LEGAL PROCEEDINGS" of this Report discuss
these factors in more detail and are incorporated by reference into this
section. Bethlehem does not undertake to update any forward-looking statements
that may be made from time to time by Bethlehem or its representatives.
ITEM 2. PROPERTIES.
PROPERTIES RELATING TO THE BASIC STEEL OPERATIONS SEGMENT
Burns Harbor Division
Location: In Indiana on Lake Michigan, about 50 miles southeast of Chicago,
Illinois.
Principal products and markets: Hot rolled sheet, cold rolled sheet,
corrosion-resistant coated sheet and plates. Its principal markets include
automotive, service centers, construction, machinery and appliance.
Principal facilities: A sintering plant, two coke oven batteries, two blast
furnaces, including coal injection facilities, three basic oxygen furnaces
with a combined annual raw steel production capability of about 5.6 million
tons, a vacuum degassing facility, two continuous slab casters with a combined
annual production capability of about 4.0 million tons, a 50 x 90-inch
slabbing mill, two sheared plate mills (110-inch and 160-inch), an 80-inch
hot-strip mill, two continuous pickling lines, an 80-inch five-stand cold
reducing mill, sheet finishing mills, a continuous heat treating line, batch
annealing facilities and a 72-inch hot-dip galvanizing line. Burns Harbor
operates a cold reducing mill, a continuous pickling line, a galvanizing line
and two coke oven batteries in Lackawanna, New York.
Burns Harbor continuously casts about 80 percent of its total production
volume, with the remaining 20 percent being ingot cast. Ingot cast slabs are
used primarily to make steel plates. Burns Harbor's utilization of raw steel
production capability was 92 percent during 1997.
9
<PAGE>
Sparrows Point Division
Location: On the Chesapeake Bay near Baltimore, Maryland.
Principal products and markets: Hot rolled sheet, cold rolled sheet,
corrosion-resistant coated sheet (e.g., galvanized sheet, Galvalume(R) sheet),
tin mill products and plates. Its principal markets include construction,
containers and service centers.
Principal facilities: A sintering plant, a large blast furnace, two basic
oxygen furnaces with an annual raw steel production capability of about 3.7
million tons, a two-strand continuous slab caster with an annual production
capability of about 3.7 million tons, a 160-inch sheared plate mill, a 68-inch
hot-strip mill, three continuous pickling lines, three cold reducing mills
(66-inch, 56-inch and 48-inch), continuous and batch annealing facilities, two
galvanizing lines, a Galvalume(R) line, a 48-inch hot-dip
galvanizing/Galvalume(R) line and tin mill facilities that include tin and
chrome plating lines.
Sparrows Point continuously casts essentially 100 percent of its total
production volume. Sparrows Point's utilization of raw steel production
capability was 102 percent during 1997.
Pennsylvania Steel Technologies, Inc. ("PST")
Location: In Steelton, Pennsylvania, south of Harrisburg, Pennsylvania.
Principal products and markets: Railroad rails, specialty blooms and flat
bars. It is one of only two rail producers in the United States. PST also
produces large-diameter pipe for the oil and gas industries.
Principal facilities: A DC electric arc furnace with an annual raw steel
production capability of about 1.2 million tons, a ladle furnace, a vacuum
degassing facility, a continuous bloom caster, a 44-inch blooming mill, a 28-
inch rail mill, in-line rail head-hardening facilities, finishing and shipping
facilities for long-length (80-foot) rails, a 20-inch bar mill and an electric
fusion welded pipe mill.
PST's utilization of raw steel production capability was 59 percent during
1997.
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 line produces galvanized and Galvalume(R) coated
sheets primarily for the construction market. Sparrows Point provides cold
rolled coils for about 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.
Bethlehem also participates in two joint ventures with facilities located
adjacent to the Burns Harbor operations: Indiana Pickling and Processing
Company that operates a pickling line and Chicago Cold Rolling, L.L.C. that
operates a reversing cold mill complex.
In 1997, Bethlehem entered into two new joint ventures. One is with TWB
Company, located in Michigan, which operates the largest plant in North
America producing laser-welded blanks for the automotive industry. The second
is Steel Construction Systems, a joint venture with CSR Rinker, the largest
building materials company in Florida, to expand the use of steel in
residential and light commercial buildings.
Bethlehem also has indirect equity interests in various iron ore properties.
See "Raw Material Properties and Interests" below.
10
<PAGE>
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, 1997,
sufficient to produce at least 16 million tons of direct shipping iron ore
from properties located in Brazil and 199 million tons of iron ore pellets
from properties located in Minnesota. During 1997, Bethlehem sold its equity
interest in Iron Ore Company of Canada ("IOC"). Bethlehem will continue as a
customer of IOC and will purchase iron ore at prices which approximate market.
In addition 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, 1997, sufficient
to produce at least 16 million tons of direct shipping iron ore from
properties located in Brazil and 128 million tons of iron ore pellets from
properties located in Minnesota.
The iron ore operating properties in which Bethlehem has interests have
mining and processing facilities which can supply a majority of Bethlehem's
current annual iron ore requirements. The location of Bethlehem's steel
operations and the iron ore products best suited to these facilities determine
when Bethlehem sells, exchanges and purchases iron ore. These purchases have
been from various sources, including sources in which it has ownership
interests, under a variety of arrangements.
Bethlehem's share of the annual iron ore production by enterprises in which
it has ownership interests, for Bethlehem's use or sale to trade customers,
was 7.7 million tons in 1997 and 13.9 million tons in 1996. In addition to
these sources, Bethlehem purchased 4.8 million tons of iron ore in 1997 and
1.7 million tons of iron ore in 1996 from sources in which it had no ownership
interests. In 1997, Bethlehem obtained about 61 percent of its iron ore
requirements from operations in which it had ownership interests compared with
86 percent in 1996.
Bethlehem had trade sales of iron ore in 1997 of .3 million tons and 1.2
million tons in 1996. No iron ore trade sales commitments exist for 1998 or
beyond.
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. During 1997, Bethlehem sold the remainder of its coal
operating properties. Bethlehem owns and leases undeveloped or nonoperating
coal properties in Pennsylvania, which it estimates contained recoverable
reserves at December 31, 1997, sufficient to produce at least 161 million tons
of coal, of which about 89 percent and 11 percent, respectively, are
metallurgical and steam coal.
Bethlehem's coal operations produced 0.3 million tons of coal in 1997 and
1.9 million tons in 1996. Trade shipments of coal were 0.3 million tons in
1997 compared with 1.2 million tons in 1996.
In 1997, Bethlehem obtained none of its coal from its own mines, compared
with 13 percent in 1996. In 1997, all of the coal was purchased from
commercial sources. Through December 31, 2005, Bethlehem is committed to
satisfy certain of its coal requirements from a single supplier.
Bethlehem operates coke-making facilities at Burns Harbor, Indiana and
Lackawanna, New York. As mentioned above, the facilities in Bethlehem,
Pennsylvania, were discontinued by March 31, 1998.
Other Raw Materials. Bethlehem purchases its other raw material requirements
from commercial sources.
Transportation
Bethlehem owns five subsidiary shortline railroads which transport raw
materials and semifinished steel products within various Bethlehem operations
and serve other customers on their lines. Bethlehem manages an interstate
trucking company serving Bethlehem's operations and other facilities.
11
<PAGE>
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
As discussed under "ITEM 1. BUSINESS -- Facility Shutdowns and
Restructurings", all of the properties of the Steel Related Operations Segment
have been sold.
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 improve and 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.
Bethlehem owns all principal operations and facilities except for two
continuous casters at Sparrows Point and Burns Harbor which are being leased
and were capitalized. Bethlehem financed the construction of two hot-dip
galvanizing lines at its Burns Harbor and Sparrows Point Divisions. These two
galvanizing lines 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 March 29, 1996, the U.S. Department of Justice, on behalf of the EPA,
brought a civil action against Bethlehem in the U.S. District Court for the
Northern District of Indiana for alleged violations of the Clean Water Act and
the Safe Drinking Water Act at the Burns Harbor Division. The Complaint
alleges that, from November 1992 to April 1994, the Division discharged
pollutants from its dock wall without a permit as required by the Clean Water
Act and failed to meet certain requirements of an underground injection well
permit. On January 15, 1998, a Consent Decree to which the parties had agreed
was entered by the Court in final resolution of this action. The Consent
Decree requires Bethlehem to pay a civil penalty of $441,300 and to take
certain remedial actions to insure continued compliance with the Clean Water
Act and the Safe Drinking Water Act.
On February 14, 1997, the EPA issued a notice alleging violations by
Bethlehem Structural Products Corporation ("BSPC"), a subsidiary of Bethlehem,
of the Clean Air Act, based on emissions from Coke Oven Battery A at BSPC on
various days in 1996 exceeding those allowed under the Pennsylvania State
Implementation Plan (the "SIP"). Settlement negotiations were initiated among
BSPC, the EPA and the Pennsylvania Department of Environmental Protection (the
"DEP") to resolve Battery A compliance issues under the National Emissions
Standards for coke oven emissions (the "NESHAP"), as well as under the SIP. On
December 22, 1997, a proposed Consent Decree to which the parties had agreed
was lodged with the U. S. District Court for the Eastern District of
Pennsylvania. Upon entry by the Court, the Consent Decree will be a final
resolution of this matter. It will require BSPC to pay civil penalties of
$178,500 to the United States and $119,000 to the DEP and to take certain
remedial actions to insure continued compliance with the SIP and the NESHAP.
See "ITEM 1. BUSINESS -- General -- Environmental Control and Remediation
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
12
<PAGE>
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.
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 1997.
- ---------------------------
EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers of Bethlehem as of April 3, 1998, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Curtis H. Barnette 63 Chairman (Chief Executive Officer)
Roger P. Penny 61 President (Chief Operating Officer)
Gary L. Millenbruch 60 Executive Vice President (Chief Financial
Officer) and Treasurer
Dr. Augustine E. Moffitt, Jr. 52 Senior Vice President (Administration) and
Chief Administrative Officer
David P. Post 64 Senior Vice President (Commercial) and
Chief Commercial Officer
Lonnie A. Arnett 52 Vice President (Accounting) and Controller
Dr. Walter N. Bargeron 55 President, Burns Harbor Division
Stephen G. Donches 52 Vice President (Public Affairs)
Duane R. Dunham 56 President, Sparrows Point Division
Andrew R. Futchko 55 President, Pennsylvania Steel
Technologies, Inc.
William H. Graham 52 Vice President (Law), General Counsel and
Secretary
John L. Kluttz 55 Vice President (Union Relations)
Dr. Carl F. Meitzner 58 Vice President (Planning)
Dr. Malcolm J. Roberts 55 Vice President (Technology) and Chief
Technology Officer
Robert A. Rudzki 44 Vice President (Purchasing and
Transportation) and Chief Procurement
Officer
Dorothy L. Stephenson 48 Vice President (Human Resources)
</TABLE>
All of the executive officers have held responsible management or
professional positions with Bethlehem or its subsidiaries for more than the
past five years.
Bethlehem's By-laws provide that the Board of Directors annually chooses the
officers and that each officer holds office until his or her successor is
elected, or his or her death, resignation or removal.
13
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS.
As of April 3, 1998, about 34,500 stockholders held 113,283,652 shares of
Bethlehem Common Stock. 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 December 31, 1997, about
$485 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. Bethlehem's Board of Directors will determine whether to pay
any future dividends (subject to any applicable restrictions) based on
attained results and the business outlook.
The following table shows 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 April 3, 1998, was $15.000.
<TABLE>
<CAPTION>
1997 1996
-------------- ---------------
SALES PRICES SALES PRICES
-------------- ---------------
PERIOD HIGH LOW HIGH LOW
- ------ ------- ------ ------- -------
<S> <C> <C> <C> <C>
First Quarter.................................... $ 9.375 $7.625 $15.875 $13.125
Second Quarter................................... 10.750 7.750 14.500 11.500
Third Quarter.................................... 12.875 9.813 12.000 9.250
Fourth Quarter................................... 11.563 7.750 10.313 7.625
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this Item is incorporated by reference from page
27 of Bethlehem's 1997 Annual Report to Stockholders.
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 1 to 6 and 8 to 11 of Bethlehem's 1997 Annual Report to Stockholders as
amended as indicated on page F-4.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this Item is incorporated by reference from
pages 12 to 24 of Bethlehem's 1997 Annual Report to Stockholders as amended as
indicated on page F-4.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
14
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
In addition to the information 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 the material under the heading "Election of
Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" from
pages 2 to 9 of Bethlehem's Proxy Statement for the 1998 Annual Meeting of
Stockholders.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is incorporated by reference from
pages 14 to 19 of Bethlehem's Proxy Statement for the 1998 Annual Meeting of
Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item is incorporated by reference from
pages 7 and 20 of Bethlehem's Proxy Statement for the 1998 Annual Meeting of
Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is incorporated by reference from the
material under the heading "Certain Business Relationships" on page 8 and
under the heading "Indemnification Assurance Agreements" on page 20 of
Bethlehem's Proxy Statement for the 1998 Annual Meeting of Stockholders.
Except for those items specifically incorporated by reference, you should
not consider our 1997 Annual Report or Proxy Statement to be part of this
Report.
15
<PAGE>
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 years 1997, 1996 and 1995.......... *
Consolidated Balance Sheets as of December 31, 1997, and 1996............ *
Consolidated Statements of Cash Flows for the years 1997, 1996 and 1995.. *
Notes to Consolidated Financial Statements (Including Quarterly Financial
Data)................................................................... *
(2) CONSOLIDATED FINANCIAL STATEMENTS SCHEDULES.
Report of Independent Auditors On Consolidated Financial Statement
Schedule................................................................ F-1
II -- Valuation and Qualifying Accounts and Reserves, years ended
December 31, 1997, 1996
and 1995.............................................................. F-3
</TABLE>
- --------
* Incorporated by reference from pages 12 to 24 of Bethlehem's 1997 Annual
Report to Stockholders as amended as indicated on page F-4.
The Consolidated Financial Statements, together with the report of Price
Waterhouse LLP dated January 28, 1998, on pages 12 to 25 of the 1997 Annual
Report to Stockholders are incorporated by reference in this Form 10-K Annual
Report. With the exception of those pages, you should not consider the 1997
Annual Report to Stockholders as a part of this Report for this Item. The
Schedule listed above should be read in conjunction with the consolidated
financial statements in such 1997 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.
Separate financial statements of subsidiaries not consolidated and 50
percent 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)Amendment to Second Restated Certificate of Incorporation
(Incorporated by reference from Exhibit 3(i) to Bethlehem's quarterly
report on Form 10-Q for the quarter ended June 30, 1995).
(c)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).
16
<PAGE>
(b) Amendment to Rights Agreement, dated as of November 1, 1995, between
Bethlehem Steel Corporation and First Chicago Trust Company of New
York (formerly 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, 1995).
(c) Bethlehem is a party to certain long-term debt agreements where the
amount involved does not exceed 10% of Bethlehem's total consolidated
assets. Bethlehem agrees to furnish a copy of any such agreement to
the Commission upon request.
*(10)(a) Excess Benefit Plan of Bethlehem Steel Corporation and Subsidiary
Companies, as amended September 20, 1995.
*(b) 1988 Stock Incentive Plan of Bethlehem Steel Corporation.
*(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 September 20, 1995.
*(g) Post-Retirement Retainer Plan for Non-Officer Directors.
(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 earnings per share.
(13) Those portions of the 1997 Annual Report to Stockholders of Bethlehem
Steel Corporation which are incorporated by reference into this Form
10-K Annual Report.
(23) Consent of Independent Auditors (included on page F-2 of this Report).
(27)(a) Financial Data Schedule for period ended December 31, 1997.
(b) Restated Financial Data Schedule for periods ended December 31, 1996
and December 31, 1995.
(c) Restated Financial Data Schedule for periods ended March 31, 1997,
June 30, 1997 and September 30, 1997.
(d) Restated Financial Data Schedule for periods ended March 31, 1996,
June 30, 1996 and September 30, 1996.
- --------
* Compensatory plans in which Bethlehem's directors and executive officers
participate.
(b) REPORTS ON FORM 8-K.
Bethlehem filed with the Securities and Exchange Commission a report on Form
8-K on December 15, 1997, regarding its proposed merger with Lukens Inc.
17
<PAGE>
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 15TH DAY OF APRIL, 1998.
BETHLEHEM STEEL CORPORATION,
/s/ Lonnie A. Arnett
By: _________________________________
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 15TH DAY
OF APRIL, 1998.
/s/ Curtis H. Barnette /s/ Harry P. Kamen
- --------------------------------- ---------------------------------
Curtis H. Barnette Harry P. Kamen
Chairman and Director Director
(principal executive officer)
/s/ Gary L. Millenbruch /s/ Robert McClements, Jr.
- --------------------------------- ---------------------------------
Gary L. Millenbruch Robert McClements, Jr.
Executive Vice President, Treasurer Director
and Director
(principal financial officer)
/s/ Lonnie A. Arnett /s/ Roger P. Penny
- --------------------------------- ---------------------------------
Lonnie A. Arnett Roger P. Penny
Vice President and Controller Director
(principal accounting officer)
/s/ Benjamin R. Civiletti /s/ Shirley D. Peterson
- --------------------------------- ---------------------------------
Benjamin R. Civiletti Shirley D. Peterson
Director Director
/s/ Worley H. Clark /s/ Dean P. Phypers
- --------------------------------- ---------------------------------
Worley H. Clark Dean P. Phypers
Director Director
/s/ John B. Curcio /s/ William A. Pogue
- --------------------------------- ---------------------------------
John B. Curcio William A. Pogue
Director Director
/s/ Lewis B. Kaden /s/ John F. Ruffle
- --------------------------------- ---------------------------------
Lewis B. Kaden John F. Ruffle
Director Director
18
<PAGE>
REPORT OF INDEPENDENT AUDITORS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of Bethlehem Steel Corporation
Our audits of the consolidated financial statements referred to in our
report dated January 28, 1998 appearing on page 25 of the 1997 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 Schedule listed
in Item 14(a)(2) of this Form 10-K. In our opinion, this Financial Statement
Schedule presents 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 28, 1998
F-1
<PAGE>
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, No. 33-
58021 and No. 33-60507) of Bethlehem Steel Corporation of our report dated
January 28, 1998 appearing on page 25 of the 1997 Annual Report to
Stockholders which is incorporated in this Annual Report on Form 10-K. We also
consent to the incorporation by reference of our report on the Financial
Statement Schedule, which appears on page F-1 of this Form 10-K.
