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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended March 31, 1998
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
BETHLEHEM, PENNSYLVANIA 18016-7699
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 694-2424
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
--- ---
Number of Shares of Common Stock Outstanding as of May 11, 1998: 113,294,395
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BETHLEHEM STEEL CORPORATION AND CONSOLIDATED SUBSIDIARIES
INDEX
Page No.
--------
PART I. Financial Information
Consolidated Statements of Income-
Three Months Ended March 31, 1998
and 1997 (unaudited). . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Balance Sheets-
March 31, 1998 (unaudited), December 31, 1997
and March 31, 1997 (unaudited). . . . . . . . . . . . . . . . . 3
Consolidated Statements of Cash Flows-
Three Months Ended March 31, 1998
and 1997 (unaudited). . . . . . . . . . . . . . . . . . . . . . 4
Notes to Consolidated Financial Statements . . . . . . . . . . . . . 5
Management's Discussion and Analysis of Results of
Operations and Financial Condition. . . . . . . . . . . . . . . 6
PART II. Other Information
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . 10
Item 4. Submission of Matters to a Vote of Security Holders. . 11
Item 5. Other Information. . . . . . . . . . . . . . . . . . . 12
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . 12
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
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Bethlehem Steel Corporation
CONSOLIDATED STATEMENTS OF INCOME
(dollars and shares in millions, except per share data)
(unaudited)
Three Months Ended
March 31
-----------------
1998 1997
--------- ---------
<TABLE>
<S> <C> <C>
Net Sales $1,132.5 $1,192.5
--------- ---------
Costs and Expenses:
Cost of sales 957.0 1,052.5
Depreciation 59.8 56.9
Selling, administration and general expense 25.3 26.8
--------- ---------
Total Costs and Expenses 1,042.1 1,136.2
--------- ---------
Income from Operations 90.4 56.3
Financing Income (Expense):
Interest and other financing costs (11.6) (11.8)
Interest and other income 3.3 1.4
--------- ---------
Income before Income Taxes 82.1 45.9
Provision for Income Taxes (13.5) (7.5)
--------- ---------
Net Income 68.6 38.4
Dividends on Preferred and Preference Stock 10.5 10.4
--------- ---------
Net Income Applicable to Common Stock $ 58.1 $ 28.0
========= =========
Net Income per Common Share:
Basic $ 0.51 $ 0.25
Diluted $ 0.49 $ 0.25
Average Shares Outstanding 113.1 112.0
Additional Data
Steel products shipped (thousands of net tons) 2,221 2,224
Raw steel produced (thousands of net tons) 2,487 2,317
</TABLE>
The accompanying Notes are an integral part of the Consolidated
Financial Statements.
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Bethlehem Steel Corporation
CONSOLIDATED BALANCE SHEETS
(dollars in millions)
ASSETS
March 31 March 31
1998 December 31 1997
(unaudited) 1997 (unaudited)
----------- ----------- -----------
<TABLE>
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 287.2 $ 252.4 $ 133.9
Receivables, less allowances 307.4 306.0 331.7
Inventories:
Raw materials 296.4 324.5 315.3
Finished and semifinished 574.7 569.3 665.5
--------- --------- ---------
871.1 893.8 980.8
Other current assets 10.9 11.8 11.5
--------- --------- ---------
Total Current Assets 1,476.6 1,464.0 1,457.9
Investments and Miscellaneous Assets 99.9 100.9 108.0
Property, Plant and Equipment,
less accumulated depreciation of
$4,145.4, $4,095.5 and $3,971.2 2,353.9 2,357.7 2,409.1
Deferred Income Tax Asset - net 867.0 880.0 927.5
Intangible Asset - Pensions - - 160.0
--------- --------- ---------
Total Assets $4,797.4 $4,802.6 $5,062.5
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 361.0 $ 371.2 $ 367.1
Accrued employment costs 295.1 323.9 298.6
Accrued taxes 53.0 60.0 61.4
Debt and capital lease obligations 44.4 41.8 47.9
Other current liabilities 120.8 113.9 117.6
-------- --------- ---------
Total Current Liabilities 874.3 910.8 892.6
Pension Liability 456.0 440.0 886.9
Postretirement Benefits Other Than Pensions 1,436.3 1,445.0 1,450.7
