BETHLEHEM STEEL ANNOUNCES FOURTH QUARTER AND YEAR 1997 RESULTS
BETHLEHEM, Pennsylvania, Wednesday, January 28, 1998 -- Bethlehem Steel Corporation today reported net income of $42 million, or $.28 per common share, for the fourth quarter of 1997 compared to net income of $23 million, or $.12 per common share, for the fourth quarter of 1996, excluding a fourth quarter 1996 after-tax restructuring charge of $370 million. Sales for the fourth quarter of 1997 were $1.12 billion compared to $1.15 billion for the fourth quarter of 1996.
Net income for the year 1997 was $281 million, or $2.13 per common share, compared to a net loss of $309 million, or $3.15 per common share, for the year 1996. Results for the year 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 the year 1996 include after-tax restructuring charges of $382 million. Excluding the effects of these items, net income for the year 1997 was $168 million ($1.12 per common share), on sales of $4.63 billion, compared to net income of $73 million ($.28 per common share), on sales of $4.68 billion, for the year 1996.
1997 Progress
"1997 was a year of considerable achievement and significant progress," said Curtis H. Barnette, Bethlehem's Chairman and Chief Executive Officer. "We substantially improved our financial performance, successfully executed our business plans, enhanced our core steel business divisions and implemented comprehensive restructuring actions. We also strengthened our financial position by reducing our debt and unfunded pension liability and by increasing our liquidity and stockholders' equity. Our divisions continued to focus on improving productivity and quality while reducing costs. We announced a $300 million investment for a new cold rolling mill complex at Sparrows Point which is scheduled to begin production in the fourth quarter of 1999. This new facility, combined with Division-wide initiatives, will significantly improve Sparrows Point's overall competitiveness. Additionally, we entered into a definitive merger agreement to acquire Lukens Inc., a leading North American plate producer."
Segment Results
The Basic Steel Operations segment had income from operations of $57 million for the fourth quarter of 1997 compared to income of $47 million for the year-earlier period, excluding a fourth quarter 1996 restructuring charge of $240 million. Fourth quarter 1997 results were better than a year ago as lower costs resulting from our exiting Bethlehem Structural and an improved product mix more than offset lower realized prices.
Income from operations was $264 million for the year 1997 compared to income from operations of $168 million for the year 1996, excluding 1997's IOC gain and 1996's restructuring charges. The improvement in this segment's results was due primarily to lower costs from improved operations at Sparrows Point and Pennsylvania Steel Technologies, Inc., and exiting Bethlehem Structural. The results were also affected by higher employment and raw material costs at Burns Harbor.
In the fourth quarter of 1997, we had a better product mix but income from operations declined by $9 million from the third quarter of 1997 because of lower shipments and lower realized prices on a constant mix basis.
The Steel Related Operations segment (BethForge, CENTEC and BethShip) was sold by early fourth quarter 1997 and, therefore, reported break-even results in that quarter and a loss from operations of $25 million for the year 1997. This compares to losses from operations of $8 million and $31 million for the fourth quarter and year 1996, excluding the 1996 restructuring charge.
Liquidity and Capital Structure
At December 31, 1997, total liquidity, comprising cash, cash equivalents and funds available under our bank credit arrangements, totaled $612 million compared to $446 million at December 31, 1996. At December 31, 1997, funds available under our bank credit arrangements totaled $359 million.
Cash provided from operating activities in 1997 increased to $551 million, from $341 million in 1996, due to changes in working capital and higher operating earnings. Other sources of cash included about $190 million of proceeds from the sales of IOC, our Steel Related Operations and High Power Mountain (HPM).
Principal uses of cash during 1997 included pension funding and capital expenditures. We contributed $35 million to our pension fund during the fourth quarter of 1997, for a total of $425 million for the year. As a result of these contributions and better than expected earnings on our pension fund assets, 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. Capital expenditures were $228 million in 1997 compared to $259 million in 1996.
Major uses of cash for 1998, excluding the announced merger with Lukens Inc., are pension funding, capital expenditures of about $300 million and debt and capital lease 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 and distribution businesses.
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 to 36% a year earlier.
Status of Restructuring Actions
In 1997, we completed our 1996 Comprehensive Restructuring Plan, exited five underperforming businesses and eliminated the significant losses they were incurring. We sold our Eagle Nest coal operation, BethForge, CENTEC and BethShip's Sparrows Point Yard. Bethlehem Structural ended operations in March. We sold all of Structural's inventory and are attempting to sell individual assets. Although not part of the Plan, we also sold our HPM coal assets and our equity interest in IOC.
We also announced in 1997 that we intend to discontinue our Bethlehem Coke Division operations in Bethlehem, Pennsylvania, by March 31, 1998, and we have initiated actions to try to sell the Division. In 1996, as part of the Comprehensive Restructuring Plan, we wrote off the property, plant and equipment of this Division as an impaired asset.
Lukens Inc.
As previously announced, under an amended agreement signed on January 5, 1998, 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% to be in the form of Bethlehem Common Stock. The combination should increase Bethlehem's earnings per share after an initial transition period required to integrate the operations of the two companies and to sell Lukens' stainless and distribution businesses. 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.
Bethlehem announced today that it has entered into three agreements with Allegheny Teledyne Incorporated that would become effective immediately after Bethlehem closes its merger with Lukens. Under these agreements, Bethlehem would provide Allegheny Teledyne with conversion services for stainless steel hot bands and coiled plate wider than Allegheny Teledyne can currently produce; Allegheny Teledyne would purchase certain assets that Lukens uses in the manufacture of stainless steel products; and Allegheny Teledyne would supply hot roll bands to Bethlehem for further processing on the stainless steel coil finishing facilities that Lukens currently owns.
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, close to the 104 million tons shipped in 1997.
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.
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 improve stockholder value.
Dividends
The Board of Directors today 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 March 10, 1998, to holders of record on February 10, 1998. No dividend was declared on Bethlehem's Common Stock.
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