/s/ Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
April 15, 1998
F-2
<PAGE>
BETHLEHEM STEEL CORPORATION
10-K SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
($ IN MILLIONS)
<TABLE>
<CAPTION>
CHARGED
BALANCE AT (CREDITED) BALANCE AT
12/31/96 TO INCOME DEDUCTIONS OTHER 12/31/97
---------- ---------- ---------- ------ ----------
<S> <C> <C> <C> <C> <C>
CLASSIFICATION
Doubtful Receivables
& Returns $20.8 ($2.8) $ 0.8 (a) $ -- $18.8
Long-term Receivables 4.4 -- (2.4)(a) -- 2.0
Deferred Income Tax
Asset 410.0 (60.0) -- -- 350.0
<CAPTION>
CHARGED
BALANCE AT (CREDITED) BALANCE AT
12/31/95 TO INCOME DEDUCTIONS OTHER 12/31/96
---------- ---------- ---------- ------ ----------
<S> <C> <C> <C> <C> <C>
CLASSIFICATION
Doubtful Receivables
& Returns $19.5 $ 0.1 $ 1.2 (a) $ -- $20.8
Long-term Receivables 4.5 (0.1) -- -- 4.4
Deferred Income Tax
Asset 360.2 67.0 -- (17.2)(b) 410.0
<CAPTION>
CHARGED
BALANCE AT (CREDITED) BALANCE AT
12/31/94 TO INCOME DEDUCTIONS OTHER 12/31/95
---------- ---------- ---------- ------ ----------
<S> <C> <C> <C> <C> <C>
CLASSIFICATION
Doubtful Receivables
& Returns $18.6 $ 1.2 ($0.3)(a) $ -- $19.5
Long-term Receivables 4.5 -- -- -- 4.5
Deferred Income Tax
Asset 383.2 (37.0) -- 14.0 (c) 360.2
</TABLE>
(a) Amounts written-off less collections and reinstatements.
(b) Represents eliminating the valuation allowance recorded for a $82 million
($67 million after-tax) adjustment to equity at December 31, 1995 required
to recognize the minimum pension liability. See Notes H and L to the
Consolidated Financial Statements.
(c) Represents the valuation allowance for a $82 million ($67 million after-
tax) charge to equity required to recognize the minimum pension liability.
See Notes H and L to the Consolidated Financial Statements.
F-3
<PAGE>
AMENDMENT TO BETHLEHEM'S 1997 ANNUAL REPORT TO STOCKHOLDERS
A.Bethlehem's Consolidated Financial Statements included on pages 12 to 24 of
Bethlehem's 1997 Annual Report to Stockholders (which have been incorporated
into this Form 10-K Annual Report) are amended as follows:
1. The following paragraphs are added to Note A. Accounting Policies:
Asset Impairment--In accordance with FASB Statement No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of, Bethlehem periodically evaluates the carrying value of its
property, plant and equipment to be held and used when events and
circumstances warrant such a review. The carrying value for a logical
grouping of separately identifiable property, plant and equipment is
considered impaired when the anticipated undiscounted future cash flows
from such logical grouping of assets is less than its carrying value. In
that event, a loss is recognized based on the amount by which the carrying
value exceeds the fair market value of the asset. If comparable market
values are not available to determine fair market value, fair market value
is determined by discounting the anticipated future cash flows at a rate
commensurate with the risk involved. Losses, if any, on long-lived assets
to be disposed of are determined in a similar manner, except fair market
values are reduced for the estimated costs to dispose.
Environmental Expenditures--Bethlehem accounts for environmental
expenditures in accordance with FASB Statement No. 5, Accounting for
Contingencies, and its related interpretations, including Staff Accounting
Bulletins issued by the staff of the Securities and Exchange Commission.
Accordingly, environmental expenditures that increase the life or
efficiency of property, plant and equipment, or that reduce or prevent
environmental contamination are capitalized. Expenditures that relate to
existing conditions caused by past operations and which have no significant
future economic benefit are expensed. Environmental expenses are accrued at
the time the expenditure becomes probable and the costs can be reasonably
estimated. Bethlehem's policy is to not discount any recorded obligations
for future remediation expenditures to their present value nor to record
recoveries of environmental remediation costs from insurance carriers and
other third parties, if any, as assets until their receipt is deemed
probable.
Revenue Recognition--Bethlehem recognizes substantially all revenues when
products are shipped to customers and risks of ownership change. Revenue
and estimated profits under long-term contracts (related to the Steel
Related Operations--refer to Note B. Industry Segment Information) are
recognized using the percentage of completion method; however, losses are
recognized when they are probable and can be reasonably estimated. Such
long-term contracts have not been material in relation to Bethlehem's total
sales and operating income.
2. The following paragraph is added to Note C. Estimated Gain (Loss) on
Exiting Businesses and Impairment of Long-lived Assets:
The businesses and assets disposed of or to be disposed of had trade
sales of about $205 million and operating losses of about $60 million in
1997. This is not necessarily indicative of the impact on consolidated
results because Bethlehem Structural consumed steel produced by Bethlehem's
Pennsylvania Steel Technologies Inc. Division, and Bethlehem Coke supplied
a portion of the coke consumed by Bethlehem's Sparrows Point Division.
Operating losses for BethForge, CENTEC and BethShip, representing the Steel
Related Operations segment, are disclosed in Note B. Industry Segment
Information.
3. The Consolidated Statements of Cash Flows filed as part of this Form 10-K
Annual Report have been revised to present pension financing (funding) as an
operating activity rather than a financing activity.
B.To the extent incorporated in this Form 10-K Annual Report, any references
in Bethlehem's 1997 Annual Report to Stockholders to cash provided from
operating activities means cash provided from operating activities excluding
pensions. Any other statement contained in Bethlehem's 1997 Annual Report to
Stockholders incorporated by reference in this Report shall be deemed to be
modified or superseded for purposes of this Report to the extent that a
statement contained in this Report modifies or supersedes such statement.
F-4
<PAGE>
EXCESS BENEFIT PLAN
OF
BETHLEHEM STEEL CORPORATION
AND SUBSIDIARY COMPANIES,
EFFECTIVE JANUARY 1, 1983
AS AMENDED THROUGH SEPTEMBER 20, 1995
WHEREAS, Section 415 of the Internal Revenue Code, as amended by the Tax
Equity and Fiscal Responsibility Act of 1982 ("TEFRA") and the Tax Reform Act of
1986 ("TRA"), imposes limitations (the "Section 415 Limitations") on the
benefits and contributions under qualified plans, such as the Pension Plan of
Bethlehem Steel Corporation and Subsidiary Companies and the Bethlehem Railroad
Subsidiaries Pension Plan (collectively and individually, the "Pension Plan")
and the Savings Plan for Salaried Employees of Bethlehem Steel Corporation and
Subsidiary Companies (the "Savings Plan"), and the Section 415 Limitations
include an aggregate limitation (the "Aggregate Limitation") for any individual
who participates in both a defined benefit plan and a defined contribution plan
of the same employer; and
WHEREAS, the Pension Plan has been amended to reflect the Section 415
Limitations as amended by TEFRA and TRA and the Pension Plan amendments provide
that benefits under the Pension Plan shall be limited by the amended Aggregate
Limitation so as not to reduce contributions to the Savings Plan; and
WHEREAS, Bethlehem Steel Corporation ("Bethlehem") desires, subject to the
limitations set forth herein, that all employees and former employees (and co-
pensioners and surviving spouses) receive retirement benefits of the same amount
(subject to certain limitations) they would have received under the Pension Plan
were it not for the Pension
<PAGE>
-2-
Plan provisions, as amended from time to time, that impose the Section 415
Limitations (the "Section 415 Limitations Provisions").
NOW, THEREFORE, in consideration of past and future services of affected
employees, Bethlehem agrees to be legally bound as follows:
1. Whenever used herein:
(a) "Employee" means any person who at any time after December 31, 1982,
but before the termination of this Excess Benefit Plan ("Plan"), was an
active employee of Bethlehem or any other Employing Company, as such term is
defined in the Pension Plan, which shall have adopted this Plan and while so
employed was a participant in the Pension Plan.
(b) "Lump-Sum Payment" means a payment to an Employee pursuant to the
provisions of paragraph 3 hereof in an amount equal to the sum of that
portion of the special payment that would otherwise be Payable to such
Employee under paragraph 2 hereof and the equivalent actuarial value, as
determined by the Board or any Committee of the Board to which it may
delegate its powers under this Plan, of the amounts which would otherwise
become payable to such Employee or to the co-pensioner or surviving spouse
of such Employee, as the case may be, under said paragraph 2.
(c) "Partial Lump-Sum Payment" means a payment to an Employee pursuant
to the provisions of paragraph 3 hereof, in an amount equal to the
<PAGE>
-3-
sum of that portion of the special payment that would otherwise be payable
to such Employee under paragraph 2 hereof and the equivalent actuarial
value, as determined by the Board or any Committee of the Board to which it
may delegate its powers under this Plan, of the amounts which would
otherwise become payable to such Employee under said paragraph 2.
(d) "Periodic Payments" means payments under the Pension Plan or under
this Plan after retirement.
(e) "Retirement Account Balance" means the account maintained under the
Pension Plan for participants who, as of May 31, 1989, had an account
balance under the Retirement Account for Salaried Employees of Bethlehem
Steel Corporation and Subsidiary Companies.
2. Bethlehem will pay, or cause to be paid, to each Employee or the co-
pensioner or surviving spouse of the Employee, as the case may be, who receives
payments under the Pension Plan, an amount which is equivalent to the excess, if
any, of (a) the amount such Employee, co-pensioner or surviving spouse would
have received under the Pension Plan in respect of each calendar year taking
into account all provisions of the Pension Plan as from time to time in effect
and applicable to the Employee, co-pensioner or surviving spouse except the
Section 415 Limitation Provisions over (b) the amount such Employee, co-
pensioner or surviving spouse did receive under the Pension Plan in respect of
such year taking into account the Section 415 Limitations Provisions; provided,
--------
however, that for purposes of this paragraph 2, the amount received under the
- -------
<PAGE>
-4-
Pension Plan shall refer to the amount received or which would have been
received based on an election to forego the distribution of the Employee's
Retirement Account Balance under the Pension Plan.
Periodic Payments hereunder shall be made at approximately the same time as
Periodic Payments are or would have been made to the Employee, co-pensioner or
surviving spouse under the Pension Plan.
3. Bethlehem may make, or cause to be made, to such Employee a Lump-Sum
Payment or a Partial Lump-Sum Payment in lieu of amounts otherwise payable under
paragraph 2 hereof. A Lump-Sum Payment or a Partial Lump-Sum Payment under this
Plan may be made only if the Board of Directors of Bethlehem or any Committee of
such Board to which it may delegate its powers under this Plan shall, in its
sole discretion, so authorize such a payment.
A Lump-Sum Payment and a Partial Lump-Sum Payment under this Plan shall be
based on such tables and interest rates as may be adopted from time to time for
such purposes by the Board of Directors of Bethlehem or any Committee of such
Board to which it may delegate its powers under this Plan. A Partial Lump-Sum
Payment under this Plan shall not include the co-pensioner or surviving spouse's
benefit.
4. An Employee or the co-pensioner or surviving spouse of such Employee
shall not be entitled to any further benefits under this Plan if a Lump-Sum
Payment shall be made to him under this Plan. An Employee shall not be entitled
to any further benefits under this Plan if a Partial Lump-Sum Payment shall have
been made under this Plan.
<PAGE>
-5-
5. Bethlehem or an Employing Company, as the case may be, shall only be
under a contractual obligation to make, or cause to be made, payments to the
Employee, co-pensioner or surviving spouse referred to herein when due, and the
amounts of such payments shall not be required to be held in trust or otherwise
funded for the Employee or the co-pensioner or surviving spouse of the Employee.
Notwithstanding the foregoing, the Board of Directors of Bethlehem or any
Committee of such Board to which it may delegate its powers under this Plan may,
at its sole discretion, make provisions for such payments (which may include the
purchase of annuities or the establishment of one or more trusts or providing
letters of credit or other security arrangements). To the extent that benefits
otherwise payable under this Plan are paid to an Employee or the co-pensioner or
surviving spouse of such Employee from a life insurance trust or otherwise in a
manner determined to permit such person to receive a benefit under such
arrangement which, on an after-tax basis, is reasonably equivalent to what such
person would receive on an after-tax basis if payments under this Plan were made
directly by Bethlehem or an Employing Company when due, the obligation of
Bethlehem or an Employing Company under this Plan shall be correspondingly
reduced.
6. Nothing contained herein shall affect the right of the Employee to
participate in and receive benefits under and in accordance with any pension,
profit sharing, incentive compensation or other benefit plan or program of
Bethlehem or its subsidiaries or affiliates.
7. This Plan shall continue in force with respect to any Employee until the
termination of the right of such Employee or the co-pensioner or surviving
spouse of
<PAGE>
-6-
such Employee to receive benefits under the Pension Plan and shall be binding
upon any successor to substantially all the assets of Bethlehem. Bethlehem may,
however, at any time, terminate this Plan with respect to individuals who
thereafter first become employed by Bethlehem or any other Employing Company
which shall have adopted this Plan. Bethlehem may also, at any time, amend this
Plan retroactively or otherwise if and to the extent that such action is deemed
appropriate in light of government regulations or other legal requirements.
Except as may otherwise be required by law, no amendment (including any
termination) of this Plan shall adversely affect any benefits to any individual
(including the right to receive future benefits) previously determined to be
payable hereunder to such individual.
8. No right or interest of the Employee or the co-pensioner or surviving
spouse of the Employee under this Plan shall be subject to voluntary or
involuntary alienation, assignment or transfer of any kind.
9. The administration of this Plan shall be the responsibility of Bethlehem.
Decisions of Bethlehem shall be final and binding upon any Employing Company
which shall have adopted this Plan, Employees of such Employing Company and
their co-pensioners and surviving spouses.
10. If any payment to be made under this Plan is to be made to an Employee
or the co-pensioner or surviving spouse of such Employee who was employed by an
Employing Company which shall have adopted this Plan, other than Bethlehem, the
cost of such payment shall be borne in such proportions as Bethlehem and such
Employing Company shall agree.
<PAGE>
-7-
11. The benefits, if any, payable under the Excess Benefit Plan with respect
to any person who retired under the Pension Plan prior to January 1, 1983, shall
be governed in all respects by the provisions of the Excess Benefit Plan in
effect at the date of such person's retirement.
12. This Plan shall be construed, regulated and administered for all
purposes according to the laws of the State of Delaware.
IN WITNESS WHEREOF, Bethlehem has caused this Plan, as amended, to be duly
adopted and executed by its duly authorized officers and its corporate seal
affixed hereto as of the 20th day of September, 1995.
BETHLEHEM STEEL CORPORATION
By /s/ Curtis H. Barnette
--------------------------
Chairman
Attest:
/s/ R.G. Masters
- -----------------------------
Assistant Secretary
<PAGE>
1988 STOCK INCENTIVE PLAN
OF
BETHLEHEM STEEL CORPORATION
1. PURPOSE OF THE PLAN.
This Stock Incentive Plan (the Plan) is intended to encourage ownership of
Common Stock of Bethlehem Steel Corporation (Bethlehem) by key employees of
Bethlehem and its subsidiaries and to provide additional incentive for them to
promote the success of the business.
2. STOCK SUBJECT TO THE PLAN.
Subject to certain adjustments as set forth in Section 15 hereof, there
shall be reserved for issuance upon the exercise or surrender of the right to
exercise options to be granted under the Plan (Options) and pursuant to stock
awards (Grants) an aggregate of 3,000,000 shares of the Common Stock of
Bethlehem (Common Stock); PROVIDED, HOWEVER, that the number of such shares
issued pursuant to Grants shall not exceed 500,000. Such shares may be in whole
or in part, as the Board of Directors of Bethlehem (Board) shall from time to
time determine, issued shares of Common Stock which shall have been reacquired
by Bethlehem or authorized but unissued shares of Common Stock. Except as
otherwise provided in Section 7 hereof, if any Option shall expire, terminate or
be forfeited or canceled for any reason without having been exercised or
surrendered in full, the remaining shares covered thereby shall again be
available for the purposes of the Plan, and if any Grant shall be forfeited
before the restrictions provided for in such Grant shall lapse in full, the
remaining shares covered thereby shall again be available for the purposes of
the Plan. In addition, shares of Common Stock issued pursuant to Options or
Grants but forfeited by the recipient shall again be available for the purposes
of the Plan.
Options under the Plan may be incentive stock options within the meaning of
Section 422A(b) of the Internal Revenue Code of 1986, as the same may be amended
from time to time, or nonqualified stock options and shall be designated
accordingly in the applicable option agreement.
3. EMPLOYEES TO WHOM AWARDS SHALL BE GRANTED.
Options and Grants (Awards) may be granted, separately or in such
combinations as the Board may in any individual case determine, only to regular
employees (including officers) of Bethlehem or of any subsidiary of Bethlehem
who shall be selected as provided in Section 19 hereof. A director of Bethlehem
or of a subsidiary who shall not at the time also be an employee of Bethlehem or
of a subsidiary shall not be eligible to receive an Award. An employee who shall
have been granted an Award may be granted one or more additional Awards. The
term "subsidiary" as used in this Plan means a corporation more than 50% of the
voting stock of which shall at the time be owned directly or indirectly by
Bethlehem.
OPTIONS
4. OPTION PRICES.
The purchase price of the Common Stock covered by each Option shall be not
less than 100% of the fair market value of the Common Stock at the time of
granting the Option. Such fair market value shall be determined by the Board
but shall not be less than the mean of the high and low prices of the Common
Stock on the New York Stock Exchange on the day the Option shall be granted.