Long-term Debt and Capital Lease Obligations 427.5 451.6 473.1
Other Long-term Liabilities 328.8 340.2 363.8
Stockholders' Equity:
Preferred Stock 11.6 11.6 11.6
Preference Stock 2.3 2.3 2.5
Common Stock 115.3 115.0 114.1
Common Stock held in treasury at cost (60.1) (60.0) (59.9)
Additional paid-in capital 1,844.7 1,854.0 1,877.3
Accumulated deficit (639.3) (707.9) (950.2)
--------- --------- ---------
Total Stockholders' Equity 1,274.5 1,215.0 995.4
--------- --------- ---------
Total Liabilities and Stockholders' Equity $4,797.4 $4,802.6 $5,062.5
========= ========= =========
</TABLE>
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
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Bethlehem Steel Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
(unaudited)
Three Months Ended
March 31
----------------------
1998 1997
-------- --------
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<S> <C> <C>
Operating Activities:
Net income $ 68.6 $ 38.4
Adjustments for items not affecting
cash from operating activities:
Depreciation 59.8 56.9
Deferred Income Taxes 13.0 7.5
Other - net 4.4 9.3
Working capital (excluding financing and
investing activities):
Receivables - operating (1.4) (20.1)
Inventories 22.7 36.5
Accounts payable (10.1) (43.3)
Employment costs and other (26.7) (17.1)
Pension financing (funding):
Pension expense 21.0 40.9
Pension funding (5.0) (25.0)
-------- --------
Cash Provided from Operating and Pension Activities 146.3 84.0
-------- --------
Investing Activities:
Capital expenditures (61.2) (50.0)
Cash proceeds from asset sales and other 2.3 1.3
-------- --------
Cash Used for Investing Activities (58.9) (48.7)
-------- --------
Financing Activities:
Long-term debt borrowings 0.2 0.4
Long-term debt and capital lease payments (21.5) (25.7)
Cash dividends paid (10.1) (10.1)
Other payments (21.2) (2.6)
-------- --------
Cash Used for Financing Activities (52.6) (38.0)
-------- --------
Net Increase (Decrease) in Cash and Cash Equivalents 34.8 (2.7)
Cash and Cash Equivalents - Beginning of Period 252.4 136.6
-------- --------
- End of Period $ 287.2 $ 133.9
======== ========
Supplemental Cash Payment Information:
Interest, net of amount capitalized $ 16.1 $ 15.8
Income taxes $ 3.5 $ 7.5
</TABLE>
The accompanying Notes are an integral part of the Consolidated
Financial Statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Consolidated Financial Statements as of and for the three month periods
ended March 31, 1998 and 1997 have not been audited. However, the information
reflects all adjustments which, in the opinion of management, are necessary to
present fairly the results shown for the periods indicated. Management
believes all adjustments were of a normal recurring nature.
2. These Consolidated Financial Statements should be read together with the
1997 audited financial statements set forth in Bethlehem's Annual Report on
Form 10-K filed with the Securities and Exchange Commission.
3. During January 1998, Bethlehem signed an amended merger agreement to
acquire Lukens Inc., a leading plate producer. The consideration to be paid by
Bethlehem to Lukens' stockholders will be in a combination of cash and
Bethlehem Common Stock. Cash required for the Lukens merger is expected to be
about $375 million and will be funded with available cash and short-term
borrowings which will be repaid with proceeds from the sale of Lukens'
stainless and distribution assets. We expect to issue about 15 million
additional shares of Bethlehem Common Stock. The value of the Lukens merger,
including the assumption of Lukens' debt, is now expected to total about $800
million. This transaction is expected to close by the end of May 1998.
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MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
REVIEW OF RESULTS:
FIRST QUARTER 1998 - FIRST QUARTER 1997
Bethlehem reported net income of $69 million, on sales of $1.13 billion,
for the first quarter of 1998 compared with net income of $38 million, on sales
of $1.19 billion, for the first quarter of 1997. After deducting preferred
dividends, net income per common share was $.51 for the first quarter of 1998
compared with $.25 per common share for the first quarter of 1997.
