Properties Relating to the Basic Steel Operations Segment
Burns Harbor Division
The principal operations of the Burns Harbor Division are located in Indiana on Lake Michigan, about 50 miles southeast of Chicago, Illinois. Burns Harbor produces hot rolled sheet, cold rolled sheet, corrosion-resistant coated sheet and plates. It is a major supplier of sheet and plate products to the automotive, service center, construction, machinery and appliance markets. Principal facilities include a sintering plant, two coke oven batteries, two blast furnaces, including new coal injection facilities, three basic oxygen furnaces with a combined annual raw steel production capability of 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, a 48-inch continuous electrogalvanizing line 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. About 80 percent of the steel produced at Burns Harbor is continuously cast; the remaining 20 percent is ingot cast. Ingot cast slabs are used primarily to make steel plates.
Burns Harbor's utilization of raw steel production capability was 92 percent during 1996.
Sparrows Point Division
The operations of the Sparrows Point Division are located on the Chesapeake Bay near Baltimore, Maryland. Sparrows Point produces hot rolled sheet, cold rolled sheet, corrosion resistant coated sheet (e.g., galvanized sheet, Galvalume� sheet), tin mill products and steel plate. Its principal markets include construction, containers and service centers. Principal facilities include a sintering plant, a large blast furnace, two basic oxygen furnaces with an annual raw steel production capability of about 3.6 million tons, a two-strand continuous slab caster with an annual production capability of about 3.6 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� line, a 48-inch hot-dip galvanizing/Galvalume� 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 98 percent during 1996.
Pennsylvania Steel Technologies, Inc.
Located in Steelton, Pennsylvania, south of Harrisburg, Pennsylvania, PST uses electric furnace steelmaking and a continuous caster in the production of 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 include a DC electric arc furnace with an annual raw steel production capability of about 1.3 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 1996.
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� coated sheets primarily for the construction market. The Sparrows Point Division 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. The Burns Harbor Division 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.
Bethlehem also has indirect equity interests in various iron ore properties. See "Raw Material Properties and Interests" below.
Raw Material Properties and Interests
Iron Ore. Bethlehem has indirect equity interests in various iron ore operating properties, which (excluding tonnages applicable to interests owned by others) it estimates contained recoverable reserves at December 31, 1996, sufficient to produce at least 9 million tons of direct shipping iron ore from properties located in Brazil and 475 million tons of iron ore concentrates and pellets, of which 206 million tons are from properties located in Minnesota and 269 million tons are from properties located in Canada. As previously announced, Bethlehem has signed an agreement for the sale of its equity interest in the Iron Ore Company of Canada ("IOC"). Upon completion of the sale, which is subject to governmental approvals and IOC shareholder consent, Bethlehem will continue its relationship as a customer of IOC and will purchase iron ore at market prices. 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, 1996, sufficient to produce at least 16 million tons of direct shipping iron ore from properties located in Brazil and 126 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 capable of supplying the major portion of Bethlehem's current annual iron ore requirements. However, because of the location of Bethlehem's steel operations and the iron ore products best suited to these facilities, Bethlehem engages in iron ore sales and exchanges with other consumers and purchases a portion of its iron ore requirements. These purchases have been from various sources, including sources in which it has ownership interests, under a variety of contractual arrangements extending over varying periods of time.
Bethlehem's share of the annual iron ore production by enterprises in which it has ownership interests, for Bethlehem's use or sale to trade customers, was 13.9 million tons in 1996 and 14.7 million tons in 1995. In addition to these sources, Bethlehem purchased 1.7 million tons of iron ore in each of 1996 and 1995 from sources in which it had no ownership interests. In 1996, Bethlehem obtained about 86 percent of its iron ore requirements from operations in which it had ownership interests compared with 85 percent in 1995.
Bethlehem had trade sales of iron ore in 1996 and 1995 of 1.2 million tons and .6 million tons, respectively. Additional iron ore trade sales commitments through December 31, 1997, presently aggregate .3 million tons. No iron ore trade sales commitments exist beyond 1997.
The interests in foreign iron ore properties described above are subject to the risks associated with investments in foreign countries, including the risk of nationalization.
Coal and Coke. Bethlehem owns and leases coal operating properties in West Virginia, which it estimates contained recoverable reserves at December 31, 1996, sufficient to produce at least 23 million tons of steam coal.
In addition to the estimated reserves at operating properties, Bethlehem also owns and leases undeveloped or nonoperating coal properties in Pennsylvania and West Virginia, which it estimates contained recoverable reserves at December 31, 1996, sufficient to produce at least 167 million tons of coal, of which about 89 percent and 11 percent, respectively, are metallurgical and steam coal.
Bethlehem's coal operations produced 1.9 million tons of coal in 1996 and 3.3 million tons in 1995. Trade shipments of coal were 1.2 million tons in 1996 compared with 2.2 million tons in 1995. During 1996, Bethlehem sold and leased its Eagle Nest coal operations and sold other coal reserves located in Boone County, West Virginia.
In 1996, Bethlehem obtained about 13 percent of its coal requirements from its own mines, compared with 19 percent in 1995. The balance of Bethlehem's requirements was purchased from commercial sources. Through December 31, 2005, Bethlehem is committed to satisfy certain of its coal requirements from a single supplier.
Bethlehem continues to operate coke-making facilities at Bethlehem, Pennsylvania; Burns Harbor, Indiana; and Lackawanna, New York.
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 owner-operated interstate trucking company serving Bethlehem's operations and other facilities.
The Burns Harbor Division operates two 1,000 foot ore vessels (one owned and one under long-term charter), which are used for the transportation of iron ore on the Great Lakes.
Properties Relating to the Steel Related Operations Segment
As discussed under "ITEM 1. BUSINESS--Facility Shutdowns and Restructurings", all of the properties of the Steel Related Operations Segment will either be sold or shut down.
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.
All principal operations and facilities are owned in fee by Bethlehem except for two continuous casters at the Sparrows Point Division and the Burns Harbor Division which are being leased. Bethlehem capitalized the expenditures related to the leases for two continuous casters and financed the construction of two new hot-dip galvanizing lines at its Burns Harbor and Sparrows Point Divisions. These two facilities are pledged as collateral for the borrowings.