5. TERM OF OPTIONS.
The term of each Option shall be not more than ten years from the date of
granting thereof. Each Option shall be subject to earlier termination or
forfeiture as herein provided.
6. EXERCISE OF OPTIONS.
An Option may be made exercisable at any time or from time to time, in one
or more installments, as the Board in its discretion shall determine; PROVIDED,
HOWEVER, that an Option may not be exercised as to less than
<PAGE>
100 shares at any one time (or the remaining shares then covered by the Option,
if less than 100 shares). The Board may also establish conditions to exercise
based upon continued employment, the attainment of specified financial
performance goals and other relevant factors. The Board may waive any or all
such conditions with respect to any or all Option recipients and may accelerate
the expiration of the period during which any Option or portion of an Option
shall not be exercisable.
The purchase price of the shares of Common Stock purchased upon the exercise
of an Option shall be paid in full at the time of exercise in cash or in whole
or in part with shares of Common Stock. The value of any share delivered in
payment of all or part of the purchase price upon the exercise of an Option
shall be the closing sale price of a share of Common Stock on the New York Stock
Exchange on the date the Option shall be exercised.
Except as provided in Sections 10 and 11 hereof, an Option may not be
exercised in whole or in part unless the holder thereof shall then be an
employee of Bethlehem or of a subsidiary. The holder of an Option shall not
have any of the rights of a stockholder with respect to the shares covered by
his Option until and except to the extent that the Option shall have been duly
exercised or the right to exercise the Option shall have been surrendered in
whole or in part for shares of Common Stock as provided in Section 7 hereof.
7. SURRENDER OF OPTIONS.
The Board, upon such terms and conditions as it shall deem appropriate, may
(but shall not be obligated to) authorize on behalf of Bethlehem the acceptance
of the surrender of the right to exercise an Option or a portion thereof (but
only to the extent and in the amounts that such Option shall then be
exercisable) and the payment by Bethlehem therefor of an amount equal to the
excess of the fair market value of the shares of Common Stock covered by such
Option or portion thereof over the option price of such shares. Such payment
shall be made in shares of Common Stock (valued at fair market value), or in
cash, or partly in cash and partly in shares of Common Stock, as the Board shall
determine. For the purposes of this Section 7, such fair market value shall be
deemed to be the closing sale price of the Common Stock on the New York Stock
Exchange on the date of surrender or, with respect to surrenders during the
period beginning on the third business day following the date of release by
Bethlehem of its quarterly financial results and ending on the twelfth business
day following the date of such release, such fair market value shall be
determined by the Board but shall not exceed the highest closing sale price or
be less than the lowest closing sale price of the Common Stock on the New York
Stock Exchange during such period. The shares of Common Stock covered by an
Option or portion thereof the right to exercise which shall have been so
surrendered shall not again be available for the purposes of the Plan.
8. OPTION AGREEMENTS.
Each Option shall be evidenced by a written option agreement which agreement
(and any amendment thereof) shall contain such terms and provisions, consistent
with the requirements of the Plan, as the Board in its discretion shall
determine. Option agreements need not be identical.
9. CONTINUING EMPLOYMENT OF OPTION RECIPIENTS.
An option agreement may provide that (i) any shares of Common Stock issued
upon the exercise of the Option provided for therein, (ii) any payment (whether
in shares of Common Stock, or in cash, or some combination thereof) made by
Bethlehem upon the surrender as provided in Section 7 hereof of the right to
exercise the Option provided for therein, (iii) the Option itself provided for
therein or (iv) any combination of the foregoing shall be forfeited and returned
to Bethlehem if the recipient shall cease to remain in the employ of Bethlehem
or one or more of its subsidiaries during the period or periods specified by
such agreement. The holder of an Option shall, as one of the terms of the
option agreement relating thereto, agree to remain in the employ of Bethlehem or
one or more of its subsidiaries in order to exercise the Option. Such
employment shall be at the pleasure of each employing corporation and at such
compensation as such employing corporation shall reasonably determine. Any such
condition to remain in the employ of Bethlehem or its subsidiaries shall not
apply (i) if employment shall terminate or be terminated by reason of
retirement, death or permanent disability or (ii) if a change in control as
defined in this Section 9 shall have occurred. For purposes of this Plan, the
term change in control shall mean (i) the first purchase of shares pursuant to a
tender offer or exchange (other than a tender offer or exchange by Bethlehem)
for all or part of Bethlehem's Common Stock or any securities convertible into
such Common Stock, (ii) the receipt by Bethlehem of a Schedule 13D or other
advice indicating
2
<PAGE>
that a person is the "beneficial owner" (as that term is defined in Rule 13d-3
under the Securities Exchange Act of 1934) of 20% or more of Bethlehem's Common
Stock calculated as provided in paragraph (d) of said Rule 13d-3, (iii) the date
of approval by stockholders of Bethlehem of an agreement providing for any
consolidation or merger of Bethlehem in which Bethlehem will not be the
continuing or surviving corporation or pursuant to which shares of Common Stock
of Bethlehem would be converted into cash, securities or other property, other
than a merger of Bethlehem in which the holders of Common Stock of Bethlehem
immediately prior to the merger would have the same proportion of ownership of
common stock of the surviving corporation immediately after the merger, (iv) the
date of the approval by stockholders of Bethlehem of any sale, lease, exchange
or other transfer (in one transaction or a series of related transactions) of
all or substantially all the assets of Bethlehem or (v) the adoption of any plan
or proposal for the liquidation or dissolution of Bethlehem.
10. RETIREMENT OR TERMINATION OF EMPLOYMENT OF OPTION RECIPIENTS BY REASON
OF PERMANENT DISABILITY.
If an employee to whom an Option shall have been granted shall retire, or
if his employment shall terminate or be terminated by reason of permanent
disability, such employee (and, if he shall die within five years after such
retirement or such termination by reason of permanent disability, then the
estate of such employee or a person who shall have acquired the right to
exercise such Option by bequest or inheritance) may exercise such Option in
whole or in part, and/or the Board may authorize the acceptance of the surrender
of the right to exercise such Option or any portion thereof as provided in
Section 7 hereof, at any time within five years after such retirement or after
such termination by reason of permanent disability, but not after the expiration
of the term of the Option.
If an employee to whom an Option shall have been granted shall die after
such retirement or such termination by reason of permanent disability and during
the applicable period during which such Option may be exercised, his estate or
the person who shall have acquired the right to exercise such Option by bequest
or inheritance shall be deemed to have offered, immediately prior to the
termination of such period, to surrender the right to exercise such Option
pursuant to the provisions of Section 7 hereof, unless such Option shall have
theretofore been exercised, or the right to exercise such Option shall have
theretofore been so surrendered, or such Option shall have been forfeited.
If the employment of an employee to whom an Option shall have been granted
shall be terminated otherwise than by reason of retirement, death or permanent
disability, such Option shall, to the extent not theretofore forfeited or
exercised or the right to exercise it theretofore surrendered, be canceled upon
such termination of employment, and, if so provided in the related option
agreement, the shares of Common Stock issued upon the exercise of the Option or
the shares of Common Stock, or cash, or combination thereof paid by Bethlehem
upon the surrender of the Option shall be forfeited and returned to Bethlehem.
An Option shall not be affected by any change of duties or position of the
holder or any temporary leave of absence granted to him by the employing
corporation. Nothing in the Plan or in any option agreement entered into
pursuant to the Plan shall confer upon any employee any right to continue in the
employ of Bethlehem or of any of its subsidiaries or interfere in any way with
the right of Bethlehem or any such subsidiary to terminate the employment of
such employee at any time.
For purposes of this Plan the term "permanent disability" means disability
by bodily injury or disease, either occupational or nonoccupational in cause,
preventing the employee on the basis of satisfactory medical evidence from
engaging in any employment of the type normally performed by the employee.
11. DEATH OF OPTION RECIPIENT; CHANGE IN CONTROL.
If an employee to whom an Option shall have been granted shall die while
employed by Bethlehem or one or more of its subsidiaries, such Option may be
exercised in whole or in part, and/or the Board may authorize the acceptance of
the surrender of the right to exercise such Option or any portion thereof as
provided in Section 7 hereof, by the estate of such employee (or by a person who
shall have acquired the right to exercise such Option by bequest or
inheritance), at any time within five years after the death of such employee,
but not after the expiration of the term of the Option.
Anything in this Plan to the contrary notwithstanding, if a change in
control shall occur, the right to exercise all outstanding Options to the extent
such Options shall not theretofore have been forfeited or exercised or the right
to exercise such Options theretofore surrendered shall automatically vest in
accordance with their
3
<PAGE>
respective terms. Upon the occurrence of a change in control, an employee to
whom an Option shall have been granted may exercise the portion, if any, of such
Option that shall then be exercisable, and any and all installments of such
Option that shall not then be exercisable and shall not theretofore have been
forfeited shall automatically become exercisable on the date or dates
established in the option agreement relating thereto as the date or dates on
which such installment or installments shall become exercisable, regardless of
whether the conditions, if any, to exercise based upon continued employment, the
attainment of specified financial performance goals or any other factor shall
have been or shall thereafter be satisfied. The first sentence of this Section
11 notwithstanding, if such employee shall die (whether or not he shall be
employed by Bethlehem or by one or more of its subsidiaries at the time of his
death), the estate of such employee (or a person who shall have acquired the
right to exercise such Option by bequest of inheritance) may exercise each such
portion that shall become exercisable pursuant to the immediately preceding
sentence during the five-year period after it shall have become exercisable, but
not after the expiration of the term of the Option.
GRANTS
12. GRANTS.
A Grant shall be subject to such terms and conditions as the Board in its
discretion shall determine, which may include, without limitation, conditions
for issuance of shares of Common Stock pursuant thereto at any time subsequent
to the granting thereof or in installments from time to time or providing for
forfeiture of such Grant or the shares issued or theretofore issued pursuant
thereto in designated circumstances; PROVIDED, HOWEVER, that upon the issuance
of shares pursuant to a Grant, the recipient shall, with respect to such shares,
be and become a Bethlehem stockholder except to the extent otherwise provided in
such Grant. The Board may in its discretion award unrestricted shares of Common
Stock in consideration of services theretofore rendered by the recipient. The
Board in its discretion may require, among other things, that the recipient pay
the par value for the shares to be issued pursuant to a Grant. Each Grant shall
be evidenced by a written instrument in such form as the Board shall determine,
including, without limitation, a certificate for shares of Common Stock bearing
a legend indicating the restrictions of the Grant.
In the event of a recipient's termination of employment for any reason prior
to the lapse of restrictions applicable to a Grant made to such recipient, the
Board may determine in its sole discretion that any or all rights to shares of
Common Stock as to which there shall still remain unlapsed restrictions shall be
forfeited by such recipient to Bethlehem without payment or any consideration by
Bethlehem, and neither the recipient nor any successors, heirs, assigns or
personal representatives of such recipient shall thereafter have any further
rights or interest in such shares, or that the restrictions with respect to all
or a portion of such shares shall terminate.
13. RESTRICTED STOCK AGREEMENTS.
Each Grant of restricted shares shall be evidenced by a written restricted
stock agreement which agreement (and any amendment thereof) may contain such
terms and provisions, consistent with the requirements of the Plan, as the Board
in its discretion shall determine. Restricted stock agreements need not be
identical. Such agreements shall contain the following terms and conditions:
(a) Restriction Period. A Grant of restricted shares made pursuant
to this Plan may be subject to such terms, conditions and restrictions,
including, without limitation, substantial risks of forfeiture based upon
requirements relating to continued employment, the attainment of specified
financial performance goals or other relevant factors and for such period
or periods as shall be determined by the Board at the time that the Grant
shall be awarded. The Board shall have the power to permit, in its
discretion, an acceleration of the expiration of the applicable restriction
period with respect to any part of or all the restricted Common Stock
awarded to any recipient, and to waive any or all terms, conditions or
restrictions contained in any or all restricted stock agreements.
(b) Lapse of Restrictions. Each restricted stock agreement shall
specify the terms and conditions upon which any restrictions on the right
to receive shares representing restricted stock awarded under the Plan
shall lapse, as determined by the Board. Upon the lapse of such
restrictions, a certificate or certificates for shares of Common Stock
without any restriction shall be issued to the recipient or his legal
representative.
4
<PAGE>
TERMS OF GENERAL APPLICABILITY
14. NONTRANSFERABILITY OF AWARDS.
An Award shall not be transferable otherwise than by will or the laws of
descent and distribution, and an Option may be exercised or the right to
exercise an Option surrendered during the lifetime of the employee only by him
or his legal representative if he shall be incompetent.
15. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
In the event of changes in the outstanding Common Stock of Bethlehem by
reason of stock dividends, stock splits, recapitalizations, mergers,
consolidations, combinations or exchanges of shares, separations,
reorganizations or liquidations, the number and class of shares to be issued
pursuant to outstanding Awards and as to which Awards may be granted under the
Plan shall be appropriately adjusted by the Board. An adjustment shall not be
made in the minimum number of shares which may be purchased at any time.
16. NO LOANS IN CONNECTION WITH AWARDS.
Neither Bethlehem nor any subsidiary may directly or indirectly lend money
to any employee to acquire or carry shares of Common Stock purchased upon the
exercise of an Option or to pay in whole or in part for shares to be issued
pursuant to a Grant.
17. EFFECTIVENESS OF THE PLAN.
The Plan shall become effective April 1, 1988, provided that it shall be
approved by the stockholders at the 1988 Annual Meeting of the stockholders of
Bethlehem, or at any adjournment thereof. Unless the Plan shall be so approved,
it shall be null and void.
18. TIME OF GRANTING OF AWARDS.
Nothing contained in the Plan or in any resolution adopted or to be adopted
by the Board or by any committee to which the Board shall have delegated power
pursuant to Section 19 hereof or by the stockholders of Bethlehem with respect
to the Plan shall constitute the granting of an Award. The granting of an Award
shall take place on the date on which the Board shall approve the granting of
such Award or such later date as the Board shall designate as the date of
granting of such Award.
19. ADMINISTRATION OF THE PLAN.
Subject to the express provisions of the Plan, the Board shall have plenary
authority, in its discretion, to determine the terms and conditions to be
included in any Award (which such terms and conditions may differ with respect
to recipients), the time or times at which, and the employees of Bethlehem and
its subsidiaries to whom, Awards shall be granted, the type of such Awards, the
purchase price (if any, in the case of Grants), and the number, of the shares to
be covered by each Award, the conditions of continuing employment, the time or
times when each Option may be exercised or the right to exercise such Option may
be surrendered and when restrictions provided for by any Grant may lapse and
whether in whole or in installments; to interpret the Plan; to prescribe, amend
and rescind the rules and regulations relating to it; and to make all other
determinations which the Board shall deem necessary or advisable for the
administration of the Plan. The Board may, however, at any time or from time to
time, delegate to the Executive Compensation Committee or such other committee
or committees (each of which shall consist of not less than three members of the
Board) appointed by the Board any of or all the powers and duties of the Board
under the Plan (except those relating to (i) the determination whether the
shares of Common Stock reserved for use in connection with the Plan shall be
issued shares or unissued shares, (ii) the appointment of any such committee and
(iii) the termination or amendment of the Plan). The Board may from time to
time appoint members of any such committee in substitution for or in addition to
members previously appointed, may fill vacancies, however caused, in any such
committee and may discharge any such committee. So long as any such delegation
shall be in force, any action by the Executive Compensation Committee or any
other such committee within the scope of such delegation shall be and be deemed
to be action by the Board under the Plan.
Anything herein to the contrary notwithstanding, none of the employees of
Bethlehem or any subsidiary shall as a member of the Board or of the Executive
Compensation Committee or of any such other committee have any vote with regard
to the granting of an Award to such employee, the purchase price (if any, in the
case
5
<PAGE>
of Grants) of the shares of Common Stock covered by any such Award, the
time at which any such Award shall be granted, the number of shares covered
thereby, when an Option may be exercised or the right to exercise it surrendered
or when restrictions with respect to shares of restricted stock shall lapse and
whether in whole or in installments, the conditions under which the Award or
shares of Common Stock issued pursuant thereto shall be forfeited or the
provisions of the related option or restricted stock agreement.
Words in the masculine gender used herein shall be deemed to include the
feminine gender.
20. GOVERNMENT AND OTHER REGULATIONS.
The obligation of Bethlehem to sell and deliver shares of Common Stock
under the Options and pursuant to the Grants shall be subject to (i) all
applicable laws, rules and regulations and such approvals by any governmental
agencies as may be required, including, without limitation, the effectiveness of
a registration statement under the Securities Act of 1933, as deemed necessary
or appropriate by counsel for Bethlehem, and (ii) the condition that such shares
shall have been duly listed on the New York Stock Exchange.
21. NONEXCLUSIVITY OF THE PLAN.
Neither the adoption of the Plan by the Board nor the submission of the
Plan to the stockholders of Bethlehem for approval shall be construed as
creating any limitations on the power of the Board to adopt such other incentive
arrangements as it may deem desirable, including, without limitation, the
granting of stock options or stock otherwise than under the Plan, and such
arrangements may be either applicable generally or only in specific cases.
22. AMENDMENT AND TERMINATION OF THE PLAN.
The Plan may be terminated or amended by the stockholders of Bethlehem. The
Board may also terminate the Plan or amend the Plan in such respects as it shall
deem advisable; PROVIDED, HOWEVER, that the Board may not, without approval by
the stockholders of Bethlehem, change (i) (except as provided in Section 15
hereof) the maximum number of shares of Common Stock as to which Awards may be
granted under the Plan, (ii) the manner of determining the Option prices except
to change the manner of determining the fair market value of the Common Stock as
set forth in Sections 4 and 7 hereof, (iii) the maximum term of each Option as
provided in Section 5 hereof or (iv) the provisions of the second paragraph of
Section 19 hereof. No termination or amendment of the Plan may adversely affect
any rights under an outstanding Option or Grant without the consent of the
holder thereof.