OPERATING RESULTS
Income from operations was $90 million for the first quarter of 1998
compared with $56 million for the first quarter of 1997. Results improved from
a year ago as lower costs more than offset lower realized prices. Costs were
lower compared to last year due to significantly improved operating performance
at Burns Harbor and Sparrows Point and lower pension expense. We also exited
Bethlehem Structural, BethShip's Sparrows Point Yard, BethForge and CENTEC,
eliminating the losses being incurred at those underperforming businesses.
Cokemaking ended at our Bethlehem Coke Division in March 1998, but we will
continue shipping coke from inventory until the end of May.
Steel shipments in the first quarter of 1998 were 2,221,000 net tons
compared with 2,224,000 net tons for the first quarter of 1997. Increased
shipments at Burns Harbor, Sparrows Point and PST essentially offset the loss
of shipments resulting from our exiting the underperforming businesses.
First quarter 1998 income from operations of $90 million was an increase of
$33 million over the $57 million reported in the fourth quarter of 1997
principally because of lower costs at Burns Harbor and Sparrows Point which,
along with increased shipments, more than offset the effects of lower realized
prices.
LIQUIDITY AND CAPITAL STRUCTURE
At March 31, 1998, total liquidity, comprising cash, cash equivalents and
funds available under our bank credit arrangements, totaled $647 million
compared with $612 million at December 31, 1997. Cash and cash equivalents
were $287 million at March 31, 1998, compared with $252 million at December 31,
1997.
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Cash provided from operating and pension activities during the first
quarter of 1998 was $146 million compared with $84 million in the first quarter
of 1997. Principal uses of cash during the first quarter of 1998 included
capital expenditures of $61 million and debt repayments of $22 million.
We continued to experience strong investment returns on our pension fund
assets during the first quarter of 1998. This has further increased the
unrecognized net gain that we have with respect to our pension liability. If
we could recognize these gains in calculating the pension liability that
appears on our balance sheet, we would be essentially fully funded. However,
generally accepted accounting rules do not allow us to immediately recognize
the full market value of our pension fund on our balance sheet. Instead, these
gains will be reflected in lower pension expense during future years. The
current market value of our pension plan is now essentially equal to the total
present value of our accumulated pension obligation of about $5.3 billion.
Major uses of cash for 1998, excluding our previously announced merger with
Lukens Inc., are capital expenditures of about $300 million and debt and
capital lease payments of about $40 million. Cash required in connection with
the Lukens merger is expected to total about $375 million and will be funded
with available cash and short-term borrowings, which Bethlehem expects to repay
with proceeds from the sale of Lukens' stainless and distribution assets.
We expect to maintain adequate liquidity throughout 1998 from cash flow
from operations, reductions in working capital, the sale of various assets of
Lukens after the merger, and available funds under our credit arrangements.
LUKENS INC.
As previously announced, Bethlehem will acquire Lukens Inc., a leading
producer of carbon and alloy plate and stainless steel flat-rolled products.
We believe that the combination will establish a more globally competitive
customer-focused plate business, with the broadest range of plate products in
the industry. The new business will be called Bethlehem Lukens Plate, a
Division of Bethlehem Steel Corporation, and will be headquartered in
Coatesville, Pennsylvania.
We previously announced our intent 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. The
closing of these mills will occur at a future time that will be determined on a
basis consistent with customer requirements and other factors. We will record
a restructuring charge of about $35 million before tax in the second quarter of
1998 in connection with the anticipated closing of the Sparrows Point plate
mill.
Our merger with Lukens will include payments of cash of approximately $375
million and the issuance of Bethlehem Common Stock to current Lukens
shareholders. We expect to
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issue approximately 15 million additional shares of Common Stock to current
Lukens shareholders in the merger which will increase the total number of
outstanding shares of Bethlehem Common Stock to about 128 million shares from
the current level of about 113 million shares. Additional shares may also be
issued following the merger with respect to Lukens' employee stock option and
benefit plans.
Also, as previously announced, Bethlehem has entered into agreements with
Allegheny Teledyne Incorporated that will become effective after the merger.
Under these agreements, Allegheny will purchase for $175 million certain assets
that Lukens uses in the manufacture of stainless steel products; Bethlehem will
provide Allegheny with conversion services for stainless steel hot bands and
coiled plate; and Allegheny will supply hot rolled bands to Bethlehem for
further processing on the stainless steel coil finishing facilities that Lukens
currently owns until those facilities are subsequently sold by Bethlehem. In
addition to the sale of assets to Allegheny and also as previously announced,
we plan to sell within a year after the merger additional assets of Lukens
related to the production and distribution of stainless steel products.
