1
FORM 10-Q
UNITED STATES 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, 2002
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 17, 2002:
130,978,430
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BETHLEHEM STEEL CORPORATION AND CONSOLIDATED SUBSIDIARIES
INDEX
Page No.
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PART I. Financial Information
Item 1. Financial Statements:
Consolidated Statements of Operations-
Three Months and Nine Months Ended September 30, 2002
and 2001 (unaudited) . . . . . . . . . . . . . . . . . . . 2
Consolidated Balance Sheets-
September 30, 2002 (unaudited) and December 31, 2001 . . . 3
Consolidated Statements of Cash Flows-
Nine Months Ended September 30, 2002
and 2001 (unaudited). . . . . . . . . . . . . . . . . . . . 4
Notes to Consolidated Financial Statements (unaudited) . . . . 5
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition. . . . . . . . . . 8
Item 4. Controls and Procedures . . . . . . . . . . . . . . . 13
PART II. Other Information
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . 14
Item 3. Defaults Under Senior Securities . . . . . . . . . . 14
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . 15
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Certifications . . . . . . . . . . . . . . . . . . . . . . . . 17
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Bethlehem Steel Corporation
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in millions)
(unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
- -------------------- -----------------------
2002 2001 2002 2001
- --------- --------- ---------- ----------
$ 938.5 $ 825.4 Net Sales $ 2,675.8 $ 2,614.4
- --------- --------- ---------- ----------
Costs and Expenses
887.5 844.0 Cost of sales 2,630.2 2,670.0
64.1 64.7 Depreciation 187.0 189.9
19.7 24.8 Selling, administration and general expense 67.1 78.8
2.5 17.8 Special charges (Note 3) 22.5 21.2
- --------- --------- ---------- ----------
973.8 951.3 Total Costs and Expenses 2,906.8 2,959.9
- --------- --------- ---------- ----------
(35.3) (125.9) Loss from Operations (231.0) (345.5)
(4.9) (1.4) Reorganization Items (Note 4) (10.7) (1.4)
(14.0) (24.9) Financing Expense - net (Note 5) (39.0) (71.6)
- --------- --------- ---------- ----------
(54.2) (152.2) Loss before Income Taxes (280.7) (418.5)
- - Benefit (Provision) for Income Taxes (Note 6) 10.3 (984.0)
- --------- --------- ---------- ----------
(54.2) (152.2) Net Loss (270.4) (1,402.5)
Dividend Requirements on Preferred and
9.8 10.2 Preference Stock 29.6 30.6
- --------- --------- ---------- ----------
$ (64.0) $ (162.4) Net Loss Applicable to Common Stock $ (300.0) $(1,433.1)
========= ========= ========== ==========
Net Loss per Common Share:
$ (0.49) $ (1.25) Basic and Diluted $ (2.29) $ (11.02)
Average Shares Outstanding:
131.0 130.2 Basic and Diluted 131.0 130.0
Additional Data
1,913 1,929 Steel products shipped (thousands of net tons) 5,821 6,074
2,338 2,252 Raw steel produced (thousands of net tons) 6,767 6,942
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
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Bethlehem Steel Corporation
CONSOLIDATED BALANCE SHEETS
(dollars in millions)
ASSETS
September 30 December 31
2002 2001
(unaudited)
------------ -----------
Current Assets:
Cash and cash equivalents $ 86.3 $ 104.0
Receivables - net 382.5 350.4
Inventories:
Raw materials 244.6 259.5
Finished and semifinished 500.7 465.8
---------- ----------
Total Inventories 744.9 725.3
Other current assets 24.2 22.8
---------- ----------
Total Current Assets 1,237.9 1,202.5
Investments and Miscellaneous Assets 83.2 129.6
Property, Plant and Equipment - less accumulated
depreciation of $4,501.9 and $4,367.6 2,714.7 2,686.9
Intangible Pension Asset 225.0 225.0
---------- ----------
Total Assets $ 4,260.8 $ 4,244.0
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable $ 153.7 $ 150.1
Accrued employment costs 96.8 37.9
Accrued taxes 25.1 14.4
Debt and capital lease obligations-current (Note 10) 93.8 19.3
Other current liabilities 60.9 49.9
---------- ----------
Total Current Liabilities 430.3 271.6
Long-term Debt and Capital Lease Obligations 123.2 132.7
Debtor-in-Possession Financing 280.7 205.6
Debt Secured by Inventory 289.9 289.9
Deferred Gain 86.9 103.2
Other Long-term Liabilities 43.1 43.4
Liabilities Subject to Compromise (Note 7) 4,956.2 4,878.1
Stockholders' Deficit:
Preferred Stock 11.3 11.4
Preference Stock 2.0 2.0
Common Stock 135.9 135.8
Common Stock held in treasury at cost (65.9) (65.9)
Additional paid-in capital 1,909.7 1,908.2
Accumulated other comprehensive loss (833.0) (833.0)
Accumulated deficit (3,109.5) (2,839.0)
---------- ----------
Total Stockholders' Deficit (1,949.5) (1,680.5)
---------- ----------
Total Liabilities and Stockholders' Deficit $ 4,260.8 $ 4,244.0
========== ==========
The accompanying Notes are an integral part of the Consolidated
Financial Statements.
