"We made significant progress in improving our results during the first quarter of 1998," said Bethlehem's chairman and chief executive officer, Curtis H. Barnette. He added, "We reported the highest quarterly operating income in almost nine years and the best safety performance ever recorded for a quarter. We had excellent operating performance and lower costs, we eliminated losses from restructured businesses and we benefited from continuing good levels of steel demand. Our performance is encouraging and moves us further towards achieving our Vision to Be the Premier Steel Company."
The first quarter of 1998 was also highlighted by the signing of an agreement to begin construction of Sparrows Point's new continuous Cold Rolling Mill complex which, when combined with other initiatives, will further improve Sparrows Point's competitiveness. We also made progress in completing our merger with Lukens Inc., which should occur during May, and we entered into agreements with Allegheny Teledyne Incorporated involving Lukens' stainless assets that will be implemented after the Lukens merger.
Regarding the recent announcement that Standard and Poor's intends to raise Bethlehem's credit rating, Mr. Barnette said: "We are pleased to learn of Standard and Poor's intent to upgrade our public debt and preferred stock ratings upon successful completion of our acquisition of Lukens Inc. It recognizes the significant progress Bethlehem has made in improving its operating performance and in strengthening its financial condition."
Operating Results
Income from operations was $90 million for the first quarter of 1998, an increase of 61% over the $56 million reported 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, CENTEC and Eagle Nest, 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 58% 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.
Lukens Inc.
As previously announced, Bethlehem will acquire Lukens Inc., a leading producer of carbon and alloy plate and stainless steel flat-rolled products, in a merger that is expected to close by the end of May 1998. 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 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. We look forward to this new relationship with Allegheny. 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.
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.
Cash provided from operating activities during the first quarter of 1998 was $130 million compared with $68 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. It is very encouraging, however, to know that 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.
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.
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.
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 June 10, 1998, to holders of record on May 11, 1998. No dividend was declared on Bethlehem's Common Stock.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
CONSOLIDATED STATEMENTS OF INCOME
(dollars and shares in millions, except per share data)
(unaudited)
Three Months Ended |
||||
| 1998 | 1997 | |||
| 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 | ||
The accompanying Notes are an integral part of the Consolidated Financial Statements.
CONSOLIDATED BALANCE SHEETS
(dollars in millions)
| ASSETS | ||||||
| March 31 1998 (unaudited) |
Dec. 31 1997 |
March 31 1997 (unaudited) |
||||
| 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 $4,145.5, $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 | |||
The accompanying Notes are an integral part of the Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
(unaudited)
| Three Months Ended March 31 |
|||||||||
1998 |
1997 | ||||||||
| 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) | |||||||
| Cash Provided from Operating Activities | 130.3 | 68.1 | |||||||
| 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: | |||||||||
| Pension expense | 21.0 | 40.9 | |||||||
| Pension funding | (5.0) | (25.0) | |||||||
| 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 | (36.6) | (22.1) | |||||||
| 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 | |||||||
The accompanying Notes are an integral part of the Consolidated Financial Statements.