6
<PAGE>
SUPPLEMENTAL BENEFITS PLAN
OF
BETHLEHEM STEEL CORPORATION
AND SUBSIDIARY COMPANIES
AS AMENDED THROUGH SEPTEMBER 20, 1995
WHEREAS the Employee Retirement Income Security Act of 1974 (the "Act")
imposes dollar limitations on the annual retirement benefit payment to an
individual after December 31, 1975, under qualified pension plans, such as the
Pension Plan of Bethlehem Steel Corporation and Subsidiary Companies and the
Bethlehem Railroad Subsidiaries Pension Plan (collectively and individually, the
"Pension Plan"); and
WHEREAS Bethlehem Steel Corporation ("Bethlehem") amended the Pension Plan to
conform to the limitations of the Act, and such amendment (the "Pension Plan
Amendment") reduced, after December 31, 1975, the benefits which certain
employees and former employees (and co-pensioners and surviving spouses) of
Bethlehem and any other Employing Company, as such term is defined in the
Pension Plan, would otherwise be entitled to receive under the Pension Plan; and
WHEREAS Bethlehem has adopted a plan (the "Excess Plan") which provides that
all employees shall receive retirement benefits of the same amount they would
have received under the Pension Plan were it not for the Pension Plan Amendment;
and
WHEREAS Bethlehem recognizes that, in the case of certain key employees, the
retirement benefits calculated under the Pension Plan and the Excess Plan either
do not reflect the benefit that Bethlehem derives from the experience of such
key employees
<PAGE>
-2-
gained prior to their employment by Bethlehem or are not appropriate for the
positions with Bethlehem held by such key employees and therefore desires to
provide for the adjustment of such retirement benefits in appropriate cases.
NOW, THEREFORE, in consideration of past and future services of such affected
key employees, Bethlehem agrees to be legally bound as follows:
1. Whenever used herein:
(a) "Board" means the Board of Directors of Bethlehem.
(b) "Key Employee" means any person who at any time before the termination of
this Supplemental Benefits Plan ("Plan") shall be a full-time salaried employee
of Bethlehem or any other Employing Company which shall have adopted this Plan
who, in the opinion of the Board or any Committee of the Board to which it may
delegate its powers under this Plan, shall serve in an executive or other key
capacity with Bethlehem or such Employing Company and who, while so employed,
shall be (or upon the completion of the requisite minimum period of employment
would be eligible to be) a participant in the Pension Plan.
(c) "Lump-Sum Payment" means a payment to a Key Employee pursuant to the
provisions of paragraph 4 hereof in an amount equal to the sum of that portion
of the special payment that would otherwise be payable to such Key Employee
under paragraph 2 hereof and the equivalent actuarial value, as determined by
the Board or any Committee of the Board to which it may delegate its powers
under this Plan, of the
<PAGE>
-3-
amounts which would otherwise become payable to such Key Employee or to the co-
pensioner or surviving spouse of such Key Employee, as the case may be, under
said paragraph 2.
(d) "Partial Lump-Sum Payment" means a payment to a Key Employee pursuant to
provisions of paragraph 4 hereof in an amount equal to the sum of that portion
of the special payment that would otherwise be payable to such Key Employee
under paragraph 2 hereof and the equivalent actuarial value, as determined by
the Board or any Committee of the Board to which it may delegate its powers
under this Plan, of the amounts which would otherwise become payable to such Key
Employee under said paragraph 2.
(e) "Periodic Payments" means payments under the Pension Plan or the Excess
Plan after retirement or payments under this Plan after retirement that are
other than a Lump-Sum Payment or a Partial Lump-Sum Payment.
(f) "Retirement Account Balance" means the account maintained under the
Pension Plan for participants who, as of May 31, 1989, had an account balance
under the Retirement Account for Salaried Employees of Bethlehem Steel
Corporation and Subsidiary Companies.
2. Bethlehem will pay, or cause to be paid, to a Key Employee selected, in
its sole discretion, by the Board or any Committee of the Board to which it may
delegate its powers under this Plan, or to the co-pensioner or surviving spouse
of such
<PAGE>
-4-
Key Employee, as the case may be, who shall receive payments under the
Pension Plan (or who would have received such payments if such Key Employee had
completed the requisite minimum period of continuous service), an amount which
shall be equivalent to the excess, if any, of (a) the aggregate amount such Key
Employee, co-pensioner or surviving spouse would have received under the Pension
Plan and the Excess Plan in respect of each calendar year, taking into account
all provisions of the Pension Plan and the Excess Plan as from time to time in
effect and which would have been applicable to such Key Employee, co-pensioner
or surviving spouse after taking into account any adjustments of the calculation
of such amount approved by the Board or such Committee pursuant to paragraph 3
hereof, over (b) the amount such Employee, co-pensioner or surviving spouse
shall have received under the Pension Plan and the Excess Plan in respect of
such year; provided, however, that for purposes of this paragraph 2, the amount
-------- -------
received under the Pension Plan or Excess Benefit Plan shall refer to the amount
received or which would have been received based on an election to forego the
distribution of the Key Employee's Retirement Account Balance under the Pension
Plan.
Periodic Payments under this Plan shall be made at approximately the same time
as Periodic Payments are or would have been made to such Key Employee, co-
pensioner or surviving spouse under the Pension Plan and the Excess Plan and a
Lump-Sum Payment or Partial Lump-Sum Payment shall be made under this Plan only
if authorized in accordance with the provisions of paragraph 4 hereof.
<PAGE>
-5-
3. (a) For the purpose of calculating the amount of the payments to be made
under paragraph 2 hereof, the Board or any Committee of the Board to which it
may delegate its powers under this Plan may in its sole discretion authorize one
or more of the following adjustments of the calculation of the amount that would
have been paid to a Key Employee or the co-pensioner or surviving spouse of a
Key Employee under the Pension Plan and the Excess Plan:
(i) as provided in subparagraph (b) of this paragraph 3, add to the
years of continuous service of any Key Employee such period of years and
months as the Board or such Committee shall determine as properly
representing the experience of such Key Employee prior to becoming
employed by Bethlehem or any other Employing Company, including, if the
Board or such Committee shall so determine, experience in a prior
employment with Bethlehem or any other Employing Company which shall not
be creditable under the Pension Plan because of a break in continuous
service, or
(ii) waive or reduce the 15 years' continuous service requirement of
the Pension Plan governing eligibility for a Surviving Spouse's Benefit,
or
(iii) for a Key Employee who shall have had at least ten years of
continuous service (or such lesser period as the Board or
<PAGE>
-6-
such Committee may provide), establish a minimum percentage, not in
excess of 50%, to be applied in calculating the percent pension of such
Key Employee pursuant to the Pension Plan, or
(iv) establish an alternative basis for calculating the average
monthly earnings of a Key Employee in lieu of the provisions of the
Pension Plan, or
(v) establish an alternative basis for calculating the regular
pension amount of the Key Employee in lieu of the provisions of Paragraph
3.3 of the Pension Plan.
(b) For the purpose of clause (i) of subparagraph (a) of this paragraph 3, in
selecting Key Employees whose prior experience shall be credited in calculating
continuous service and in determining the portion of the period of such prior
experience (not to exceed all such period) which shall be so credited, the Board
or such Committee may take into account the loss or reduction of any pension or
retirement benefit (from prior employers or otherwise) incurred by a Key
Employee by reason of his employment by Bethlehem, the amounts otherwise payable
by Bethlehem under the Pension Plan and the Excess Plan, if any, in the absence
of a credit for such experience, the extent to which Bethlehem shall have
benefited or shall expect to benefit from the prior experience of such Key
Employee and such other factors that the Board or such Committee shall deem
relevant under the circumstances. The amount of the increase in the payments
that would
<PAGE>
-7-
be made to a Key Employee or the co-pensioner or surviving spouse of
a Key Employee as a result of the credit for prior experience pursuant to said
clause (i) may be reduced (but not below zero) by the amount, as determined by
the Board or such Committee, of any corresponding payment from any pension or
retirement benefit plan of a prior employer of such Key Employee, if and to the
extent that service with such employer shall be included in the period of prior
experience which is being credited pursuant to said clause (i).
(c) The adjustments under clauses (i) through (v) of subparagraph (a) of this
paragraph 3 shall be available only in the event of Normal Retirement or
Permanent Incapacity Retirement (as such terms are defined in the Pension Plan)
or the death of such Key Employee while he shall be employed by Bethlehem or the
termination of his employment prior to Normal Retirement with the approval of
the Board or such Committee (which approval may be granted at any time prior to
or after such termination and, if granted prior to termination, may, but need
not be, subject to such conditions as the Board or Committee deem appropriate).
4. Bethlehem may make, or cause to be made, to such Key Employee a Lump-Sum
Payment or a Partial Lump-Sum Payment in lieu of amounts otherwise payable under
paragraph 2 hereof. A Lump-Sum Payment or a Partial Lump-Sum Payment under this
Plan may be made only if the Board or any Committee of the Board to which it may
delegate its powers under this Plan shall, in its sole discretion, so authorize
such a payment.
<PAGE>
-8-
A Lump-Sum Payment and a Partial Lump-Sum Payment under this Plan shall be
based on such tables and interest rates as may be adopted from time to time for
such purposes by the Board or any Committee of the Board to which it may
delegate its power under this Plan. A Partial Lump-Sum Payment under this Plan
shall not include the co-pensioner or surviving spouse's benefit.
5. A Key Employee or the co-pensioner or surviving spouse of such Key
Employee shall not be entitled to any further benefits under this Plan if a
Lump-Sum Payment shall be made to him under this Plan. A Key Employee shall not
be entitled to any further benefits under this Plan if a Partial Lump-Sum
Payment shall have been made under this Plan.
6. Increases to Periodic Payments being paid under this Plan to a Key
Employee or the surviving spouse of such Key Employee may be granted at such
times and in such amounts as the Board, or any Committee of the Board to which
it may delegate its power under this Plan, may, in its sole discretion,
determine. Any such increase granted to a Key Employee shall be taken into
account in determining the amount payable, if any, to the surviving spouse of
such Key Employee.
7. If payments are authorized to be made hereunder to a Key Employee or the
co-pensioner or surviving spouse of such Key Employee, Bethlehem or an Employing
Company, as the case may be, shall be under a contractual obligation to make
such payments hereunder when due, and the method of making provisions for such
payments (which may include the purchase of annuities or the establishment of
one or
<PAGE>
-9-
more trusts or providing letters of credit or other security arrangements) shall
be solely in the discretion of the Board or any Committee of the Board to which
it may delegate its power under this Plan. To the extent that benefits otherwise
payable under this Plan are paid to a Key Employee or the co-pensioner or
surviving spouse of such Key Employee from a life insurance trust or otherwise
in a manner determined to permit such person to receive a benefit under such
arrangement which, on an after-tax basis, is reasonably equivalent to what such
person would receive on an after-tax basis if payments under this Plan were made
directly by Bethlehem or an Employing Company when due, the obligation of
Bethlehem or an Employing Company under this Plan shall be correspondingly
reduced.
8. Nothing contained herein shall affect the right of a Key Employee to
participate in and receive benefits under and in accordance with any pension,
profit sharing, incentive compensation or other benefit plan or program of
Bethlehem or its subsidiaries or affiliates.
9. This Plan shall continue in force with respect to any Key Employee until
the termination of the right of such Key Employee or the co-pensioner or
surviving spouse of such Key Employee to receive benefits under this Plan, and
shall be binding upon any successor to substantially all the assets of
Bethlehem. Bethlehem may, however, at any time, terminate this Plan with
respect to individuals who thereafter shall first become employed by Bethlehem
or any other Employing Company. Bethlehem may also, at any time, amend this
Plan retroactively or otherwise if and to the extent that such action
<PAGE>
-10-
shall be deemed appropriate in light of government regulations or other legal
requirements. Except as may otherwise be required by law, no amendment
(including any termination) of this Plan shall adversely affect any benefits to
any individual (including the right to receive future payments) previously
granted hereunder to such individual.
10. No right or interest of a Key Employee or the co-pensioner or surviving
spouse of a Key Employee under this Plan shall be subject to voluntary or
involuntary alienation, assignment or transfer of any kind.
11. The administration of this Plan shall be the responsibility of Bethlehem.
Decisions of Bethlehem and its Board or any Committee of the Board to which it
may delegate its powers under this Plan shall be final and binding upon any
Employing Company which shall have adopted this Plan, all employees of such
Employing Company and their co-pensioners and surviving spouses.
12. If any payment to be made under this Plan is to be made to a Key Employee
or the co-pensioner or surviving spouse of such Key Employee who was employed by
an Employing Company which shall have adopted this Plan, other than Bethlehem,
the cost of such payment shall be borne in such proportions as Bethlehem and
such Employing Company shall agree.
13. This Plan shall be construed, regulated and administered for all purposes
according to the laws of the State of Delaware.
<PAGE>
-11-
IN WITNESS WHEREOF, Bethlehem has caused this Plan, as amended, to be duly
adopted and executed by its duly authorized officers and its corporate seal to
be affixed hereto as of the 20th day of September, 1995.
BETHLEHEM STEEL CORPORATION
By
/s/ Curtis H. Barnette
----------------------------------
Chairman
Attest:
/s/ R.G. Masters
- --------------------------------------
Assistant Secretary
<PAGE>
BETHLEHEM STEEL CORPORATION
POST RETIREMENT RETAINER PLAN
FOR NON-OFFICER DIRECTORS ("Plan")
----------------------------------
WHEREAS, Bethlehem Steel Corporation ("Bethlehem") recognizes that, in the
case of Non-officer Directors, the provision of post-retirement benefits is
desirable in order to help obtain new Non-officer Directors and retain existing
Non-officer Directors so that Bethlehem may benefit from the services of such
experienced persons, and therefore desires to provide for the payment of such
benefits in appropriate cases.
NOW, THEREFORE, in consideration of past and future services of such Non-
officer Directors, Bethlehem agrees to be legally bound as follows:
1. Definitions. Whenever used herein:
-----------
(a) "Annual Payment" means a payment to a Non-officer Director as
described in paragraph 3 hereof.
(b) "Board" means the Board of Directors of Bethlehem.
(c) "Effective Date" means January 1, 1990.
(d) "Lump-Sum Payment" means a payment to the designated beneficiary or
beneficiaries or estate of a Non-officer Director pursuant to the
provisions of paragraph 5 hereof.
<PAGE>
2
(e) "Non-officer Director" means any person who serves as a member of the
Board on or after the Effective Date and who shall not be a
participant in the Pension Plan.
(f) "Retainer Fee" means the annual compensation fee established by the
Board for a member of the Board who is not an employee of Bethlehem.
(g) "Termination Date" means the date on which a Termination of Service
occurs.
(h) "Termination of Service" means the cessation of service as a Non-
officer Director for any reason, including death.
(i) "Year of Service" means a period of twelve (12) consecutive full
months service as a Non-officer Director, the first of which shall
commence on the date the person commences service as a Non-officer
Director; provided, however, that in the event a person serves as a
Non-officer Director during two or more separate periods, the Years of
Service for such person shall be determined on a cumulative basis and
may include a period of service as a Non-officer Director for less
than twelve (12) consecutive full months.
2. Eligibility. A Non-officer Director who completes five (5) or more
-----------
Years of Service shall, upon Termination of Service other than by
reason of death or for cause, be entitled to receive Annual Payments
as set forth in paragraph 4 hereof. For
<PAGE>
3
purposes of this paragraph 2, a Termination of Service shall be deemed
to be "for cause" if such termination is based on fraud,
misappropriation or embezzlement on the part of the Non-officer
Director. Notwithstanding the foregoing, a Non-officer Director shall
not be deemed to have been terminated "for cause" unless and until
there shall have been delivered to such individual a copy of a
resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board at a meeting of
the Board called and held for that purpose (after reasonable notice to
such individual and an opportunity for such individual, together with
counsel, to be heard before the Board), finding that in the good faith
opinion of the Board such individual was guilty of fraud,
misappropriation or embezzlement and specifying the particulars
thereof in detail.
3. Amount. The amount of the Annual Payment payable hereunder to an
------
eligible Non-officer Director shall be determined as follows:
<TABLE>
<CAPTION>
Years of Service
at Termination Date Amount
- ------------------------------------------- -----------------------------------
<S> <C>
5 but less than 10 50% of Retainer Fee in effect at
the Termination Date plus, for each
full Year of Service in excess of
five (5), 10% of such Retainer Fee.
10 or more 100% of Retainer Fee in effect at
the Termination Date.
</TABLE>
4. Commencement and Duration of Payments. The Annual Payments to an
-------------------------------------
eligible Non-officer Director shall be paid in quarterly installments.
The initial quarterly payment shall be due as of the end of the third
month following the month which includes the Termination Date unless
the Non-officer Director is less than age 65
<PAGE>
4
at the Termination Date, in which case the initial quarterly payment
shall be due as of the end of the month in which the Non-officer
Director attains age 65. Quarterly installments of the Annual Payments
will continue to be due (as of the end of the month) every three (3)
months thereafter until the number of Annual Payments made to the Non-
officer Director equals the number of complete Years of Service of
such individual.
5. Death Benefit. If a Non-officer Director dies after her incurs a
-------------
Termination of Service and has not theretofore received the full
number of Annual Payments due under this Plan or, if Termination of
Service is due to death and the Non-officer Director would have been
eligible to receive Annual Payments under this Plan had such
Termination of Service been caused by his resignation rather than
death, a Lump-Sum Payment shall be made to his designated beneficiary
or beneficiaries or to his estate in the absence of a written
designation of beneficiary (or to the extent the written designation
does not provide for the distribution of 100% of the Lump-Sum
Payment). The Lump-Sum Payment shall be the present value of the
quarterly installments of the Annual Payments which would have been
payable to the Non-officer Director had he lived until all Annual
Payments due under this Plan were made (assuming in the case of a
Termination of Service due to death that such Termination of Service
was caused by his resignation rather than death) determined based upon
the publicly announced prime rate of Morgan Guaranty Trust Company of
New York in effect on the date of death of the Non-officer Director.
