Q2, 1995
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 June 30, 1995
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
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 July 21, 1995: 110,156,711
INDEX
Part I. Financial Information
Consolidated Statements of Income-
Three Months and Six Months Ended June 30, 1995
and 1994 (unaudited)
Consolidated Balance Sheets-
June 30, 1995 (unaudited), December 31, 1994
and June 30, 1994 (unaudited)
Notes to Consolidated Financial Statements
Management's Discussion and Analysis of Results of
Operations and Financial Condition
Part II. Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 6. Exhibits and Reports on Form 8-K
Signatures
(unaudited)
Three Months Ended Six Months Ended
June 30 June 30
1995 1994 1995 1994
$1,250.2 $1,230.5 Net Sales . $2,490.9 $2,361.7
Costs and Expenses:
1,061.6 1,087.9 Cost of sales . 2,130.5 2,093.1
72.1 67.1 Depreciation . 143.1 132.6
Selling, administration
29.2 33.9 and general expense . 55.8 68.3
1,162.9 1,188.9 Total Costs and Expenses . 2,329.4 2,294.0
87.3 41.6 Income from Operations . 161.5 67.7
Financing Income (Expense):
(16.6) (12.6) Interest and other financing costs. (29.8) (26.2)
1.6 1.7 Interest and other income . 4.1 3.6
72.3 30.7 Income before Income Taxes . 135.8 45.1
(12.0) (4.7) Provision for Income Taxes . (23.0) (6.2)
60.3 26.0 Net Income . 112.8 38.9
Dividends on Preferred and
10.7 10.8 Preference Stock . 21.3 21.6
Net Income Applicable to
$ 49.6 $ 15.2 Common Stock . $ 91.5 $ 17.3
$ 0.45 $ 0.14 Net Income per Common Share . $ 0.83 $ 0.17
110.2 109.2 Average Primary Shares Outstanding . . 110.1 102.2
The accompanying Notes are an integral part of the
Consolidated Financial Statements.
(dollars in millions)
June 30 December 31 June 30
1995 1994 1994
(unaudited) (unaudited)
Current Assets:
Cash and cash equivalents . $ 128.6 $ 159.5 $ 145.4
Receivables, less allowances . . 481.3 519.5 511.1
Inventories:
Raw materials . . 299.0 331.9 293.0
Finished and semifinished . . 614.6 534.9 597.8
Contract work-in-progress, less
billings . . 23.0 16.1 15.6
936.6 882.9 906.4
Other current assets . . 8.6 7.2 5.5
Total Current Assets . . 1,555.1 1,569.1 1,568.4
Investments and Miscellaneous Assets . . 117.4 124.2 144.9
Property, Plant and Equipment,
less accumulated depreciation of
$4,252.9, $4,167.9 and $4,152.0 . . 2,720.0 2,759.3 2,665.7
Deferred Income Tax Asset - net . . 881.2 903.2 921.5
Intangible Asset - Pensions . . 396.2 426.6 568.8
Total Assets . $ 5,669.9 $ 5,782.4 $ 5,869.3
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable . $ 389.9 $ 387.0 $ 390.2
Accrued employment costs . . 313.5 303.8 282.2
Accrued taxes . . 58.5 67.6 57.8
Debt and capital lease obligations . . 94.4 88.9 124.8
Other current liabilities . . 122.4 163.9 103.4
Total Current Liabilities . . 978.7 1,011.2 958.4
Pension Liability . . 1,038.1 1,117.1 1,256.6
Postretirement Benefits Other Than
Pensions . . 1,422.3 1,441.4 1,454.2
Long-term Debt and Capital Lease
Obligations . . 615.7 668.4 703.4
Other Long-term Liabilities . . 361.3 388.5 417.4
Stockholders' Equity:
Preferred Stock . . 11.6 11.6 11.6
Preference Stock . . 2.7 2.6 2.9
Common Stock . . 112.3 111.9 111.2
Common Stock held in treasury at cost . . (59.4) (59.5) (59.5)
Additional paid-in capital . . 1,933.2 1,948.6 1,914.1
Accumulated deficit . . (746.6) (859.4) (901.0)
Total Stockholders' Equity . . 1,253.8 1,155.8 1,079.3
Total Liabilities and Stockholders' Equity. $ 5,669.9 $ 5,782.4 $ 5,869.3
The accompanying Notes are an integral part of the
Consolidated Financial Statements.
