Q3, 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 September 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 October 26, 1995:110,156,711
PART I. Financial Information Consolidated Statements of Income- Three Months and Nine Months Ended September 30, 1995 and 1994 (unaudited) Consolidated Balance Sheets- September 30, 1995 (unaudited), December 31, 1994 and September 30, 1994 (unaudited) Consolidated Statements of Cash Flows- Nine Months Ended September 30, 1995 and 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 6. Exhibits and Reports on Form 8-K Signatures
(unaudited)
Three Months Ended Six Months Ended
September 30 September 30
1995 1994 1995 1994
$1,224.7 $1,233.2 Net Sales . $3,715.6 $3,594.9
Costs and Expenses:
1,069.6 1,120.9 Cost of sales . 3,200.1 3,214.0
70.1 61.2 Depreciation . 213.2 193.8
Selling, administration
28.9 30.5 and general expense . 84.7 98.8
1,168.6 1,212.6 Total Costs and Expenses . 3,498.0 3,506.6
56.1 20.6 Income from Operations . 217.6 88.3
Financing Income (Expense):
(15.8) (11.0) Interest and other financing costs. (45.6) (37.2)
1.6 1.7 Interest and other income . 5.7 5.3
41.9 11.3 Income before Income Taxes . 177.7 56.4
(7.5) (1.0) Provision for Income Taxes . (30.5) (7.2)
34.4 10.3 Net Income . 147.2 49.2
Dividends on Preferred and
10.6 10.8 Preference Stock . 31.9 32.4
Net Income Applicable to
$ 23.8 $ (0.5) Common Stock . $ 115.3 $ 16.8
$ 0.22 $ - Net Income per Common Share . $ 1.05 $ 0.16
110.5 109.7 Average Primary Shares Outstanding . . 110.2 104.7
The accompanying Notes are an integral part of the
Consolidated Financial Statements.
(dollars in millions)
September 30 December 31 September 30
1995 1994 1994
(unaudited) (unaudited)
Current Assets:
Cash and cash equivalents . $ 102.4 $ 159.5 $ 119.2
Receivables, less allowances . . 523.3 519.5 496.2
Inventories:
Raw materials . . 321.3 331.9 332.3
Finished and semifinished . . 568.4 534.9 528.2
Contract work-in-progress, less
billings . . 21.1 16.1 14.3
910.8 882.9 874.8
Other current assets . . 14.2 7.2 8.1
Total Current Assets . . 1,550.7 1,569.1 1,568.4
Investments and Miscellaneous Assets . . 121.0 124.2 140.3
Property, Plant and Equipment,
less accumulated depreciation of
$4,298.0, $4,167.9 and $4,152.0 . . 2,732.0 2,759.3 2,727.7
Deferred Income Tax Asset - net . . 873.7 903.2 920.5
Intangible Asset - Pensions . . 391.3 426.6 559.9
Total Assets . $ 5,668.7 $ 5,782.4 $ 5,846.7
Current Liabilities: Accounts payable . $ 388.8 $ 387.0 $ 388.3 Accrued employment costs . . 334.7 303.8 283.5 Accrued taxes . . 65.1 67.6 62.7 Debt and capital lease obligations . . 94.1 88.9 94.1 Other current liabilities . . 126.4 163.9 102.8 Total Current Liabilities . . 1,009.1 1,011.2 931.4 Pension Liability . . 1,020.9 1,117.1 1,279.0 Postretirement Benefits Other Than Pensions . . 1,422.9 1,441.4 1,454.0 Long-term Debt and Capital Lease Obligations . . 585.2 668.4 674.5 Other Long-term Liabilities . . 350.1 388.5 426.0 Stockholders' Equity: Preferred Stock . . 11.6 11.6 11.6 Preference Stock . . 2.6 2.6 2.7 Common Stock . . 112.6 111.9 111.7 Common Stock held in treasury at cost . . (59.4) (59.5) (59.5) Additional paid-in capital . . 1,925.4 1,948.6 1,905.9 Accumulated deficit . . (712.2) (859.4) (890.7) Total Stockholders' Equity . . 1,280.5 1,155.8 1,081.7 Total Liabilities and Stockholders' Equity. $ 5,668.7 $ 5,782.4 $ 5,846.6The accompanying Notes are an integral part of the Consolidated Financial Statements.