<PAGE>
5
6. Designation of Beneficiaries. A Non-Officer Director may file with the
----------------------------
Secretary of Bethlehem a written designation of a beneficiary or
beneficiaries to receive any amounts payable under this Plan in the
event of the death of such Non-officer Director. Any such written
designation may be changed or revoked by the Non-officer Director by
written notice to the Secretary of Bethlehem.
7. Contractual Obligation. Bethlehem shall be under a contractual
----------------------
obligation to make the payments provided for hereunder when due, and
the method of making provisions for such payments (which may include
the establishment of one or more trusts or providing letters of credit
or other security arrangements) shall be solely in the discretion of
the Board or any Committee of the Board to which it may delegate its
power under this Plan. To the extent that benefits otherwise payable
under this Plan are paid to a Non-officer Director or the beneficiary
or estate of such Non-officer Director from a life insurance trust or
otherwise, the obligation of Bethlehem under this Plan shall be
correspondingly reduced.
8. Other Rights. Nothing contained herein shall affect the right of a
------------
Non-officer Director to participate in and receive benefits under and
in accordance with any other compensation or program of Bethlehem.
9. Amendment and Termination. This Plan shall continue in force with
-------------------------
respect to any Non-officer Director until all payments provided for
hereunder shall be made and shall be binding upon any successor by
merger or to substantially all the assets of Bethlehem. The Board may,
however, at any time amend or terminate this Plan but,
<PAGE>
6
except as may otherwise be required by law, no amendment or
termination of this Plan shall adversely affect any right to receive
benefits (including the right to receive future payments) with respect
to any Non-officer Director whose Termination Date occurred prior to
such amendment or termination or reduce the benefits to which any Non-
officer Director whose Termination Date had not occurred prior to such
amendment or termination below the benefit such Non-officer Director
would be entitled to receive if his Termination Date occurred as of
the date of such amendment or termination.
10. Alienation. No right or interest of a Non-officer Director under this
----------
Plan shall be subject to voluntary or involuntary alienation,
assignment or transfer of any kind.
11. Administration. The administration of this Plan shall be the
--------------
responsibility of the Board or any Committee of the Board to which it
may delegate such responsibility; provided, however, that no person
serving on the Board or any such Committee of the Board shall take
part in any proceeding pursuant to this paragraph to the extent that
it shall affect his right to receive a benefit under this Plan.
Decisions of the Board or any such Committee of the Board shall be
final and binding upon Bethlehem and all parties who may claim to have
an interest under this Plan.
12. Governing Law. This Plan shall be construed, regulated and
-------------
administered for all purposes according to the laws of the State of
Delaware.
<PAGE>
7
IN WITNESS WHEREOF, Bethlehem has caused this Plan to be duly adopted and
executed by its duly authorized officers and its corporate seal to be affixed
hereto as of the 27th day of June, 1990.
BETHLEHEM STEEL CORPORATION
by
/s/ W. F. Williams
----------------------------
W. F. Williams
Chairman
[SEAL]
Attest:
/s/ Curtis H. Barnette
- --------------------------------
Secretary
<PAGE>
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 Company shall determine
that you are not entitled to indemnification, the Company
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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
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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
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.
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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
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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, 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,
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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: _______________________________
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[Signature of Director/Officer]
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Schedule A
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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.
14. Indemnification Assurance Agreement dated August 22, 1986 between Bethlehem
Steel Corporation and Robert W. Cooney.
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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.
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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.
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41. Indemnification Assurance Agreement dated May 1, 1991 between Bethlehem
Steel Corporation and Carl F. Meitzner.
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.
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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.
56. Indemnification Assurance Agreement dated January 31, 1996 between
Bethlehem Steel Corporation and Shirley D. Peterson.
57. Indemnification Assurance Agreement dated May 1, 1996 between Bethlehem
Steel Corporation and Gregory F. Paolini.
58. Indemnification Assurance Agreement dated May 1, 1996 between Bethlehem
Steel Corporation and Malcolm J. Roberts.
59. Indemnification Assurance Agreement dated May 1, 1996 between Bethlehem
Steel Corporation and Robert A. Rudzki.
60. Indemnification Assurance Agreement dated May 1, 1996 between Bethlehem
Steel Corporation and Dorothy L. Stephenson.
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<TABLE>
<CAPTION>
EXHIBIT (11)
Bethlehem Steel Corporation
Statement Regarding Computation of Earnings Per Share
(dollars in millions and shares in thousands, except per share data)
Three Months Year
Ended December 31 Ended December 31
1997 1996 Basic Earnings Per Share 1997 1996
----------- ------------- ------------------------ ----------- -------------
<C> <C> <S> <C> <C>
$41.7 ($346.5) Net Income $280.7 ($308.8)
Less Dividend Requirements:
(2.5) (2.5) $2.50 Preferred Dividend (10.0) (10.0)
(3.1) (3.1) $5.00 Preferred Dividend (12.5) (12.5)
(4.5) (4.5) $3.50 Preferred Dividend (17.9) (17.9)
(0.3) (0.3) 5% Preference Dividend (1.2) (1.5)
----------- ------------- ----------- -------------
(10.4) (10.4) Total Preferred and Preference Dividends (41.6) (41.9)
----------- ------------- ----------- -------------
$31.3 ($356.9) Net Income Applicable to Common Stock $239.1 ($350.7)
=========== ============= =========== =============
112,863 111,820 Average Shares of Common Stock 112,439 111,286
$0.28 ($3.19) Basic Earnings Per Share $2.13 ($3.15)
=========== ============= =========== =============
Diluted Earnings Per Share
--------------------------
$41.7 ($346.5) Net Income $280.7 ($308.8)
Less Dividend Requirements:
(2.5) (2.5) $2.50 Preferred Dividend (10.0) (10.0)
(3.1) (3.2) $5.00 Preferred Dividend (12.5) (12.5)
(4.5) (4.5) $3.50 Preferred Dividend - (17.9)
- (0.3) 5% Preference Dividend - (1.5)
----------- ------------- ----------- -------------
$31.6 ($357.0) Net Income Applicable to Common Stock $258.2 ($350.7)
=========== ============= =========== =============
Average Shares of Common Stock and
Other Potentially Dilutive Securities Outstanding:
112,863 111,820 Common Stock 112,439 111,286
- - Stock Options - 2
* * $2.50 Preferred Stock * *
* * $5.00 Preferred Stock * *
* * $3.50 Preferred Stock 12,255 *
2,346 * 5% Preference Stock 2,346 *
----------- ------------- ----------- -------------
115,209 111,820 Total 127,039 111,288
========== ============= =========== =============
$0.27 ($3.19) Diluted Earnings Per Share $2.03 ($3.15)
========== ============= =========== =============
</TABLE>
* Antidilutive
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CHAIRMAN'S LETTER
To Our Stockholders
For Bethlehem, 1997 was a year of considerable achievement and significant
progress toward our Vision to be the Premier Steel Company.
Our objective is to maximize stockholder value by achieving and sustaining
superior rates of return on the capital we have invested in each of our
businesses and by effectively serving our customers, having partnerships among
our employees and being a good corporate citizen. Our strategy for achieving
this Vision is to: concentrate on steel, with a focus on being a low-cost,
high-quality producer; rebuild our financial strength; and improve continuously
in everything that we do.
Some of the highlights for 1997 include:
. Our financial performance improved substantially over last year, with net
income of $281 million, including an after-tax gain of $113 million on the
sale of our equity interest in Iron Ore Company of Canada.
. Our 1996 Comprehensive Restructuring Plan was completed, which included
exiting five underperforming businesses, and we announced a decision to
discontinue our Bethlehem Coke Division by the end of the first quarter 1998.
These actions will eliminate the significant losses that were incurred at
these Divisions.
. Substantial progress was made in rebuilding our financial strength,
especially by reducing our debt and unfunded pension liability and by
increasing our stockholders' equity and liquidity.
. We announced a $300 million investment for a new cold rolling mill complex at
Sparrows Point that, when combined with Division-wide competitiveness and
cost-reduction initiatives, should enable Sparrows Point to achieve and
sustain a superior rate of return on its assets.
. We entered into a definitive merger agreement to acquire Lukens Inc., a
leading North American plate producer.
. Our bank credit facility was extended by two years to September 2002, and its
size was increased by $25 million to $525 million.
CONCENTRATING ON STEEL
During 1997, we strengthened the competitive position of our three core steel
businesses -- the Burns Harbor Division, the Sparrows Point Division and
Pennsylvania Steel Technologies, Inc. -- by continuing our focus on improving
customer service, productivity, quality and costs.
BURNS HARBOR
Our Burns Harbor Division represents about 55% of our total revenues and ships
about five million tons per year of sheet and plate products, primarily to the
automotive, service center and machinery markets. Burns Harbor is one of the
best, if not the best, steel businesses in the world. Its costs are fully
competitive with minimills, and we believe that the quality of its products is
superior.
We are currently enhancing Burns Harbor's competitiveness by making a series
of improvements to its hot strip mill and to its 160-inch plate mill. Also, we
have recently approved a $70 million capital appropriation to modernize one of
its two continuous casters
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to improve slab quality, increase productivity and
reduce costs. We intend to keep Burns Harbor one of the most modern and
competitive steel mills in the world.
SPARROWS POINT
Our Sparrows Point Division represents about 35% of our total revenues and ships
over three million tons per year of sheets, plates and tin mill products,
primarily to the construction, service center and container markets. Over the
past few years, Sparrows Point has made significant improvements in its
competitiveness and profitability. It has an excellent tidewater location and a
number of highly competitive facilities, such as its primary ironmaking and
steelmaking operations, a modern hot strip mill and two new coating lines.
During 1997, Sparrows Point achieved outstanding levels of production in its
ironmaking, steelmaking, hot mill, cold mill and tin mill operations. Also,
breakthrough performance was achieved in reducing its costs.
In October of last year, our Board of Directors authorized a capital
appropriation of about $300 million to construct a new cold rolling mill complex
at Sparrows Point. This major investment is part of the Division's
comprehensive plan to achieve and sustain a superior rate of return on its
assets. The new complex, which is scheduled to begin production early in 2000,
is expected to help Sparrows Point lower its costs, improve its quality and
further enhance its capabilities to meet customers' expectations.
The decision to locate the new mill at Sparrows Point was made after months of
consideration of alternative sites in other states. Significant factors in the
decision were the cumulative benefits to the entire Division and the strategic
initiatives and the cost-reduction plan developed by Sparrows Point management,
which included significant participation by the United Steelworkers of America.
We believe that our stockholders will be well served by this value-adding
facility. It represents another significant step toward Bethlehem's Vision of
being the Premier Steel Company.
PENNSYLVANIA STEEL TECHNOLOGIES (PST)
PST is the largest rail producer in the United States. It has many excellent
facilities, including a modern steelmaking complex with a DC electric furnace, a
vacuum degasser, ladle treatment facilities and state-of-the-art technology for
producing premium head-hardened railroad rail.
In 1997, PST increased its sales to the trade of higher value, higher margin
products, such as rails and specialty blooms for forging applications. PST's
capabilities to produce ultra-clean, high-quality steel make its specialty bloom
product very desirable to such customers as gas cylinder manufacturers and
producers of sophisticated bar products for the automotive industry. With the
recent strength and growth in the domestic rail market, PST achieved a record
level of rail shipments in 1997.
We believe that PST will continue to improve the utilization of its assets,
its product mix and its profitability over the next few years. Once it achieves
these improvements, we believe that it can earn a superior rate of return on the
capital that we have invested in this business and can be a significant
contributor to improving our overall profitability.
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REBUILDING OUR FINANCIAL STRENGTH
We made further progress during 1997 in improving our financial condition,
especially by reducing our unfunded pension obligation. Over the past four
years, we have reduced our pension liability by about $1.2 billion, from just
over $1.6 billion at the end of 1993 to $440 million at the end of 1997. We
contributed $425 million to our Pension Trust in 1997, and our plan is now about
95% funded. Eliminating our unfunded pension liability is one of our highest
priorities because it will significantly reduce our pension expense and further
strengthen our financial position.
Total liquidity for 1997 improved to $612 million from $446 million at
December 31, 1996, and cash from operating activities increased to $551 million
from $341 million in 1996.
Our objective is to have a capital structure that will earn us an investment-
grade credit rating. Our debt-to-invested-capital ratio was 29% at the end of
1997, compared with 36% a year earlier, and our debt level and maturities over
the next few years are relatively modest.
RESTRUCTURING ACTIONS
During this past year, we completed our 1996 Comprehensive Restructuring Plan.
We closed our Bethlehem Structural operation in March, and we are currently in
the process of selling the individual assets of the mill. In September, we
completed the sale of our BethForge and CENTEC businesses. We will purchase a
portion of our roll supply from Lehigh Heavy Forge, the new operator, and we
will also supply ingots from PST to Lehigh Heavy Forge's forging operation. In
October, we sold our Sparrows Point Shipyard to the Veritas Capital Fund, a New
York-based merchant banking and investment firm. In October, we also sold our
High Power Mountain coal assets in West Virginia to Power Mountain Coal Company,
a subsidiary of A.T. Massey Coal Co., and in December, we announced our
intention to discontinue our Bethlehem Coke operations by March 31, 1998.
PROFITABLE GROWTH
We intend to profitably grow our business to add value for our stockholders and
to provide new opportunities for our employees.
RECENT INVESTMENTS
In recent years, we have invested in three new sheet coating lines -- one at
Burns Harbor, one at Sparrows Point and another in a joint venture in Jackson,
Mississippi. We have also made several other investments to grow our company
through joint ventures, such as Chicago Cold Rolling, Indiana Pickling and
Processing, and Walbridge Coatings.
In 1997, we made an investment in TWB, a joint venture that produces laser-
welded blanks for the automotive industry and operates the largest blank welding
plant in North America. We also made an investment in Steel Construction
Systems, a joint venture located in Orlando, Florida, which supplies residential
and commercial construction products. These investments are helping us to
upgrade our product mix into higher value products to supply the fastest growing
markets for steel.
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LUKENS INC.
As previously announced, Bethlehem will acquire Lukens Inc. in a transaction
valued at about $740 million, including the assumption of about $250 million of
debt. The equity value of the transaction is about $490 million. Of the total
consideration to be paid by Bethlehem, 68% will be in the form of cash, with the
remaining 32% in the form of Bethlehem Common Stock. The acquisition should
increase Bethlehem's earnings per share after an initial period required to
integrate the operations of the two companies and to sell Lukens' stainless
business. The transaction is expected to close by early second quarter 1998,
subject to approval by Lukens' stockholders and regulatory authorities.
The combination will create a more globally competitive and customer-focused
plate business, with the broadest range of plate products in the industry. It
will result in significant synergies, improved customer satisfaction and overall
lower costs, which we believe will enhance value for our stockholders.
We have also announced that Bethlehem has entered into agreements with
Allegheny Teledyne Incorporated that will become effective immediately after
Bethlehem closes its merger with Lukens. Under these agreements, Bethlehem will
provide Allegheny with conversion services for stainless steel hot bands and
coiled plate wider than Allegheny can currently produce; Allegheny will purchase
certain assets that Lukens uses in the manufacture of stainless steel products;
and Allegheny will supply hot rolled bands to Bethlehem for further processing
on the stainless steel coil finishing facilities that Lukens currently owns. We
believe that this arrangement provides an excellent way for both Bethlehem and
Allegheny to achieve important goals that will enhance distinctive businesses.
IMPROVING CONTINUOUSLY
We recognize that we must continue to improve our performance in all areas, and
we made important progress during this past year.
CUSTOMERS
In 1997, for the second consecutive year, Bethlehem was selected to receive
General Motors' prestigious "Supplier of the Year" award. Bethlehem is the only
domestic supplier of flat rolled steel ever selected by General Motors to
receive this award and is one of only two such steel suppliers in the world.
Also, Burns Harbor received the Aegis Shipbuilding Award from Ingalls
Shipbuilding and the Exemplary Performance Award from Avondale Shipyards for its
plate products.
During 1997, all of our core steel businesses continued to improve their
reliability in delivery performance and their product quality, which are
becoming more important as our customers search for ways to improve efficiency,
reduce costs and increase competitiveness in their markets. We are especially
proud that independent surveys have shown that Sparrows Point is the industry
leader in customer satisfaction in several key markets.
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SUPPLIERS
We achieved new milestones during 1997 in our Strategic Sourcing initiative to
achieve significant cost reductions in the $3 billion of goods and services that
we purchase annually. In addition, our improved relationships with world-class
suppliers are contributing to our ability to deliver superior value and quality
to our customers. Strategic Sourcing has also contributed to the corporate-wide
effort to achieve strategic change through process innovations, challenging the
status quo, driving to meet stretch targets and utilizing multidisciplinary
teamwork.
INFORMATION TECHNOLOGY
Developing a timely and cost-effective solution to the Year 2000 computer
problem is every information technology officer's immediate objective. Because
of early planning, we have already completed about 65% of our resolution efforts
and expect to complete this important project by the end of 1998. The objective
of all these activities is to continue to serve our customers with no adverse
Year 2000 impact on our business and manufacturing systems. Also, of great
importance, the costs associated with this effort will not be material and will
be charged to normal operating expenses.
SAFETY AND GOOD CITIZENSHIP
There can be no greater way to emphasize the value of our employees and our
communities than having as our goal zero lost-time accidents and zero
environmental incidents. We have made encouraging progress toward that goal
through our Employee Safety Process (ESP), a joint initiative with the United
Steelworkers of America (USWA). ESP promotes a value-based "actively caring"
philosophy that gives each employee the opportunity to participate in keeping
the workplace safe. Since 1994, when we initiated a comprehensive joint safety
improvement effort with the USWA, the lost workday case incidence rate has
declined by 43%, the all-injury incidence rate is down 34% and OSHA total
recordable injuries have decreased 39%. In 1997, we experienced our best
corporate safety performance ever.