(dollars in millions)
(unaudited)
Six Months Ended
June 30
1995 1994
Operating Activities:
Net income . . $ 112.8 $ 38.9
Adjustments for items not affecting cash
from operating activities:
Depreciation . . . 143.1 132.6
Deferred Income Taxes . . . 22.0 5.2
Other - net . . . (3.6) 3.3
Working capital (excluding financing and
investing activities):
Receivables . . . 38.1 (7.8)
Inventories . . . (53.4) (54.6)
Accounts payable . . . 2.9 30.2
Employment costs and other . . . (33.9) (2.8)
Other - net . . . (31.3) 5.8
Cash Provided from Operating Activities . . . 196.7 150.8
Investing Activities:
Capital expenditures . . . (119.9) (222.9)
Cash proceeds from asset sales and other . . . 12.3 2.6
Cash Used for Investing Activities . . . (107.6) (220.3)
Financing Activities:
Pension expense . . . 106.5 105.2
Pension funding . . . (155.0) (437.5)
Revolving and other credit borrowings
(payments) - net . . . - 25.0
Long-term debt and capital lease borrowings . . . 2.7 14.6
Long-term debt and capital lease payments . . . (48.8) (48.7)
Common stock issued . . . - 355.3
Cash dividends paid . . . (20.2) (20.2)
Other payments . . . (5.2) (7.7)
Cash Used for Financing Activities . . . (120.0) (14.0)
Net Decrease in Cash and Cash Equivalents . . . (30.9) (83.5)
Cash and Cash Equivalent- Beginning of Period . . . 159.5 228.9
- End of Period . . $ 128.6 $ 145.4
Supplemental Cash Payment Information:
Interest, net of amount capitalized . . $ 32.9 $ 23.3
Income taxes . . $ - $ 0.1
The accompanying Notes are an integral part of the
Consolidated Financial Statements.
1. Segment Results (dollars in millions):
(unaudited)
1995 1994
Second First Fourth Third Second
Quarter Quarter Quarter Quarter Quarter
Net Sales:
Basic Steel Operations $ 1,225.4 $ 1,210.4 $ 1,203.0 $ 1,187.6 $ 1,189.9
Steel Related Operations 29.4 36.5 29.7 51.3 45.3
Eliminations (4.6) (6.2) (8.2) (5.7) (4.7)
Total $ 1,250.2 $ 1,240.7 $ 1,224.5 $ 1,233.2 $ 1,230.5
Operating Income (Loss):
Basic Steel Operations $ 97.6 $ 79.1 $ 51.5 $ 29.4 $ 49.3
Steel Related Operations (10.3) (4.9) (6.2) (8.8) (7.7)
Total $ 87.3 $ 74.2 $ 45.3 $ 20.6 $ 41.6
Shipments
(thousands of net tons):
Basic Steel Operations 2,263 2,273 2,294 2,321 2,346
Raw Steel Production
(thousands of net tons):
Basic Steel Operations 2,729 2,596 2,479 2,187 2,648
2. The Consolidated Financial Statements as of and for the three month and
six month periods ended June 30, 1995 and 1994 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.
3. These Consolidated Financial Statements should be read together with the 1994 audited financial statements set forth in Bethlehem's Annual Report on Form 10-K filed with the Securities and Exchange Commission.
Review of Results:
Second Quarter and First Six Months 1995
Second Quarter and First Six Months 1994
Bethlehem Steel Corporation reported second quarter net income of $60 million, or $.45 per common share, a $34 million improvement over net income of $26 million, or $.14 per common share, for the second quarter of 1994.
For the first six months of 1995, net income was $113 million, or $.83 per common share, a $74 million improvement over net income of $39 million, or $.17 per common share, for the first six months of 1994.
Segment Results
Basic Steel Operations. The Basic Steel Operations segment had income from operations of $98 million in the second quarter of 1995, doubling the $49 million for the second quarter of 1994. Operating income per ton increased from $21 per ton in the second quarter of 1994 to $43 per ton in the second quarter of 1995. This segment realized higher steel prices for its flat-rolled products in the second quarter of 1995 and an improved product mix, shipping a greater percentage of higher value coated products. The segment's operating results improved despite lower shipments (primarily of cold-rolled and hot-rolled products), increased employment costs (mostly for future profit sharing payments) and higher depreciation expense.