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Bethlehem Steel Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
(unaudited)
Nine Months Ended
September 30
-----------------------
2002 2001
---------- ----------
Operating Activities:
Net loss $ (270.4) $(1,402.5)
Adjustments for items not affecting cash
from operating activities:
Deferred income taxes - 984.0
Depreciation and amortization 187.0 189.9
Recognition of deferred gains (16.3) (16.9)
Reorganization items 10.7 1.4
Litigation recovery - 13.0
Special charges 22.5 21.2
Other - net 8.8 (0.5)
Working capital (excluding financing and
investing activities):
Receivables (37.6) (14.4)
Inventories (20.3) 123.7
Accounts payable (20.7) (89.2)
Other 25.2 (17.0)
Funding postretirement benefits:
Pension funding less than expense 103.7 75.5
Retiree healthcare and life insurance benefit
payments less than expense 35.9 76.5
---------- ----------
Cash Provided By (Used For) Operating Activities
Before Reorganization Items 28.5 (55.3)
---------- ----------
Reorganization items (10.7) (1.4)
---------- ----------
Cash Provided By (Used For) Operating Activities 17.8 (56.7)
---------- ----------
Investing Activities:
Capital expenditures (74.5) (59.9)
Cash proceeds from asset sales 25.7 15.7
---------- ----------
Cash Used For Investing Activities (48.8) (44.2)
---------- ----------
Financing Activities:
Borrowings 90.6 150.4
Debt and capital lease payments (58.2) (61.0)
Cash dividends paid - (20.2)
Other payments (19.1) (27.6)
---------- ----------
Cash From Financing Activities 13.3 41.6
---------- ----------
Net Decrease in Cash and Cash Equivalents (17.7) (59.3)
Cash and Cash Equivalents - Beginning of Period 104.0 109.7
---------- ----------
- End of Period $ 86.3 $ 50.4
========== ==========
Supplemental Cash Information (Note 10):
Interest and other financing costs,
net of amount capitalized $ 32.4 $ 82.2
Income taxes paid (received) (8.0) (0.2)
Capital lease obligations incurred 1.9 5.0
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
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Bethlehem Steel Corporation
NOTES TO SEPTEMBER 30, 2002 CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. The Consolidated Financial Statements as of and for the three-month and
nine-month periods ended September 30, 2002 and 2001 were not audited.
However, in Management's opinion, the information reflects all adjustments
necessary for a fair statement of the results for the periods presented.
Management believes all adjustments were of a normal and recurring nature.
These Consolidated Financial Statements should be read together with
audited financial statements in Bethlehem's Annual Report on Form 10-K for the
year ended December 31, 2001 and other reports filed with the Securities and
Exchange Commission during 2002.
Presentations of certain amounts in prior years have been revised to be
consistent with the current year.
2. On October 15, 2001, Bethlehem Steel Corporation and 22 of its wholly owned
subsidiaries (collectively, the Debtors) filed voluntary petitions under
chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy
Court for the Southern District of New York (the Court). Bethlehem continues
to manage its properties and operate its businesses under Sections 1107 and
1108 of the Code as a debtor-in-possession. Due to material uncertainties, it
is not possible to predict the length of time the Debtors will operate under
chapter 11 protection, the outcome of the reorganization in general, the effect
of the reorganization on the Debtors' businesses or the recovery by creditors
of the Debtors and equity holders of Bethlehem.