On April 24, 1998, we filed a Registration Statement on Form S-4 with the
Securities and Exchange Commission in connection with the proposed merger. A
Lukens shareholders meeting has been scheduled for May 28, 1998, to approve the
transaction. If approval is obtained, we plan to close the merger by June 1,
1998.
DIVIDENDS
On April 29, 1998, the Board of Directors declared dividends of $1.25 per
share on Bethlehem's $5.00 Cumulative Convertible Preferred Stock, $0.625 per
share on Bethlehem's $2.50 Cumulative Convertible Preferred Stock and $0.875
per share on Bethlehem's $3.50 Cumulative Convertible Preferred Stock, each
payable June 10, 1998, to holders of record on May 11, 1998. No dividend was
declared on Bethlehem's Common Stock.
OUTLOOK
We continue to believe that the domestic economy will have moderate and
sustainable growth and low inflation. The demand for steel in the United
States remains strong. Domestic industry shipments in 1998 should be about 103
million tons, very close to the 105 million tons shipped in 1997, which was the
highest level of shipments in 23 years.
Competition is expected to continue to be intense as new steel capacity
enters the marketplace. There also continues to be some uncertainty about the
impact of the Asian financial crisis. We are concerned about the high levels
of unfairly traded imports and have appropriate remedies under consideration.
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We will be concentrating our future efforts on four areas: (1) further
improving the competitiveness of our core businesses; (2) completing the Lukens
merger, implementing the asset sales and other agreements we have with
Allegheny Teledyne, and establishing the new Bethlehem Lukens Plate Division;
(3) taking further actions to profitably grow Bethlehem; and (4) strengthening
our overall financial condition.
FORWARD-LOOKING STATEMENTS
This release contains forward-looking statements. Our use of the words
"expect", "believe", "intent", "should", "plan" and similar words are intended
to identify these statements as forward-looking. In accordance with the
provisions of the Private Securities Litigation Reform Act of 1995, reference
is made to "Item 1 - Business - Forward-Looking Statements" of Bethlehem's 1997
Annual Report on Form 10-K and to "Cautionary Statement" of Bethlehem's
Registration Statement on Form S-4 filed with the Securities and Exchange
Commission on April 24, 1998 for important factors that could cause actual
results to differ materially from those projected.
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PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
Bethlehem, in the ordinary course of its business, is the subject of
various pending or threatened legal actions involving governmental agencies or
private interests. Bethlehem believes that any ultimate liability arising from
these actions should not have a material adverse effect on its consolidated
financial position at March 31, 1998.
The following previously reported proceeding had developments during the
first quarter of 1998:
On February 14, 1997, the Environmental Protection Agency ("EPA") issued a
notice alleging violations by Bethlehem Structural Products Corporation, a
wholly-owned subsidiary of Bethlehem ("BSPC") 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 March 6, 1998, a Consent
Decree to which the parties had agreed was entered by the U.S. District
Court for the Eastern District of Pennsylvania in final resolution of this
matter. It required BSPC to pay civil penalties of $178,500 to the United
States and $119,000 to the DEP, which payments have been made, and to take
certain remedial actions to insure continued compliance with the SIP and the
NESHAP. BSPC was in full compliance through the end of March 1998, when, for
reasons unrelated to this matter, Battery A was permanently shut down
eliminating any further compliance issues under the Consent Decree.
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Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Annual Meeting of the Stockholders of Bethlehem was held on April 28,
1998.
The following nominees for director named in the Proxy Statement dated
March 13, 1998 were elected at the Meeting by the votes indicated:
For Withheld
--- --------
Curtis H. Barnette 96,501,116 1,123,667
Benjamin R. Civiletti 95,978,602 1,646,181
Worley H. Clark 96,575,349 1,049,434
John B. Curcio 96,505,530 1,119,253
Lewis B. Kaden 95,975,724 1,649,059
Harry P. Kamen 96,594,296 1,030,487
Robert McClements, Jr. 96,548,516 1,076,267
Gary L. Millenbruch 96,617,517 1,007,266
Roger P. Penny 96,431,410 1,193,373
Shirley D. Peterson 96,538,629 1,086,154
Dean P. Phypers 96,554,069 1,070,714
John F. Ruffle 96,606,532 1,018,251
The votes in favor of the election of the nominees represent at least 98%
of the shares voted for each of the nominees.