Good citizenship and stewardship are also strong, vital components of our
approach to the environment. We are proud of the improvements we have made in
environmental performance, as measured by the Corporate Environmental Compliance
Index (ECI), which is the monthly sum of all agency-reportable incidents
relative to air, water and land. Since 1994, Bethlehem has reduced its monthly
ECI by 45%. Bethlehem was named one of the Environmental Protection Agency's 20
"environmental champions" for achieving and exceeding the agency's voluntary
33/50 program goals. We also earned inclusion in EPA's 1997 "Success Stories"
by surpassing timeline and emission targets for reduction of emissions from our
coke operations. Both Burns Harbor and Sparrows Point have active community
outreach programs, with broad representation, which provide a forum to discuss
environmental issues with their neighbors.
Bethlehem continues to provide community leadership through various
charitable, civic and economic development organizations. For example, for the
second consecutive year, our United Way giving was highlighted with Sparrows
Point and Burns Harbor contributing more than $1 million to their local
campaigns, mostly through employee giving.
-5-
<PAGE>
EMPLOYEES
We are proud of our capable and loyal employees and the impact they have had on
our improved performance. Our ongoing effort to continuously improve the skills
and leadership capabilities of our employees is an investment in Bethlehem's
future success. In 1997, our employee education and training programs provided
over 645,000 employee training hours, an average of 42 hours per employee. Our
efforts are focused on ensuring that employees understand our customers' needs,
on safely and efficiently fulfilling those needs and on increasing our return on
net assets and stockholder value. Our employees will be our sustainable
competitive advantage for the future, and our ongoing partnership with employees
remains one of our most important objectives.
BUSINESS OUTLOOK
We believe the domestic economy will continue on a course of moderate and
sustainable growth and low inflation even though there continues to be
considerable uncertainty about the impact of the Asian financial crisis. We
also believe that steel markets will continue to be relatively good in the
United States and that domestic industry shipments in 1998 will be about 101
million tons, compared with the 105.5 million tons shipped in 1997 - the highest
level of shipments in 23 years.
Competition in 1998 is expected to be intense. We are very concerned about
the high levels of unfairly traded imports and have appropriate remedies under
active consideration. We also expect that new steel capacity will enter the
marketplace during 1998. While there will be pressure on steel prices, we will
continue to take actions to improve our competitiveness. We will enhance our
customer service and reliability, increase the utilization of our facilities and
aggressively reduce costs.
For Bethlehem 1997 was a year of considerable achievement and significant
progress, and we believe that Bethlehem is entering 1998 well positioned to take
advantage of the opportunities of the future and to further improve stockholder
value.
/s/ Hank Barnette
Curtis H. Barnette, Chairman
January 28, 1998
-6-
<PAGE>
FINANCIAL REVIEW AND OPERATING ANALYSIS
- ---------------------------------------
Net income for 1997 was $281 million, or $2.13 per common share, compared with
a net loss of $309 million, or $3.15 per common share, for 1996 and net income
of $180 million, or $1.24 per common share, for 1995. Results for 1997 include
an after-tax gain of $113 million related to the sale of our equity interest in
Iron Ore Company of Canada (IOC), and results for 1996 include after-tax
restructuring charges of $382 million. We recorded the restructuring charges in
connection with our decision to exit five businesses and to recognize the
Bethlehem Coke Division as an impaired asset. The existed businesses were:
Bethlehem Structural, BethForge, CENTEC, BethShip's Sparrows Point Yard and our
Eagle Nest coal mine. See Note C, Estimated Gain (Loss) on Exiting Businesses
and Impairment of Long-lived Assets, to the Consolidated Financial Statements.
Excluding the effects of these items, net income for 1997 was $168 million
($1.12 per common share), compared with net income for 1996 of $73 million ($.28
per common share). Sales in 1997 declined to $4.63 billion from $4.68 billion
in 1996 and $4.87 billion in 1995 principally as the result of exiting the
underperforming businesses.
The improvement in 1997 over 1996 was due primarily to lower costs from
improved operations at our Sparrows Point Division and Pennsylvania Steel
Technologies, Inc. (PST) and exiting Bethlehem Structural. The 1997 results
were also affected by higher employment and raw material costs at Burns Harbor.
Results for 1996 declined from 1995 principally from lower average realized
prices and shipments, which were partially offset by a higher valued product
mix.
LUKENS INC.
As discussed elsewhere in this report, Bethlehem will acquire Lukens in a
transaction valued at about $740 million, including the assumption of about $250
million of debt. The equity value of the transaction is about $490 million. Of
the total consideration to be paid by Bethlehem, 68% will be in the form of
cash, with the remaining 32% in the form of Bethlehem Common Stock. The
transaction is expected to close by early second quarter 1998, subject to
approval by Lukens' stockholders and regulatory authorities. Bethlehem also
entered into agreements with Allegheny Teledyne Corporation under which
Bethlehem will provide Allegheny with conversion services for stainless steel
hot bands and coiled plate wider than Allegheny can currently produce; Allegheny
will purchase certain assets that Lukens uses in the manufacture of stainless
steel products; and Allegheny will supply hot rolled bands to Bethlehem for
further processing on the stainless steel coil finishing facilities that Lukens
currently owns.
-7-
<PAGE>
SEGMENT RESULTS
Basic Steel Operations. Our Basic Steel Operations segment had income from
operations of $264 million in 1997, compared with income from operations of $168
million in 1996, excluding 1997's gain on the sale of IOC and 1996's
restructuring charges. Income from operations was $311 million in 1995.
The improvement in this segment's results in 1997 over 1996 was due primarily
to lower costs from improved operations at Sparrows Point and PST and exiting
Bethlehem Structural. The results were also affected by higher employment and
raw material costs at Burns Harbor. Shipments were 8.8 million tons for both
1997 and 1996.
Results for 1996 compared with 1995 declined due to lower realized steel
prices and lower structural product shipments, partially offset by an improved
product mix from a higher percentage of coated and cold rolled sheet product
shipments. Average realized prices were 3% lower in 1996 than they were in 1995
and shipments were 8.8 million tons in 1996, compared with 9.0 million tons in
1995.
The effects of changes in average realized steel prices, shipments (including
coal and ore) and product mix on this segment's sales during the last two years
were as follows:
INCREASE (DECREASE) FROM PRIOR YEAR
1997 1996
--------- ---------
Realized prices -% (3)%
Shipments (1) (3)
Product mix 1 2
-- --
Total sales -% (4)%
== ==
Raw steel production increased to 9.6 million tons in 1997 from 9.4 million
tons in 1996 due to improved operations at Sparrows Point. Raw steel production
declined from 10.4 million tons in 1995 as a result of closing Bethlehem
Structural's steelmaking facilities.
-8-
<PAGE>
The Burns Harbor Division shipped 4.8 million tons of steel products in both
1997 and 1996, compared with 4.6 million tons in 1995. Despite improvements in
product mix and a slight increase in shipments, Burns Harbor's 1997 operating
results declined principally because of higher employment costs and raw material
prices and lower average realized prices.
The Sparrows Point Division shipped 3.2 million tons of steel products in both
1997 and 1996, compared with 3.0 million tons in 1995. Sparrows Point's 1997
operating results improved due to higher productivity; lower energy, repair and
maintenance costs; higher average realized prices; and a higher valued product
mix.
Results improved at PST in 1997 due to higher semifinished, rail and large-
diameter pipe shipments. Lower steelmaking costs were recognized during 1997 as
a result of our modernization program.
PERCENTAGE OF BETHLEHEM'S NET SALES
BY SEGMENT AND MAJOR PRODUCT
1997 1996 1995
----- ----- -----
Basic Steel Operations
Steel mill products:
Hot rolled sheets 14.9% 14.3% 15.9%
Cold rolled sheets 17.2 16.2 14.4
Coated sheets 31.5 32.3 29.7
Tin mill products 7.4 6.9 6.1
Plates 15.2 15.3 15.1
Structural shapes and piling 1.3 3.8 6.7
Rail products 4.3 3.5 3.2
Other steel mill products 3.2 1.6 2.7
Other products and services
(including raw materials) 3.9 3.6 4.2
----- ----- -----
98.9 97.5 98.0
Steel Related Operations 1.1 2.5 2.0
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
PERCENTAGE OF STEEL MILL PRODUCT SHIPMENTS
BY PRINCIPAL MARKET
(Based on tons shipped) 1997 1996 1995
----- ----- -----
Service Centers, Processors and Converters
(including semifinished) 46.9% 45.2% 41.0%
Transportation (including automotive) 24.9 26.0 24.8
Construction 11.0 12.6 14.2
Containers 5.8 5.2 5.2
Machinery 4.7 5.1 5.2
Other 6.7 5.9 9.6
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
Steel Related Operations. Our Steel Related Operations segment (BethForge,
CENTEC and BethShip) was sold by early fourth-quarter 1997. It reported a loss
from operations of $25 million in 1997, compared with a loss from operations of
$31 million in 1996, excluding the 1996 restructuring charge, and a loss of $42
million in 1995.
LIQUIDITY AND CAPITAL STRUCTURE
At December 31, 1997, total liquidity, comprising cash, cash equivalents and
funds available under our bank credit arrangement, totaled $612 million,
compared with $446 million at December 31, 1996.
Cash provided from operating activities in 1997 increased to $551 million from
$341 million in 1996 due to changes in working capital, principally inventory,
and higher earnings. Cash provided from operating activities in 1996 declined
to $341 million from $586 million in 1995 from lower earnings and changes in
working capital, principally receivables. Other sources of cash in 1997
included about $190 million of proceeds from the sales of IOC, our Steel Related
Operations and High Power Mountain.
Principal uses of cash during 1997 included pension funding and capital
expenditures. We contributed $425 million to our pension fund in 1997, compared
with $170 million in 1996 and $330 million in 1995. As a result of our
contributions and better than expected earnings on our pension fund assets in
1997, our pension liability decreased to $440 million at December 31, 1997, from
$870 million at December 31, 1996. Over the past four years, our pension
liability has been reduced by about $1.2 billion from $1.6 billion at December
31, 1993, and our plan is now about 95% funded.
-9-
<PAGE>
We have contributed amounts to our pension fund substantially in excess of
amounts required under current law and regulations. As a result, we currently
have a funding standard credit balance that would allow us to defer pension
funding for more than two years, although we presently have no plans to do so.
Major uses of funds for 1998, excluding the potential merger with Lukens Inc.,
are pension funding, capital expenditures of about $300 million and debt
payments of about $40 million. Cash required in connection with the Lukens
acquisition is expected to total about $350 million and will be funded with
available cash and proceeds from the sale of assets, including Lukens' stainless
business. We expect to maintain an adequate level of liquidity throughout 1998
from cash flow from operations, reductions in working capital and available
funds under our credit arrangement.
We have made good progress in improving our capital structure by reducing our
debt and increasing our stockholders' equity. Our ratio of debt to invested
capital was 29% at December 31, 1997, compared with 36% a year earlier.
COMMON STOCK MARKET AND DIVIDEND INFORMATION
1997 1996
Prices* Prices*
------------ -------------
PERIOD HIGH LOW HIGH LOW
- ------ ---- --- ---- ---
First Quarter $ 9.375 $7.625 $15.875 $13.125
Second Quarter 10.750 7.750 14.500 11.500
Third Quarter 12.875 9.813 12.000 9.250
Fourth Quarter 11.563 7.750 10.313 7.625
* 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 Bethlehem's Common Stock as reported in the
consolidated transaction 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.
STATUS OF RESTRUCTURING PLAN
In 1997, we completed the 1996 Comprehensive Restructuring Plan by exiting
five underperforming businesses and eliminating the significant losses they were
incurring. We sold BethForge, CENTEC and BethShip's Sparrows Point Yard.
Bethlehem Structural ended operations in March, and we are attempting to sell
its individual assets. We also sold our Eagle Nest coal operation in 1996, and
although it was not part of the Plan, in 1997, we sold our High Power Mountain
coal assets and our equity interest in IOC.
We also announced in 1997 that we intend to discontinue our Bethlehem Coke
Division in Bethlehem, Pennsylvania, by March 31, 1998. In 1996, as part of the
Comprehensive Restructuring Plan, we wrote off the property, plant and equipment
of this Division as an impaired asset.
CAPITAL EXPENDITURES
Capital expenditures were $228 million in 1997, compared with $259 million in
1996 and $267 million in 1995.
In October 1997, we announced a plan to build a new cold rolling mill complex
at Sparrows Point. The $300 million complex, which is scheduled to begin
production early in 2000, is expected to lower costs, improve quality and
enhance capabilities.
At December 31, 1997, the estimated cost of completing authorized capital
expenditures was about $751 million, compared with $386 million at December 31,
1996. Such authorized capital expenditures are expected to be completed during
the 1998-2000 period.
EMPLOYMENT
At the end of 1997, we had about 15,600 employees, compared with about 17,500
employees at the end of 1996 and 18,300 employees at the end of 1995. About
three-quarters of our employees are covered by our labor agreements with the
United Steelworkers of America (USWA).
Under the terms of our 1993 labor agreements with the USWA, most employees at
our steel operations receive profit sharing of 8% of adjusted consolidated
annual income before taxes, unusual items and expenses applicable to the plan
plus 2% of adjusted profits of certain operations, payable in the following
year. Most workers received a $.25 per hour wage increase on August 1, 1997,
and will receive a $.25 per hour wage increase on August 1, 1998. Profit
sharing is also paid to non-represented employees based on specific Corporate
and Business Unit plans and performance. We paid about $40 million in 1997 and
expect to pay about $55 million for income-related bonus, profit sharing and
shortfall amounts in early 1998.
Under other provisions of the labor agreements, we are 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 shortfall plan. Shortfall amounts arise when
employees terminate employment
-10-
<PAGE>
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). We issued approximately 37,000 shares of Series B
Preference Stock in 1997 and approximately 61,000 shares in 1996 to a trustee
for the benefit of employees for 1996 and 1995, respectively, and expect to
issue about 18,000 shares in early 1998 for the 1997 plan year.
EMPLOYMENT COST SUMMARY--ALL EMPLOYEES
(Dollars in millions) 1997 1996 1995
------ ------ -------
Salaries and Wages $ 914 $ 966 $1,058
------ ------ ------
Employee Benefits:
Pension Plans:
Actives 95 111 105
Retirees 60 81 105
Medical and Insurance:
Actives 135 148 151
Retirees 122 115 116
Payroll Taxes 74 85 95
Workers' Compensation 21 28 33
Savings Plan and Other 18 21 21
------ ------ ------
Total Benefit Costs 525 589 626
------ ------ ------
Total Employment Costs $1,439 $1,555 $1,684
====== ====== ======
Employment Costs as a
Percent of Net Sales 31% 33% 35%
======= ======= ======
ENVIRONMENTAL
We are subject to various federal, state and local environmental laws and
regulations concerning approximately $160 million for environmental control
equipment. Expenditures for new environmental control equipment totaled
approximately $15 million in 1997, $29 million in 1996 and $36 million in 1995.
The costs incurred in 1997 to operate and maintain existing environmental
control equipment were approximately $110 million (excluding interest costs but
including depreciation charges of $14 million), compared with $115 million in
1996 and $120 million in 1995.
Bethlehem and federal and state regulatory agencies conduct negotiations 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. We believe
that there will not be any significant curtailment or interruptions of any of
our important operations as a result of these proceedings and negotiations. We
cannot predict the specific environmental control requirements that we will face
in the future. Based on existing and anticipated regulations promulgated under
presently enacted legislation, we currently estimate that capital expenditures
for installation of new environmental control equipment will average about $20
million per year over the next two years. However, estimates of future capital
expenditures and operating costs required for environmental compliance are
subject 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 our future results of operations, in particular
quarterly or annual periods, could be materially affected by the future costs of
environmental compliance, we believe that the future costs of environmental
compliance will not have a material adverse effect on our consolidated financial
position or on our competitive position with respect to other integrated
domestic steelmakers that are subject to the same environmental requirements.