Income from operations for the first six months of 1995 was $177 million, more than double the $85 million for the same period in 1994. This increase reflects improved prices for flat-rolled products and an improved product mix, primarily a higher percentage of coated product shipments. Operating costs per ton were higher as a result of higher purchased slab and alloy costs, higher employment costs (principally profit sharing), and depreciation.
Income from operations for the second quarter improved about $19 million from the first quarter of 1995, reflecting lower purchased steel costs, continued improvement in costs at Sparrows Point and lower costs at Pennsylvania Steel Technologies ("PST") as its newly modernized facilities continue to move up the startup curve to higher levels of utilization and productivity. These improvements were partially offset by higher operating costs at Bethlehem's Eagle Nest coal producing facility. Net sales per ton of shipment benefited principally from higher sales of large diameter pipe and iron ore while prices for steel mill products increased slightly.
Bethlehem Structural Products Corporation ("BSPC"), which has been unprofitable, is implementing previously announced plans to discontinue steelmaking later this year. All of its production of light to medium wide flange beams, sheet piling and special sections will be consolidated on its 44-inch mill, which is being modernized. BSPC will then be supplied with continuously cast steel produced primarily at PST. This will help decrease costs at both of these Divisions and improve the efficiency and the use of their assets.
Steel Related Operations. The Steel Related Operations segment (BethShip, BethForge, and CENTEC) had losses from operations of $10 million and $15 million for the second quarter and first six months of 1995, compared to losses from operations of $8 million and $17 million for the second quarter and first six months of 1994. The domestic ship repair market continued to be very competitive during the second quarter primarily because the U.S. Navy has reduced its fleet significantly in recent years and a number of private ship owners have been deferring repair work in response to relatively lower freight rates. Market conditions are expected to improve later this year.
As part of its modernization program to improve costs, BethForge began receiving ingots from PST in the second quarter of 1995 and will continue to increase its receipt of PST ingots in the second half of 1995. Later this year, BethForge will discontinue operating its electric furnace steelmaking and ingot production facilities in Bethlehem.
Liquidity
Cash and cash equivalents totaled $129 million at June 30, 1995, compared
to $160 million at December 31, 1994, and $145 million at June 30, 1994.
Cash provided from operating activities was $197 million for the first
six months of 1995, compared to $151 million for the first six months of
1994. Principal uses of cash during the first six months of 1995 included
capital expenditures and pension funding. At June 30, 1995, available
borrowings under Bethlehem's 1992 revolving credit agreement totaled $426
million. Bethlehem's accounts receivable and inventories are pledged as
collateral under this agreement.
Capital expenditures were $120 million for the first six months of 1995 compared to $223 million during the year-earlier period. Capital expenditures are currently expected to be about $350 million in 1995, compared to $445 million in 1994.
Bethlehem contributed $84 million to its pension fund during the second quarter of 1995, for a total of $155 million so far this year. Bethlehem repaid $49 million of debt and capital lease obligations during the first six months of 1995 and expects to repay an additional $41 million of such obligations during the remainder of the year. Principal uses of cash during the remainder of 1995 include additional pension funding, capital expenditures, and the repayment of debt and capital lease obligations. Bethlehem expects to maintain an adequate level of liquidity from cash flow from operations, reductions in working capital and available borrowings under its 1992 revolving credit agreement.
Dividends
On July 26, 1995, 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 September 10, 1995, to holders of record on
August 10, 1995. No dividend was declared on Bethlehem's Common Stock.
Outlook
Bethlehem's customers continue to reduce their inventory levels. This,
along with relatively high import levels, which are now declining, new
capacity additions entering the marketplace, and automotive model year
changeovers and vacation shutdowns, have resulted in some moderation in
new orders. Some softening has occurred in the automotive market as its
outlook for the year has declined, while demand from the non-residential
construction and machinery industries continues to be relatively strong.
Bethlehem expects that its customers will complete their inventory reductions by the end of the third quarter and that domestic orders should then start improving. Anticipated import reductions and increased exports are expected to contribute to the maintenance of high levels of industry shipments for 1995.