Three Months Ended
September 31
1995 1994
Operating Activities:
Net income . . $ 147.2 $ 49.2
Adjustments for items not affecting cash
from operating activities:
Depreciation . . . 213.2 193.8
Deferred Income Taxes . . . 29.5 6.2
Other - net . . . (4.4) 5.8
Working capital (excluding financing and
investing activities):
Receivables . . . (3.8) 7.0
Inventories . . . (27.4) (23.0)
Accounts payable . . . 1.8 28.7
Employment costs and other . . . (8.9) (3.5)
Other - net . . . (38.5) (0.9)
Cash Provided from Operating Activities . . . 308.7 270.3
Investing Activities:
Capital expenditures . . . (204.9) (349.3)
Cash proceeds from asset sales and other . . . 13.9 18.5
Cash Used for Investing Activities . . . (191.0) (330.8)
Financing Activities:
Pension expense . . . 159.2 153.9
Pension funding . . . (220.0) (455.0)
Long-term debt and capital lease borrowings . . . 3.1 24.5
Long-term debt and capital lease payments . . . (79.7) (84.4)
Common stock issued . . . - 355.3
Cash dividends paid . . . (30.3) (30.3)
Other payments . . . (7.1) (13.2)
Cash Used for Financing Activities . . . (174.8) (49.2)
Net Decrease in Cash and Cash Equivalents . . . (57.1) (109.7)
Cash and Cash Equivalent- Beginning of Period . . . 159.5 228.9
- End of Period . . $ 102.4 $ 119.2
Supplemental Cash Payment Information:
Interest, net of amount capitalized . . $ 53.9 $ 32.1
Income taxes . . $ - $ 0.2
The accompanying Notes are an integral part of the
Consolidated Financial Statements.
1. Segment Results (dollars in millions):
(unaudited)
1995 1994
Third Second First Fourth Third
Quarter Quarter Quarter Quarter Quarter
Net Sales:
Basic Steel Operations $ 1,210.6 $ 1,225.4 $ 1,210.4 $ 1,203.0 $ 1,187.6
Steel Related Operations 23.8 29.4 36.5 29.7 51.3
Eliminations (9.7) (4.6) (6.2) (8.2) (5.7)
Total $ 1,224.7 $ 1,250.2 $ 1,240.7 $ 1,224.5 $ 1,233.2
Operating Income (Loss):
Basic Steel Operations $ 67.5 $ 51.5 $ 79.1 $ 51.5 $ 29.4
Steel Related Operations (11.4) (10.3) (4.9) (6.2) (8.8)
Total $ 56.1 $ 87.6 $ 74.2 $ 45.3 $ 20.6
Shipments
(thousands of net tons):
Basic Steel Operations 2,291 2,263 2,273 2,294 2,321
Raw Steel Production
(thousands of net tons):
Basic Steel Operations 2,565 2,729 2,596 2,479 2,187
2. On September 12, 1995, Bethlehem entered into a Purchase and Sale Agreement
to sell substantially all of its trade receivable to a wholly owned, special purpose subsidiary,
Bethlehem Steel Funding, LLC (BSF). BSP entered into a five-year $300 million Receivable
Purchase Agreement with a group of banks, of which up to $150 million can be used for letters of credit. At September 30, 1995, the banks had an ownership interest in receivable for issuing about $73 million
of letters of credit, leaving about $227 million available under the Agreement. BSF will receive cash from the banks upon expiration of the letters of credit.
3. The Consolidated Financial Statement of and for the three month and nine month period ended September 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 normal recurring nature.
4. These Consolidated Financial Statements should be read together with the 1994 audited financial statements set forth in the Bethlehem's Annual Report on Form 10-K filed with the Securities and Exchange Commission.
Third Quarter and First Nine Months 1995
Third Quarter and First Nine Months 1994
Bethlehem Steel Corporation reported third quarter net income of $34 million, or $.22 per common share, compared to net income of $10 million for the third quarter of 1994.
For the first nine months of 1995, net income was $147 million, or $1.05 per common share, compared to $49 million, or $.16 per common share, for the first nine months of 1994.