-11-
<PAGE>
Consolidated Statements of Income
<TABLE>
<CAPTION>
Year Ended December 31
- --------------------------------------------------------------------------------
(Dollars in millions, except per share data) 1997 1996 1995
- -------------------------------------------- -------- -------- ---------
<S> <C> <C> <C>
Net Sales $4,631.2 $4,679.0 $4,867.5
Costs and Expenses:
Cost of sales 4,053.3 4,168.2 4,202.8
Depreciation (Note A) 231.0 268.7 284.0
Selling, administration and general expense 107.9 105.5 111.8
Estimated (gain) loss on exiting businesses
(Note C) (135.0) 465.0 --
--------- ------- --------
Total Costs and Expenses 4,257.2 5,007.4 4,598.6
--------- ------- --------
Income (Loss) from Operations 374.0 (328.4) 268.9
Financing Income (Expense):
Interest and other financing costs (Note A) (47.5) (53.3) (60.0)
Interest income 9.2 5.9 7.7
--------- ------- --------
Income (Loss) Before Income Taxes 335.7 (375.8) 216.6
Benefit (Provision) for Income Taxes (Note E) (55.0) 67.0 (37.0)
--------- ------- --------
Net Income (Loss) 280.7 (308.8) 179.6
Dividends on Preferred and Preference Stock 41.6 41.9 42.4
--------- ------- --------
Net Income (Loss) Applicable to Common Stock $ 239.1 $(350.7) $ 137.2
========= ======= ========
Net Income (Loss) per Common Share (Note L):
Basic $ 2.13 $ (3.15) $ 1.24
========= ======= ========
Diluted $ 2.03 $ (3.15) $ 1.23
========= ======= ========
</TABLE>
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
- --------------------------------------------------------------------------------
-12-
<PAGE>
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31
- --------------------------------------------------------------------------------------------------------
(Dollars in millions, except per share data) 1997 1996
- -------------------------------------------- --------- --------
<S> <C> <C>
Assets
- ------
Current Assets:
Cash and cash equivalents (Note A) $ 252.4 $ 136.6
Receivables (Note F) 306.0 311.6
Inventories (Notes A and F)
Raw materials and supplies 324.5 332.0
Finished and semifinished products 569.3 685.3
-------- --------
Total Inventories 893.8 1,017.3
Other current assets 11.8 22.9
-------- --------
Total Current Assets 1,464.0 1,488.4
Investments and Miscellaneous Assets 100.9 106.7
Property, Plant and Equipmentless accumulated
depreciation of $4,095.5 and $3,924.2 (Note A) 2,357.7 2,419.8
Deferred Income Tax Asset - net (Note E) 880.0 935.0
Intangible Asset - Pensions (Note H) -- 160.0
-------- --------
Total Assets $ 4,802.6 $ 5,109.9
========= ========
Liabilities and Stockholders' Equity
- ------------------------------------
Current Liabilities:
Accounts payable $ 371.2 $ 410.4
Accrued employment costs 173.9 163.3
Postretirement benefits other than pensions (Note I) 150.0 150.0
Accrued taxes (Note E) 60.0 67.9
Debt and capital lease obligations (Note F) 41.8 49.3
Other current liabilities 113.9 116.5
-------- --------
Total Current Liabilities 910.8 957.4
Pension Liability (Notes C and H) 440.0 870.0
Postretirement Benefits Other Than Pensions (Notes C and I) 1445.0 1,445.0
Long-term Debt and Capital Lease Obligations (Note F) 451.6 497.4
Other Long-term Liabilities 340.2 374.1
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 $80.6); Authorized 20,000,000 shares 2.3 2.5
Common Stock -- at $1 per share par value;
Authorized 250,000,000 shares;
Issued 115,047,810 and 113,851,199 shares 115.0 113.9
Common Stock -- Held in treasury, 2,056,571 and 2,017,662 shares at cost (60.0) (59.7)
Additional Paid-in Capital 1,854.0 1,886.3
Accumulated Deficit (707.9) (988.6)
-------- --------
Total Stockholders' Equity 1,215.0 966.0
-------- --------
Total Liabilities and Stockholders' Equity $ 4,802.6 $ 5,109.9
======== ========
</TABLE>
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
- --------------------------------------------------------------------------------
-13-
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31
- ------------------------------------------------------------------------------
(Dollars in millions) 1997 1996 1995
- --------------------- -------- -------- -------
<S> <C> <C> <C>
Operating Activities:
Net Income (Loss) $ 280.7 $(308.8) $ 179.6
Adjustments for items not affecting cash
from operating activities:
Depreciation 231.0 268.7 284.0
Estimated (gain) loss on exiting businesses
(Note C) (135.0) 465.0 --
Deferred income taxes (Note E) 53.0 (67.0) 35.0
Other - net 28.2 9.1 2.1
Working capital (excluding investing and
financing activities):
Receivables - operating 11.6 9.1 114.9
Receivables - sold (Note F) (6.0) 54.0 30.0
Inventories 115.6 (58.8) (79.0)
Accounts payable (24.5) 28.9 (5.6)
Employment costs and other (3.7) (59.4) 25.3
Pension financing (funding) (Note H):
Pension expense 155.0 192.0 210.0
Pension funding (425.0) (170.0) (330.0)
------ ------ ------
Cash Provided from Operating Activities 280.9 362.8 466.3
------ ------ ------
Investing Activities:
Capital expenditures (228.2) (259.0) (266.8)
Cash proceeds from asset sales and other 191.8 7.7 17.6
------ ------ ------
Cash Used for Investing Activities (36.4) (251.3) (249.2)
------ ------ ------
Financing Activities:
Long-term debt borrowings (Note F) 1.9 3.1 3.6
Long-term debt and capital lease payments
(Note F) (53.4) (91.8) (120.7)
Cash dividends paid (Note L) (40.4) (40.4) (40.4)
Other payments (36.8) (25.8) (39.1)
------ ------ ------
Cash Used for Financing Activities (128.7) (154.9) (196.6)
Net Increase (Decrease) in Cash and Cash
Equivalents 115.8 (43.4) 20.5
Cash and Cash Equivalents- Beginning of Period 136.6 180.0 159.5
------ ------ ------
- End of Period $ 252.4 $ 136.6 $180.0
====== ====== ======
Supplemental Cash Payment Information:
Interest, net of amount capitalized $ 52.6 $ 52.8 $ 61.1
Income taxes (Note E) $ 7.6 $ 3.7 $ --
------ ------ ------
</TABLE>
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
- --------------------------------------------------------------------------------
-14-
<PAGE>
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.
Property, Plant and Equipment - Property, plant and equipment is stated at cost.
Maintenance, repairs and renewals that 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
$7 million, $7 million and $5 million in 1997, 1996 and 1995.
Our property, plant and equipment by major classification is:
- --------------------------------------------------------------------------------
(Dollars in millions)
- ---------------------
December 31
---------------------
1997 1996
---- ----
Land (net of depletion) $ 25.4 $ 26.9
Buildings 637.4 633.1
Machinery and equipment:
Steel manufacturing 5,186.4 5,095.1
Other 367.1 407.4
-------- -------
6,216.3 6,162.5
Accumulated depreciation (4,095.5) (3,924.2)
--------- --------
2,120.8 2,238.3
Construction-in-progress 236.9 181.5
--------- --------
Total $ 2,357.7 $2,419.8
========= ========
- --------------------------------------------------------------------------------
Depreciation - Depreciation 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 $5 million, $13 million and $16 million more than straight-line in
1997, 1996 and 1995. Through December 31, 1997, $10 million more 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.
Foreign Currency, Interest Rate and Commodity Price Risk Management -
Periodically, we enter into financial contracts to manage risks. We use foreign
currency exchange contracts to manage the cost of firm purchase commitments for
capital equipment or other purchased goods and services denominated in a foreign
currency. We use interest rate swap agreements to fix the interest rate on
certain floating rate debt. We use commodity contracts to fix the cost of a
portion of our annual requirements for natural gas, zinc and other metals.
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.
Use of Estimates - In preparing these financial statements, we make estimates
and use assumptions that affect some of the reported amounts and disclosures.
See, for example, Note E, Taxes; Note G, Commitments and Contingent Liabilities;
Note H Postretirement Pension Benefits; and Note I, Postretirement Benefits
Other Than Pensions. In the future, actual amounts received or paid could differ
from those estimates.
15
<PAGE>
B. INDUSTRY SEGMENT INFORMATION
- --------------------------------------------------------------------------------
(Dollars in millions) 1997 1996 1995
- --------------------- ---- ---- ----
Sales:
Trade:
Basic Steel Operations $4,579.9 $4,561.9 $4,768.6
Steel Related Operations 51.3 117.1 98.9
Intersegment:
Basic Steel Operations 7.8 18.9 8.2
Steel Related Operations 17.5 23.3 19.4
Eliminations (25.3) (42.2) (27.6)
-------- -------- --------
Total $4,631.2 $4,679.0 $4,867.5
======== ======== ========
Estimated Gain (Loss) on Exiting
Businesses:
Basic Steel Operations $ 135.0 $ (255.0) $ -
Steel Related Operations - (210.0) -
-------- -------- --------
Total $ 135.0 $ (465.0) $ -
======== ======== ========
Income (Loss) from Operations:
Basic Steel Operations $ 399.1 $ (87.3) $ 310.7
Steel Related Operations (25.1) (241.1) (41.8)
-------- -------- --------
Total $ 374.0 $ (328.4) $ 268.9
======== ======== ========
Shipments (tons in thousands):
Basic Steel Operations 8,790 8,764 8,970
======== ======== ========
Identifiable Assets:
Basic Steel Operations $3,633.2 $3,790.8 $3,973.1
Steel Related Operations 8.7 57.8 115.5
Corporate 1,160.7 1,261.3 1,611.7
-------- ------- --------
Total $4,802.6 $5,109.9 $5,700.3
======== ======== ========
Depreciation:
Basic Steel Operations $ 231.0 $ 263.2 $ 277.3
Steel Related Operations - 5.5 6.7
-------- -------- --------
Total $ 231.0 $ 268.7 $ 284.0
======== ======== ========
Capital Expenditures:
Basic Steel Operations $ 228.2 $ 251.7 $ 253.4
Steel Related Operations - 7.3 13.4
-------- -------- --------
Total $ 228.2 $ 259.0 $ 266.8
======== ======== ========
- --------------------------------------------------------------------------------
A general description of our segments and their products and services
is contained under the heading "Bethlehem's Segments" on page 7 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.
C. ESTIMATED GAIN (LOSS) ON EXITING
BUSINESSES AND IMPAIRMENT OF
LONG-LIVED ASSETS
In the second quarter of 1997, we sold our 37.57 percent interest in the Iron
Ore Company of Canada (IOC) for about $145 million. This sale resulted in
recognizing a gain of $135 million ($113 million after-tax, or $1.01 per common
share).
During 1996, we announced a restructuring plan to improve financial
performance and stockholder value. Our plan included exiting our Bethlehem
Structural, BethForge, CENTEC, and BethShip businesses. Accordingly, we recorded
restructuring losses in 1996 totalling $465 million ($382 million after-tax or
$3.43 per share). These losses included $250 million for the net book value of
certain assets, $180 million for employee benefit related costs ($120 million
for pensions, $30 million of postretirement benefits other than pensions, and
$30 million for severance and other benefits) and $35 million for future
contractual and other costs. In 1996, we also sold and leased assets of our
Eagle Nest coal mine and wrote down as an impaired asset our Coke Division in
Bethlehem, Pennsylvania.
Bethlehem Structural ended operations in March 1997. We have sold all
of Bethlehem Structural's inventory and are in the process of selling individual
assets. BethForge, CENTEC and BethShip were sold during 1997.
In December 1997, we announced plans to discontinue our Bethlehem Coke
Division operations by March 31, 1998. The 1996 restructuring charge assumed
that our BethForge, CENTEC and BethShip businesses would be shut down and
liquidated. Fortunately, we were able to sell those businesses. Also, because of
a recent arbitration decision, we can offer employment at our Sparrows Point
Division and our Lackawanna Coke operation to certain potential early retirees
from the Bethlehem Structural operations. Accordingly, the restructuring charges
recognized in prior years are expected to be sufficient to cover the employment
and other related charges for closing the Bethlehem Coke Division. We expect to
reduce our workforce by about 800 employees as a result of this decision.
The amounts charged to the restructuring liability in 1997, 1996 and
1995, other than employment-related costs, were not material.
-16-
<PAGE>
D. ACQUISITION OF LUKENS INC.
In January 1998, Bethlehem signed an amended merger agreement to acquire Lukens
Inc. in a transaction valued at about $740 million, including the assumption of
about $250 million of debt. The equity value of the transaction is about $490
million. Of the total consideration to be paid by Bethlehem, 68% will be in the
form of cash, with the remaining 32% to be in the form of Bethlehem Common
Stock. The amount of Bethlehem Common Stock to be issued for each Lukens' share
exchanged for Bethlehem Common Stock will be based on the 15-day average closing
price of Bethlehem Common Stock prior to the closing of the transaction. Under
the agreement, Bethlehem will issue no more than 22.5 million shares, nor less
than 15.1 million shares, of its Common Stock. We expect to complete the
transaction in the second quarter of 1998.
E. TAXES
Our benefit (provision) for income taxes consisted of:
- --------------------------------------------------------------------------------
(Dollars in millions) 1997 1996 1995
- --------------------- ---- ---- ----
Federal - deferred $ (53) $ 67 $ (35)
Federal, state and foreign - current (2) - (2)
------ ----- ------
Total benefit (provision) $ (55) $ 67 $ (37)
====== ===== ======
- --------------------------------------------------------------------------------
The benefit (provision) for income taxes differs from the amount
computed by applying the federal statutory rate to pre-tax income (loss). The
computed amounts and the items comprising the total differences follow:
- --------------------------------------------------------------------------------
(Dollars in millions) 1997 1996 1995
- --------------------- ---- ---- ----
Pre-tax income (loss):
United States $ 333 $(392) $ 203
Foreign 3 16 14
Total ----- ----- -----
$ 336 $(376) $ 217
===== ===== =====
Computed amounts $(118) $ 132 $ (76)
Valuation allowance 55 (67) 37
Percentage depletion 5 5 5
Dividend received deduction 3 2 3
Other differences - net - (5) (6)
----- ----- -----
Total benefit (provision) $ (55) $ 67 $ (37)
===== ===== =====
- --------------------------------------------------------------------------------
The components of our net deferred income tax asset are as follows:
- --------------------------------------------------------------------------------
(Dollars in millions) December 31
- --------------------- -----------------
1997 1996
---- ----
Temporary differences:
Employee benefits $ 765 $ 835
Depreciable assets (300) (255)
Other 140 115
------ ------
Total 605 695
Operating loss carryforward 625 650
------ ------
Deferred income tax asset 1,230 1,345
Valuation allowance (350) (410)
------ ------
Deferred income tax asset - net $ 880 $ 935
====== ======
- --------------------------------------------------------------------------------
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 that become deductible in our tax return upon
payment or funding in qualified trusts. The depreciable assets temporary
difference represents principally tax depreciation in excess of financial
statement depreciation. Other temporary differences represent principally
various expenses accrued for financial reporting purposes that are not
deductible for tax reporting purposes until paid. At December 31, 1997, we had
regular tax net operating loss carryforwards of $1.8 billion and alternative
minimum tax loss carryforwards of $800 million. Regular federal tax net
operating loss carryforwards of $261 million expire in 1998, with the balance
expiring in varying amounts from 1999 through 2011.
FASB Statement No. 109, Accounting for Income Taxes, 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.
-17-
<PAGE>
Bethlehem reported income before income taxes, restructuring charges
and accounting changes in eight of the past ten years. Bethlehem has undergone
substantial restructuring and made substantial strategic capital expenditures
during the last several years. Also, we have significant tax-planning
opportunities to manage taxable income including selection of depreciation
methods and timing of contributions to our pension trust fund.
We believe that our deferred tax asset will be realized by future
operating results together with tax-planning opportunities. However, our
significant net operating loss carryforwards and future tax deductions from
temporary differences make it appropriate to record a valuation allowance.
Accordingly, we have provided a valuation allowance 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. If we have
a tax loss in any year in which our tax deduction for postretirement benefits
other than pensions exceeds our financial statement expense, the tax law
currently provides for a 15-year carryforward (20 years beginning in 1998) of
that loss against future taxable income. We, therefore, have sufficient time to
realize these future tax benefits. We believe, therefore, a valuation allowance
is not appropriate 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).
In addition to income taxes, we incurred costs for certain other taxes
as follows:
- --------------------------------------------------------------------------------
(Dollars in millions) 1997 1996 1995
- --------------------- ---- ---- ----
Employment taxes $ 74.0 $ 85.1 $ 95.2
Property taxes 26.5 25.1 24.6
State and foreign taxes 11.6 11.0 11.2
Federal excise tax on coal .3 2.0 2.6
------ ------ ------
Total other taxes $112.4 $123.2 $133.6
====== ====== ======
- --------------------------------------------------------------------------------
F. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
- --------------------------------------------------------------------------------
(Dollars in millions) December 31
------------------
1997 1996
---- ----
5.69% - 5.99% Galvanizing lines financing $112.3 $149.7
Notes and loans:
10-3/8% Senior Notes, Due 2003 105.0 105.0
2% - 9.64%, Due 1998-2009 10.5 14.6
Debentures:
6-7/8%, Due 1999 5.4 11.8
8-3/8%, Due 2001 41.6 41.6
8.45%, Due 2005 90.8 90.7
Pollution control and industrial revenue bonds
7-1/2% - 8%, Due 2015-2024 128.9 128.9
Capital lease obligations - 5.6
Unamortized debt discount (1.1) (1.2)
----- -----
Total 493.4 546.7
Amounts due within one year (41.8) (49.3)
----- -----
Long-term $451.6 $497.4
===== =====
- --------------------------------------------------------------------------------
Maturities and sinking fund requirements for the next five years are
$42 million in 1998, $44 million in 1999, $48 million in 2000, $50 million in
2001 and $11 million in 2002.
The galvanizing lines financing is collateralized by such equipment 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, the Notes will effectively be subordinate to secured senior
indebtedness of Bethlehem. These Notes contain covenants that impose certain
limitations on our 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.
We have a credit arrangement with a group of 13 domestic and
international banks for $525 million, $150 million of which can be used for
letters of credit. The arrangement consists of a $300 million receivables
sale/purchase agreement through a wholly owned special purpose subsidiary and a
$225 million secured credit agreement. During the second quarter of 1997, we
amended this agreement by extending its term by about two years, through
September 12, 2002, and
-18-
<PAGE>
increasing the facility's inventory credit arrangement from $200 million to $225
million.
As of December 31, 1997, we had sold to the banks an ownership interest
in trade receivables of $175 million in exchange for $78 million in cash, $67
million in letters of credit and required reserves of $30 million. The
receivables were sold at a discount, based on defined short-term,
investment-grade interest rates and a fixed fee per annum for the letters of
credit. The banks are required to pay us cash for the face amount of the letters
of credit upon expiration. We pay a .1875% per annum fee on the daily available
commitment.
Receivables from banks relate to letters of credit and required
reserves that will be collected upon expiration of the letters of credit and
liquidation of the banks' receivable ownership. Supplemental information on the
receivable balances at December 31, 1997 and 1996 follows:
- --------------------------------------------------------------------------------
(Dollars in millions) December 31
--------------------
1997 1996
---- ----
Trade $227.6 $226.6
Banks 97.2 105.8
Allowances (18.8) (20.8)
------ ------
Total receivables - net $306.0 $311.6
====== ======
- --------------------------------------------------------------------------------
Under the secured credit agreement, inventories are pledged as
collateral for any borrowings and letters of credit. Borrowings under the
agreement are subject to collateral coverage requirements and incur interest
based on defined short-term interest rates. No borrowings were outstanding under
this agreement at December 31, 1997. We pay a .5% per annum fee on the daily
available commitment.
Our secured credit agreement and galvanizing lines financing agreements
contain restrictive covenants that require Bethlehem to maintain a minimum
adjusted consolidated tangible net worth. At December 31, 1997, our adjusted
tangible net worth as defined by these agreements exceeded the more restrictive
of these requirements by about $600 million.