The following previously reported proceedings had developments during the second quarter of 1995:
On October 16, 1990, the Justice Department on behalf of the United States Environmental Protection Agency (the "EPA") filed a civil action against Bethlehem in the United States District Court for the Northern District of Indiana seeking injunctive relief and civil penalties for alleged violations of the Resource Conservation and Recovery Act, as amended ("RCRA") and the Safe Drinking Water Act with respect to the Burns Harbor Division, including failure to manage certain of the operation's sludges as hazardous wastes, and failure to begin a corrective action program pursuant to the terms of a previously issued underground injection permit. On March 19, 1993, the Court issued a Memorandum Opinion and Order granting Partial Summary Judgment for the government concerning the liability issues in the case and ordering Bethlehem to comply with interim status requirements of RCRA for its terminal polishing lagoons and landfill and to comply with the corrective action requirements of Bethlehem's underground injection well permits. A hearing on the civil penalty issue was concluded on July 21, 1993, and on August 31, 1993, the Court entered a judgment against Bethlehem for $6 million. This sum consisted of $4.2 million for alleged permit violations and $1.8 million for the alleged landfill violations. Bethlehem filed separate Notices of Appeal with the United States Court of Appeals for the Seventh Circuit appealing the trial court's grant of summary judgment and its penalty determination. On September 26, 1994, the Seventh Circuit issued a decision reversing the trial court's summary judgment with respect to the alleged violations concerning the terminal polishing lagoons and landfill, holding that the sludges are not subject to regulation as hazardous waste under RCRA. The decision affirmed the summary judgment with respect to the alleged permit violations. Bethlehem's appeal of the $4.2 million civil penalty amount for the alleged permit violations was dismissed by the Seventh Circuit on May 24, 1995, pursuant to a stipulation of settlement requiring Bethlehem to pay $3.375 million in full settlement of its liability for a civil penalty, and the matter was closed by Bethlehem's payment of that amount on June 7, 1995.
The Justice Department, the EPA and the Texas Natural Resource Conservation Commission (formerly Texas Water Commission) had instituted a criminal investigation into certain environmental practices involving the operations of the BethShip Sabine Yard in Port Arthur, Texas. The basic operations of the Yard comprise the drydocking of marine vessels to clean and paint exterior surfaces and internal tanks, as well as performing steel hull plate repairs and other general repairs. These operations use blasting grit, paint thinner and other materials. The investigation included the above operations and the usage, treatment, storage and disposal of those materials. Bethlehem cooperated with the authorities as to the conduct of the investigation. On May 31, 1995, pursuant to an agreement between BethShipSabine Yard and the Office of the U.S. Attorney, Eastern District of Texas, the Yard entered a plea of guilty to a single charge of violation of the Federal Clean Water Act by failing to obtain a permit for the discharge in 1991 of abrasive blasting grit into the Sabine Neches Canal at the Yard's facility in Port Arthur during the operation of the dry dock. The U.S. District Court for the Eastern District of Texas imposed a sentence of a $500,000 fine, which has been paid. In addition, the Yard has made a $1,000,000 contribution to the SouthEast Texas Coastal Trust Fund.
BethEnergy Mines Inc. (formerly Bethlehem Minerals Company), a subsidiary of Bethlehem, was a party to an action entitled Church and Mullins, et al v. Bethlehem Minerals Company, et al. The case involved a dispute concerning title to coal mined by Bethlehem under a parcel of land in eastern Kentucky. The trial court opinion, delivered February 25, 1987, held that the coal in question was owned by the Church and Mullins interests and awarded damages in the amount of $16.9 million. On appeal, on January 12, 1990, the Kentucky Court of Appeals reversed the trial court judgment in part and affirmed it in part, essentially upholding the trial court's finding on the issue of title but limiting the award of damages. The Court of Appeals decision was further appealed to the Supreme Court of Kentucky, and on June 4, 1992, the Supreme Court of Kentucky, by a vote of four to three, reinstated the decision of the trial court. On June 24, 1992, Bethlehem petitioned the Kentucky Supreme Court to reconsider its ruling. On December 23, 1994, the Court denied the motion, upholding the original verdict, plus interest. On May 15, 1995, the U.S. Supreme Court denied Bethlehem's petition for a writ of certiorari. Bethlehem has paid $37.6 million, representing the full amount of the judgment, including interest. This result will not have any other effect on Bethlehem's results of operations because Bethlehem sold its Kentucky coal operations in 1988.
Item 2. Changes in Securities.
On April 25, 1995, Bethlehem's stockholders approved an amendment to
Article Fourth of Bethlehem's Second Restated Certificate of Incorporation
to increase the number of authorized shares of Common Stock ("Common
Stock") from 150,000,000 to 250,000,000 shares. This amendment was
filed with the Office of the Secretary of State of the State of Delaware
on July 20, 1995.