Ratification of the appointment of Independent Auditors was approved by the
following vote:
For Against Abstentions
--- ------- -----------
Number of Shares 96,791,563 444,250 388,970
Adoption of the 1998 Stock Incentive Plan was approved by the following
vote:
For Against Abstentions
--- ------- -----------
Number of Shares 91,148,711 5,734,591 741,481
There were no broker non-votes with respect to any of these matters voted
upon at the Meeting.
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Item 5. OTHER INFORMATION
On April 24, 1998, Bethlehem filed a Registration Statement on Form S-4
with the Securities and Exchange Commission in connection with its proposed
merger with Lukens Inc.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
The following is an index of the exhibits included in this Report
on Form 10-Q:
11. Statement Regarding Computation of Earnings Per Share.
27. Financial Data Schedule.
(b) Reports on Form 8-K.
On January 4, 1998, Bethlehem filed a report on Form 8-K with the
Securities and Exchange Commission regarding an amendment to the terms
of its proposed merger with Lukens Inc.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Bethlehem Steel Corporation has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Bethlehem Steel Corporation
(Registrant)
by
/s/ L. A. Arnett
-----------------------------
L. A. Arnett
Vice President and
Controller (principal
accounting officer)
Date: May 13, 1998
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EXHIBIT INDEX
The following is an index of the exhibits included in this Report:
Item
No. Exhibit
11 Statement Regarding Computation of Earnings Per Share
27 Financial Data Schedule
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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
Ended March 31
---------------
Basic Earnings Per Share 1998 1997
------------------------ ---- ----
<TABLE>
<S> <C> <C>
Net Income $68.6 $38.4
Less Dividend Requirements:
$2.50 Preferred Dividend (2.5) (2.5)
$5.00 Preferred Dividend (3.1) (3.1)
$3.50 Preferred Dividend (4.5) (4.5)
5% Preference Dividend (0.4) (0.3)
-------- --------
Total Preferred and Preference Dividends (10.5) (10.4)
-------- --------
Net (Loss) Income Applicable to Common Stock $58.1 $28.0
======== ========
Average Shares of Common Stock 113,116 111,974
Basic Earnings Per Share $0.51 $0.25
======== ========
Diluted Earnings Per Share
--------------------------
Net Income $68.6 $38.4
Less Dividend Requirements:
$2.50 Preferred Dividend (2.5) (2.5)
$5.00 Preferred Dividend (3.1) (3.1)
$3.50 Preferred Dividend - (4.5)
5% Preference Dividend - -
-------- --------
Net (Loss) Income Applicable to Common Stock $63.0 $28.3
======== ========
Average Shares of Common Stock and Equivalents and
Other Potentially Dilutive Securities Outstanding:
Common Stock 113,116 111,974
Stock Options 137 -
$2.50 Preferred Stock * *
$5.00 Preferred Stock * *
$3.50 Preferred Stock 12,255 *
5% Preference Stock 2,294 2,468
-------- --------
Total 127,802 114,442
======== ========
Diluted Earnings Per Share $0.49 $0.25
======== ========
* Antidilutive
</TABLE>
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 287
<SECURITIES> 0
<RECEIVABLES> 326
<ALLOWANCES> 19
<INVENTORY> 871
<CURRENT-ASSETS> 11
<PP&E> 6499
<DEPRECIATION> 4145
<TOTAL-ASSETS> 4797
<CURRENT-LIABILITIES> 874
<BONDS> 428
0
14
<COMMON> 115
<OTHER-SE> 1145
<TOTAL-LIABILITY-AND-EQUITY> 4797
<SALES> 1133
<TOTAL-REVENUES> 1133
<CGS> 957
<TOTAL-COSTS> 1042
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12
<INCOME-PRETAX> 82
<INCOME-TAX> 14
<INCOME-CONTINUING> 69
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 58
<EPS-PRIMARY> 0.51
<EPS-DILUTED> 0.49
</TABLE>