At December 31, 1997, outstanding interest rate swap agreements with
notional amounts totaling $68 million effectively fix the interest rate on our
floating rate financings at 5.75% to 8.70%. These interest rate swap agreements
expire in 2000 and 2001. At December 31, 1997 and 1996, the estimated fair value
of our debt and interest rate swap agreements was not materially different from
the recorded amounts.
Future minimum payments under noncancellable operating leases at
December 31, 1997 were $18 million in 1998, $14 million in 1999, $10 million in
2000, $7 million in 2001, $6 million in 2002 and $15 million thereafter. Total
rental expense under operating leases was $40 million, $40 million and $42
million in 1997, 1996 and 1995.
G. COMMITMENTS AND
CONTINGENT LIABILITIES
On April 1, 1997, we sold our interest in IOC and entered into a 14 year
agreement to purchase up to 1.8 million tons of iron ore per year through the
year 2004 and about 500,000 tons in the years 2005 through 2011. In 1997, we
purchased 1.7 million net tons from IOC at a net cost of $53 million.
At December 31, 1997, we had outstanding approximately $57 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 believe
that such costs will not 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 that are likely to result from these proceedings. If such
reserves prove to be inadequate, however, we would incur a charge to earnings
that could be material to the results of operations in a particular future
quarterly or annual period. Based on the advice of legal counsel, we believe
that any ultimate liability arising from these actions will not have a material
adverse effect on our consolidated financial position.
-19-
<PAGE>
H. POSTRETIREMENT PENSION BENEFITS
We have noncontributory defined benefit pension plans that provide benefits for
substantially all our 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 our valuation date of November 30, together with amounts
recognized in our consolidated balance sheets:
- --------------------------------------------------------------------------------
(Dollars in millions) 1997 1996
- --------------------- ---- ----
Assumptions:
Discount rate 7.375% 7.75%
Average rate of compensation increase 3.10% 3.10%
Actuarial present value of benefit obligations:
Vested benefit obligation $ 5,030 $ 4,910
Accumulated benefit obligation 5,185 5,075
Projected benefit obligation 5,495 5,325
Plan assets at fair value:
Fixed income securities 1,552 1,656
Equity securities 3,102 2,381
Cash and marketable securities 276 178
------- -------
Total plan assets $ 4,930 $ 4,215
------- -------
Projected benefit obligation in excess of plan assets 565 1,110
Unrecognized net gain (loss) 176 (36)
Remaining unrecognized net obligation resulting
from adoption of Statement No. 87 (139) (173)
Unrecognized prior service cost from plan amendments (172) (201)
Adjustment required to recognize minimum liability
- Intangible asset - 160
December accruals/contributions - net 10 10
------- -------
Pension liability at December 31 $ 440 $ 870
======= =======
- --------------------------------------------------------------------------------
The assumptions used in each year and the components of our annual
pension cost follow:
- --------------------------------------------------------------------------------
(Dollars in millions) 1997 1996 1995
- --------------------- ---- ---- ----
Assumptions:
Return on plan assets 9.00% 8.75% 10.00%
Discount rate 7.75% 7.25% 9.00%
Pension cost:
Service cost - benefits
earned during the period $ 48 $ 59 $ 45
Interest on projected
benefit obligation 395 372 402
Return on plan assets
- actual (833) (616) (849)
- deferred 458 287 532
Amortization of initial
net obligation 34 36 36
Amortization of unrecognized prior
service cost from plan amendments 29 32 32
----- ----- -----
Total 131 170 198
PBGC premiums, administration fees, etc. 24 22 12
----- ----- -----
Total cost $ 155 $ 192 $ 210
===== ===== =====
- --------------------------------------------------------------------------------
-20-
<PAGE>
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.
The following sets forth our plans' actuarial assumptions used and
funded status at our valuation date of November 30, together with the amounts
recognized in our consolidated balance sheets:
- --------------------------------------------------------------------------------
(Dollars in millions) 1997 1996
- --------------------- ---- ----
Assumptions:
Discount rate 7.375% 7.75%
Trend rate
- beginning next year 6.00% 7.00%
- ending year 2000 4.60% 4.60%
Accumulated postretirement benefit obligation:
Retirees $ 1,760 $ 1,705
Fully eligible active plan participants 155 145
Other active plan participants 140 150
------- -------
Total 2,055 2,000
Plan assets at fair value:
Fixed income securities 120 130
------- -------
Accumulated postretirement benefit
obligation in excess of plan assets 1,935 1,870
Unrecognized net loss, etc. (340) (275)
------- -------
Total obligation at December 31 1,595 1,595
Current portion (150) (150)
------- -------
Long-term obligation $ 1,445 $ 1,445
======= =======
- --------------------------------------------------------------------------------
The assumptions used in each year and the components of our
postretirement benefit cost follow:
- --------------------------------------------------------------------------------
(Dollars in millions) 1997 1996 1995
- --------------------- ---- ---- ----
Assumptions:
Return on plan assets 9.00% 8.75% 10.00%
Discount rate 7.75% 7.25% 9.00%
Trend rate
- beginning current year 7.00% 8.00% 9.00%
- ending year 2000 4.60% 4.60% 4.60%
Postretirement benefit cost:
Service cost $ 7 $ 10 $ 7
Interest on accumulated postretirement
benefit obligation 148 140 148
Amortization of unrecognized net loss 6 8 -
Return on plan assets
- actual (10) (7) (24)
- deferred (1) (5) 12
----- ----- -----
Total cost $ 150 $ 146 $ 143
===== ===== =====
- --------------------------------------------------------------------------------
A one percentage point increase or decrease in the assumed health care
trend rate would increase or decrease the accumulated postretirement benefit
obligation by about $150 million and 1997 expense by about $10 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 one one-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 15% or more of
Common Stock or begins a tender offer or exchange offer that 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.
-21-
<PAGE>
K. STOCK OPTIONS
At December 31, 1997, we had options outstanding under Plans approved by our
stockholders in 1988 and 1994. 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, 1997, options on 826,300 shares of Common Stock were available for granting.
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 one to
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 quoted market price 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. Because of the surrender component in
our options, related expense is recognized periodically based on the difference
between the option price and current quoted market prices. Compensation expense
recognized and weighted average fair value for the options granted in 1997, 1996
and 1995 were not material.
Changes in options outstanding during 1997, 1996 and 1995 under the
Plans were as follows:
Number of Weighted
Options Average Price
------------- -------------
Balance December 31, 1994 2,500,248 $ 19
Granted 635,100 15
Terminated or cancelled (111,373) 18
Surrendered or exercised (6,900) 14
---------
Balance December 31, 1995 3,017,075 18
Granted 620,600 14
Terminated or cancelled (144,025) 19
Surrendered or exercised (2,000) 8
---------
Balance December 31, 1996 3,491,650 17
Granted 656,200 8
Terminated or cancelled (377,100) 17
---------
Balance December 31, 1997 3,770,750 15
=========
Options exercisable at the end of 1997, 1996 and 1995 were 2,083,250,
1,976,300 and 1,848,375.
Information on our stock options at December 31, 1997 follows:
<TABLE>
<CAPTION>
Range of Number of Average Average Number of Average
Exercise Options Exercise Contractual Options Exercise
Prices Outstanding Price Life Exercisable Price
- ------------------ --------- -------- ----------- --------- --------
<S> <C> <C> <C> <C> <C>
8-3/8 650,200 $ 8 9 Years -- $ --
13-3/4 - 14-1/2 1,582,800 14 7 Years 810,450 14
17-5/8 - 19 621,650 19 5 Years 621,650 19
20-3/8 - 21-3/4 916,100 21 4 Years 651,150 21
---------- -------
Total 3,770,750 15 6 Years 2,083,250 18
========= =========
</TABLE>
-22-
<PAGE>
L. STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Preferred Stock Preference Stock Common Stock Common Stock
(Shares in thousands and dollars $1.00 Par Value $1.00 Par Value $1.00 Par Value Held in Treasury
in millions, except per share data) Shares Amount Shares Amount Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1994 11,623 $11.6 2,619 $2.6 111,882 $111.9 1,997 $59.5
Net income for year
Minimum pension liability
adjustment (Note H)
Dividends on Preferred Stock
Preference Stock:
Stock dividend 133 0.1
Issued 41 0.1
Converted (205) (0.2) 205 0.2
Common Stock Issued 613 0.6 (5) (0.1)
- -----------------------------------------------------------------------------------------------------------------------
Balance December 31, 1995 11,623 11.6 2,588 2.6 112,700 112.7 1,992 59.4
Net loss for year
Minimum pension liability
adjustment (Note H)
Dividends on Preferred Stock
Preference Stock:
Stock dividend 129 0.1
Issued 62 0.1
Converted (261) (0.3) 261 0.3
Common Stock:
Acquired 26 0.3
Issued 890 0.9
- -----------------------------------------------------------------------------------------------------------------------
Balance December 31, 1996 11,623 11.6 2,518 2.5 113,851 113.9 2,018 59.7
Net income for year
Dividends on Preferred Stock
Preference Stock:
Stock dividend 124 0.1
Issued 35
Converted (331) (0.3) 331 0.3
Common Stock:
Acquired 39 0.3
Issued 866 0.8
- -----------------------------------------------------------------------------------------------------------------------
Balance December 31, 1997 11,623 $11.6 2,346 $2.3 115,048 $115.0 2,057 $60.0
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
(Shares in thousands and dollars Additional Accum-
in millions, except per share data) Paid-In ulated
Capital Deficit
- --------------------------------------------------------------------------------
<S> <C> <C>
Balance December 31, 1994 $1,948.6 $(859.4)
Net income for year 179.6
Minimum pension liability
adjustment (Note H) (67.0)
Dividends on Preferred Stock (40.4)
Preference Stock:
Stock dividend (0.1)
Issued 0.7
Converted
Common Stock Issued 8.8
- --------------------------------------------------------------------------------
Balance December 31, 1995 1850.6 (679.8)
Net loss for year (308.8)
Minimum pension liability
adjustment (Note H) 67.0
Dividends on Preferred Stock (40.4)
Preference Stock:
Stock dividend (0.1)
Issued 0.8
Converted
Common Stock:
Acquired
Issued 8.4
- --------------------------------------------------------------------------------
Balance December 31, 1996 1,886.3 (988.6)
Net income for year 280.7
Dividends on Preferred Stock (40.4)
Preference Stock:
Stock dividend (0.1)
Issued 0.3
Converted
Common Stock:
Acquired
Issued 7.9
- --------------------------------------------------------------------------------
Balance December 31, 1997 $1,854.0 $(707.9)
- --------------------------------------------------------------------------------
</TABLE>
Each share of $3.50 Cumulative Convertible Preferred Stock issued in
1993 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, 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.
-23-
<PAGE>
Preferred and Preference Stock issued and outstanding:
- --------------------------------------------------------------------------------
(Shares in thousands) December 31
----------------------
1997 1996
---- ----
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 1,655 1,818
Series "B" 5% Cumulative Convertible Preference
Stock 691 700
- --------------------------------------------------------------------------------
The following presents the details of our earnings per share calculations:
- --------------------------------------------------------------------------------
(Shares in thousands and dollars in
millions except per share data)
1997 1996 1995
---- ---- ----
Basic Earnings Per Share
Net income (loss) $ 280.7 $(308.8) $ 179.6
Less dividend requirements:
$2.50 Preferred dividend-cash (10.0) (10.0) (10.0)
$5.00 Preferred dividend-cash (12.5) (12.5) (12.5)
$3.50 Preferred dividend-cash (17.9) (17.9) (17.9)
5% Preference dividend-stock (1.2) (1.5) (2.0)
------- ------- -------
Total Preferred and Preference
dividends (41.6) (41.9) (42.4)
------- ------- -------
Net income (loss) applicable to Common Stock $ 239.1 $ (350.7) $ 137.2
======= ======= =======
Average shares of Common Stock outstanding 112,439 111,286 110,311
======= ======= =======
Basic Earnings Per Share $ 2.13 $ (3.15) $ 1.24
======= ======= =======
(Shares in thousands and dollars in
millions, except per share data) 1997 1996 1995
- -------------------------------- ---- ---- ----
Diluted Earnings Per Share
Net income (loss) $ 280.7 $ (308.8) $ 179.6
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) (17.9)
5% Preference dividend -- (1.5) --
-------- -------- --------
Net income (loss) applicable to Common
Stock $ 258.2 $ (350.7) $ 139.2
======== ======== ========
Average shares of Common Stock and
equivalents and other potentially
dilutive securities outstanding:
Common Stock 112,439 111,286 110,311
Stock options -- 2 13
$2.50 Preferred Stock * * *
$5.00 Preferred Stock * * *
$3.50 Preferred Stock 12,255 * *
5% Preference Stock 2,346 * 2,588
------- ------- -------
Total 127,040 111,288 112,912
======= ======= =======
Diluted Earnings Per Share $ 2.03 $ (3.15) $ 1.23
======= ======= =======
* Antidilutive
- --------------------------------------------------------------------------------
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 our consolidated net income and minus 100% of our
consolidated net loss since the second quarter of 1993, excluding certain
restructuring charges and other adjustments. The amount available at December
31, 1997 under this covenant was about $485 million.
M. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
(Dollars in millions, except per share data) 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $1,192.5 $1,206.9 $1,113.4 $1,118.4 $1,118.5 $1,236.9 $1,174.6 $1,149.0
Cost of sales 1,052.5 1,053.4 971.8 975.6 1,009.9 1,092.9 1,043.3 1,022.1
Net income (loss) 38.4 160.0 40.6 41.7 0.1 26.6 11.0 (346.5)
Net income (loss) per
Common share
- basic $ 0.25 $ 1.33 $ 0.27 $ 0.28 $ (0.09) $ 0.14 $ -- $ (3.19)
- diluted $ 0.25 $ 1.19 $ 0.26 $ 0.27 $ (0.09) $ 0.14 $ -- $ (3.19)
</TABLE>
-24-
<PAGE>
REPORT OF INDEPENDENT AUDITORS
- ------------------------------------------------------------------------------
To the Board of Directors
and Stockholders of
Bethlehem Steel Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income and of cash flows present fairly, in all
material respects, the financial position of Bethlehem Steel Corporation and its
subsidiaries at December 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1997, in conformity with generally accepted accounting principles. 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 which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
January 28, 1998
-25-
<PAGE>
<TABLE>
<CAPTION>
Five-Year Financial and Operating Summaries
- -------------------------------------------------------------------------------------------------------------------------------
(Dollars in millions, except per share data) 1997 1996 1995 1994 1993
- ------------------------------------------- -------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Earnings Statistics
Net sales $4,631.2 $ 4,679.0 $4,867.5 $4,819.4 $4,323.4
-------- -------- -------- -------- --------
Costs and expenses:
Employment costs 1,439.0 1,555.0 1,683.5 1,633.0 1,547.1
Materials and services 2,683.8 2,680.6 2,592.7 2,754.8 2,404.2
Depreciation 231.0 268.7 284.0 261.1 277.5
Taxes (other than employment and income taxes) 38.4 38.1 38.4 36.9 39.8
Estimated (gain) loss on exiting business (135.0) 465.0 - - 350.0
-------- -------- -------- -------- --------
Total costs and expenses 4,257.2 5,007.4 4,598.6 4,685.8 4,618.6
-------- -------- -------- -------- --------
Income (loss) from operations 374.0 (328.4) 268.9 133.6 (295.2)
Financing income (expense):
Interest and other financing costs (47.5) (53.3) (60.0) (46.2) (63.2)
Interest income 9.2 5.9 7.7 7.1 7.1
Benefit (provision) for income taxes (55.0) 67.0 (37.0) (14.0) 85.0
-------- -------- -------- -------- --------
Net income (loss) 280.7 (308.8) 179.6 80.5 (266.3)
Dividends on Preferred and Preference Stock 41.6 41.9 42.4 43.1 39.8
-------- -------- -------- -------- --------
Net income (loss) applicable to Common Stock $ 239.1 $ (350.7) $ 137.2 $ 37.4 $ (306.1)
-------- -------- -------- -------- --------
Net income (loss) per Common share- basic $ 2.13 $ (3.15) $ 1.24 $ 0.35 $ (3.37)
- diluted $ 2.03 $ (3.15) $ 1.23 $ 0.35 $ (3.37)
- -------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Statistics
Cash and cash equivalents $ 252.4 $ 136.6 $ 180.0 $ 159.5 $ 228.9
Receivables, inventories and other current assets 1,211.6 1,351.8 1,345.8 1,409.6 1362.2
Current liabilities (910.8) (957.4) (1,049.6) (1,011.2) (914.2)
-------- -------- -------- -------- --------
Working capital $ 553.2 $ 531.0 $ 476.2 $ 557.9 $ 676.9
Current ratio 1.6 1.6 1.5 1.6 1.7
Property, plant and equipment - net $2,357.7 $2,419.8 $2,714.2 $2,759.3 $ 2,634.3
Total assets 4,802.6 5,109.9 5,700.3 5,782.4 5,876.7
Total debt and capital lease obligations 493.4 546.7 638.3 757.3 813.8
Stockholders' equity 1,215.0 966.0 1,238.3 1,155.8 696.6
Total debt as a percent of invested capital 29% 36% 34% 40% 54%
- -------------------------------------------------------------------------------------------------------------------------------
Other Statistics
Capital expenditures $ 228.2 $ 259.0 $ 266.8 $ 444.6 $ 327.1
Raw steel production capability (net tons in thousands) 10,500 10,500 11,500 11,500 11,500
Raw steel production (net tons in thousands) 9,599 9,447 10,449 9,817 10,303
Steel products shipped (net tons in thousands) 8,802 8,782 8,986 9,262 9,016
Pensioners receiving benefits at year end 70,400 70,100 71,000 71,700 70,900
Average number of employees receiving pay 16,400 17,800 19,500 19,900 20,700
Common Stock outstanding at year end (shares in thousands) 112,991 111,834 110,708 109,886 91,409
Common stockholders at year end 35,000 37,000 39,000 41,000 43,000
</TABLE>
-26-
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0
14
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</TABLE>