The authorization of additional shares of Common Stock has no effect on the rights of existing security holders. However, issuance of additional shares of Common Stock would dilute the voting rights of present holders of Common Stock. In addition, depending upon the consideration received for the issuance of any additional shares of Common Stock and other relevant facts and circumstances, it is possible that issuance of such Common Stock could have a dilutive effect on the stockholder's equity and earnings per share attributable to such present holders.
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: 3(i). Certificate of Amendment of Second Restated Certificate of Incorporation. 11. Statement regarding computation of per share earnings. 27. Financial Data Schedule. (b) Reports on Form 8-K. No reports on Form 8-K were filed by Bethlehem during the quarter ended June 30, 1995.
Pursuant to Section 242 of the General Corporation Law
of the State of Delaware
I. The amendment to the Corporation's Board of Directors and stockholders and duly adopted in accordance with the paragraph of Section 242 of the General Corporation Law of the State of Delaware.
II. The Second Requested Certificate of Incorporation of the Corporation is hereby amended by the first paragraph of Article Four thereof to read in full as follows:
FOURTH. The total number if shares of all classed of stock which the Corporation shall have authority to issue to two hundred ninety million (2900,000,000), of which (i) twenty million (20,000,000) shares are to be Preferred Stock (hereinafter called the "Preferred Stock"), of the par value of one dollar ($1) each; (ii) twenty million (20,000,000) shares are to be Preference Stock (hereinafter called the "Preference Stock"), of the par value of one dollar ($1) each; and (iii) two hundred fifty million (250,000,000) shares are to be Common Stock (hereinafter called the "Common Stock"), of the par value of one dollar ($1) each.
IN WHINESS WHEREOF, Bethlehem Steel Corporation has caused this Certificate of Amendment to be signed by a duly authorized officer, the 20th day of June, 1995.
BETHLEHEM STEEL CORPORATION,
by
/s/ Curtis H. Barnette
Curtis H. Barnette
Chairman
Three Months Six Months
Ended June 30 Ended June 30
1995 1994 Primary Earnings Per Share 1995 1994
$60.3 $26.0 Net Income $112.8 $38.9
Less Dividend Requirements:
(2.5) (2.5) $2.50 Preferred Dividend (5.0) (5.0)
(3.1) (3.1) $5.00 Preferred Dividend (6.3) (6.3)
(4.5) (4.5) $3.50 Preferred Dividend (9.0) (9.0)
(0.6) (0.7) 5% Preferred Dividend (1.0) (1.3)
(10.7) (10.8) Total Preferred and Preference
Dividends (21.3) (21.6)
$49.6 $15.2 Net Income Applicable of Common Stock $91.5 $17.3
Average Shares of Common Stock and
Equivalents Outstanding:
110,163 109,065 Common Stock 110,071 101,952
8 173 Stock Options 22 260
110,171 109,238 Total 110,093 102,212
$0.45 $0.14 Primary Earnings Per Share $0.83 $0.17
Fully Dilluted Earnings Per Share
$60.3 $26.0 Net Income $112.8 $38.9
Less Dividend Requirements:
(2.5) (2.5) $2.50 Preferred Dividend (5.0) (5.0)
(3.1) (3.1) $5.00 Preferred Dividend (6.3) (6.3)
- (4.5) $3.50 Preferred Dividend - (9.0)
- (0.7) 5% Preferred Dividend - (1.3)
$54.7 $15.2 Net Income Applicable to Common Stock $101.5 $17.3
Average Shares of Common Stock and
Equivalents and Other Potentially
Dillutive Securities Outstanding:
110,163 109,065 Common Stock 110,071 101,952
12 173 Stock Options 24 260
* * $2.50 Preferred Stock * *
* * $5.00 Preferred Stock * *
12,255 * $3.50 Preferred Stock 12,255 *
2,673 * 5% Preferred Stock 2,673 *
125,103 109,238 Total 125,022 102,212
$0.44 $0.14 Fully Dilluted Earnings Per Share $0.81 $0.17
*antidilutive
Bethlehem Steel Corporation
(Registrant)
by
/s/ L. A. Arnett
L. A. Arnett
Vice President and
Controller (principal
accounting officer)
Date: July 28, 1995
Q3, 1995
Commercial Information
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