Segment Results
Basic Steel Operations. The Basic Steel Operations segment had income from operations of $68 million for the third quarter of 1995 compared to $29 million for the third quarter of 1994. Results improved by $39 million from a year ago principally from higher realized prices. Operating income increased to $29 per ton compared to $13 per ton for the third quarter of 1994.
For the first nine months of 1995, this segment had income from operations of $244 million, an increase of $129 million from the same period in 1994. Average realized steel prices on a consistent product mix were higher and shipments were slightly lower than a year ago. Operating costs were higher because of material costs, employment costs and depreciation.
Income from operations declined by $30 million from the second quarter of 1995. This decrease is attributable to lower average realized prices and a less favorable product mix, which were partially offset by slightly higher shipments. Product mix was less favorable principally due to lower shipments to the automotive industry during its normal summer outages and model year changeovers.
Bethlehem continues to make progress with regard to Bethlehem Structural Products Corporation ("BSPC") and Pennsylvania Steel Technologies ("PST") which have been unprofitable. During the fourth quarter, as previously announced, Bethlehem will close the 48-inch structural mill and discontinue iron and steelmaking operations at BSPC. Force levels will be reduced by about 1,800. Bethlehem will make the transition to a single structural mill (44-inch mill) at BSPC, which will be supplied principally with continuously cast blooms from PST. PST has completed its modernization program including the installation of a new DC electric furnace, a vacuum degasser, ladle furnace, and technology for the production of in-line head-hardened rail. The modernization and restructuring of these two business units will result in significantly higher utilization of their assets and significantly lower costs.
Based on its current order patterns, extended backlogs and market outlook, Bethlehem expects its basic steel segment to maintain high operating rates for the balance of the year.
Steel Related Operations. The Steel Related Operations segment (BethShip, BethForge and CENTEC) reported losses from operations of $11 million for the third quarter and $26 million for the first nine months of 1995. This segment had losses of $9 million for the third quarter and $26 million for the first nine months of 1994. These losses reflect BethForge's current high cost structure, which is expected to be significantly reduced following completion of a modernization plan early next year. These losses also reflect lower revenues at BethShip, which continued to experience a weak ship repair market, although demand has recently shown some improvement.
Liquidity
Cash and cash equivalents were $102 million at September 30, 1995, compared to $160 million at December 31, 1994, and $119 million at September 30, 1994. Cash provided from operating activities was $309 million for the first nine months of 1995, compared to $270 million for the first nine months of 1994. Significant uses of cash during the first nine months of 1995 included pension funding and capital expenditures.
Capital expenditures were $205 million for the first nine months of 1995, compared to $349 million during the year earlier period. Bethlehem expects capital expenditures to be about $300 million in 1995, compared to $445 million in 1994.
Bethlehem contributed $65 million to its pension fund during the third quarter for total contributions of $220 million during the first nine months of 1995. Bethlehem expects to make additional contributions during the remainder of the year. Repayments of debt and capital lease obligations were $80 million during the first nine months of 1995 and Bethlehem expects to repay an additional $10 million of such obligations during the fourth quarter.
In September 1995, Bethlehem entered into a new $500 million five year, non-reducing credit arrangement with 15 banks. The new financing, which replaces Bethlehem's 1992 $500 million secured credit agreement, consists of a $300 million receivables purchase agreement and a $200 million inventory credit agreement. Of the $500 million total commitments, $150 million can be used for letters of credit. Under the receivables purchase agreement, Bethlehem has sold and will continue to sell substantially all its trade receivables to a newly created, wholly owned special purpose subsidiary, Bethlehem Steel Funding, LLC. Bethlehem Steel Funding has sold, and will continue to sell when letters of credit or advances are required, an undivided interest in such receivables to the bank group. At the closing, the banks acquired an undivided ownership interest in receivables to support outstanding letters of credit of approximately $73 million. At September 30, 1995, the only usage under the new arrangement was for these letters of credit. During the fourth quarter, Bethlehem intends to use the proceeds from selling receivables under this new agreement to redeem $30 million of 9% debentures due May 15, 2000.
Bethlehem expects to maintain an adequate level of liquidity from cash flow from operations, reductions in working capital and available borrowings under its 1995 credit arrangement.
Dividends
On October 25, 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 December 10, 1995, to holders of record on November 10, 1995. No dividend was declared on Bethlehem's Common Stock.
Outlook
Steel market fundamentals remain strong and customers appear to have reduced their inventories to more normal levels. The automotive market improved recently following summer vacations and model year changeovers and the demand from the construction, machinery, railcar and shipbuilding markets continues to be good.
Bethlehem believes the economy will remain on a course of moderate and sustainable growth for the balance of this year and next. This, when combined with continued strong demand from Bethlehem's domestic customers, declining imports and continued strong exports, should help to support levels of steel shipments of about 94 million tons this year and 92 million tons in 1996.
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 September 30, 1995.
The following previously reported proceeding had developments during the third quarter of 1995:
On May 28, 1992, the New York State Department of Environmental Conservation ("DEC") sent Bethlehem a proposed Order on Consent to resolve various alleged violations of the New York air pollution control regulations due to emissions from the Lackawanna coke ovens for the period from May 1, 1990 through October 7, 1991. Following extended negotiations between Bethlehem and the DEC, a final Order on Consent was issued on August 17, 1995 covering all alleged violations of state air pollution regulations at the coke ovens, all alleged violations of state water pollution regulations at the coke ovens and the other Bethlehem Lackawanna facilities, and all alleged violations of state hazardous waste regulations related to waste carbonate solution at the facilities up to the date of the issuance of the Order. The Order requires Bethlehem to pay DEC a civil penalty of $765,000 by October 16, 1995; to pay $180,000 to purchase New York State-based sulfur dioxide credits over a three year period beginning August 17, 1995; and to spend $150,000 on supplemental environmental projects, to be approved by DEC, at the Lackawanna Coke Division "LCD" over the same three-year period. The Order also requires Bethlehem to have an environmental audit performed by an independent consultant to determine the LCD's compliance with applicable environmental statutory and regulatory requirements. Bethlehem paid the $765,000 civil penalty on October 13, 1995, and is complying fully with the Order.
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 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 September 30, 1995.
ItemNo. Exhibit
11 Statement Regarding Computation of Per Share Earnings
27 Financial Data Schedule
EXHIBIT (11)
Three Months Nine Months
Ended September 30 Ended September 30
1995 1994 Primary Earnings Per Share 1995 1994
$34.4 $10.3 Net Income $147.2 $49.2
Less Dividend Requirements:
(2.5) (2.5) $2.50 Preferred Dividend (7.5) (7.5)
(3.1) (3.1) $5.00 Preferred Dividend (9.4) (9.3)
(4.5) (4.5) $3.50 Preferred Dividend (13.4) (13.5)
(0.5) (0.7) 5% Preference Dividend (1.6) (2.1)
(10.6) (10.8) Total Preferred and Preference Di (31.9) (32.4)
$23.8 ($0.5) Net Income Applicable to Common Stock $115.3 $16.8
Average Shares of Common Stock and
Equivalents Outstanding:
110,454 109,462 Common Stock 110,200 104,483
9 250 Stock Options 18 256
110,463 109,712 Total 110,218 104,739
$0.22 $0.00 Primary Earnings Per Share $1.05 $0.16
Fully Diluted Earnings Per Share
$34.4 $10.3 Net Income $147.2 $49.2
Less Dividend Requirements:
(2.5) (2.5) $2.50 Preferred Dividend (7.5) (7.5)
(3.1) (3.1) $5.00 Preferred Dividend (9.4) (9.3)
(4.5) (4.5) $3.50 Preferred Dividend (13.4) (13.5)
- (0.7) 5% Preference Dividend - (2.1)
$24.3 ($0.5) Net Income Applicable to Common Stock $116.9 $16.8
Average Shares of Common Stock and Equivalents and
Other Potentially Dilutive Securities Outstanding:
110,454 109,462 Common Stock 110,200 104,483
9 250 Stock Options 19 256
* * $2.50 Preferred Stock * *
* * $5.00 Preferred Stock * *
* * $3.50 Preferred Stock * *
2,616 * 5% Preference Stock 2,616 *
113,079 109,712 Total 112,835 104,739
$0.21 $0.00 Fully Diluted Earnings Per Share $1.04 $0.16
* Antidilutive
Bethlehem Steel Corporation
(Registrant)
by
/s/ L. A. Arnett
L. A. Arnett
Vice President and
Controller (principal
accounting officer)
Date: October 30, 1995
Q2, 1995
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