As a result of the chapter 11 filing, there is no assurance that the carrying
amounts of the assets will be realized or that liabilities will be settled for
amounts recorded. Bethlehem is pursuing a stand alone plan of reorganization
while continuing to consider alternative opportunities for, among other things,
possible consolidation and joint ventures with other steel operators and
liquidation of part or all of Bethlehem's assets. There can be no assurance
that any such alternatives will be implemented. After further consideration of
such alternatives and negotiations with various parties in interest, Bethlehem
expects to present a chapter 11 plan, which will likely cause a material change
to the carrying amount of assets and liabilities in the financial statements.
The deadline for the creditors to file proofs of claim with the court-
appointed claims agent was September 30, 2002, with certain extensions
granted by the Court. Differences between the amounts reflected on
Bethlehem's records and claims by creditors will be investigated and resolved
in connection with our claims resolution process. That process has commenced
and, in light of the number of creditors, will take considerable time to
complete. Accordingly, the ultimate number and amount of allowed claims is
not presently known and, because the settlement terms of such allowed claims
are subject to a confirmed chapter 11 plan, the ultimate distribution
with respect to allowed claims is not presently ascertainable.
3. A summary of special charges follows ($ in millions):
Three Months Ended Nine Month Ended
September 30 September 30
------------------ ----------------
2002 2001 2002 2001
--------------------------------------
Included in special charges:
Loss on closure of pipe mill $ 2.5 - $ 2.5 -
Environmental accrual - - 20.0 -
Loss on closure of Lackawanna Coke - $ 40.0 - $ 40.0
Gain on sale of MBR - (22.2) - (22.2)
Write-off equity investment - - - 3.4
------ ------- ------- -------
$ 2.5 $ 17.8 $ 22.5 $ 21.2
====== ======= ======= =======
During August 2002, Bethlehem announced the permanent closing of a facility for
producing large diameter pipe in Steelton, Pennsylvania. As a result, we
recorded a $2.5 million non-cash charge to account for the required employee
benefit costs.
Earlier in 2002, Bethlehem personnel attended a meeting requested by
representatives from the New York Department of Environmental Conservation
(NYDEC) to discuss the contents and timing of a Consent Order to conduct a
RCRA Corrective Measures Study and to begin to implement an agreed upon plan
of remediation at our closed steel manufacturing facility in Lackawanna, New
York. Based upon the information received and the conceptual agreements
reached at that meeting, we recorded a $20 million non-cash charge to reflect
Bethlehem's most current estimate of the probable remediation costs at
Lackawanna. The cash requirements for remediation are expected to be
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expended over a protracted period of years, according to a schedule to be
agreed upon by Bethlehem and the NYDEC.
During the third quarter of 2001, we announced we would close our Lackawanna
Coke operations. This facility ended operations on September 30, 2001. We
recorded a charge of $40 million in connection with the closing, principally to
account for the required employee benefit costs. Also in the third quarter, we
sold our interest in MBR, a Brazilian iron ore property, for $4 million in cash
and $19 million in credits against future iron ore purchases (all of which have
been used) resulting in a $22 million gain. Earlier in 2001, we wrote-off our
equity investment in Metalsite, an internet marketplace for steel that ceased
operations, resulting in a charge of $3 million.
Operating results for third quarter and nine months of 2001 include pension and
OPEB expense of $4 million and $12 million related to incentives provided to
certain employees at Burns Harbor to elect early retirement. Earlier during
2001, we received $18 million from the settlement of litigation related to
construction of one of our coke oven batteries at Burns Harbor. Nine month
2001 operating results include $5 million for the recovery of litigation and
maintenance costs already incurred; $13 million was deferred and is being
amortized over the remaining useful life of the battery to offset expected
higher than normal future maintenance costs.
4. Net costs resulting from reorganization of the businesses have been
reported in the statement of operations separately as reorganization items.
For the three-month and nine-month periods ended September 30, 2002 and 2001,
the following have been recorded ($ in millions):
Three Months Nine Months
-------------- -------------
2002 2001 2002 2001
---- ---- ---- ----
Professional and other fees $ 5.1 $ 1.4 $13.3 $ 1.4
Gains from termination of contracts - - (2.0) -
Interest income (0.2) - (0.6) -
------ ------ ------ ------
Total $ 4.9 $ 1.4 $ 10.7 $ 1.4
====== ====== ======= ======
5. Interest at the stated contractual amount on unsecured debt that was not
charged to earnings as a result of our chapter 11 filing was approximately $11
million for the three-month period ended and approximately $32 million for the
nine-month period ended September 30, 2002.
6. The income tax benefit recorded in 2002 represents a $10 million tax refund
as a result of the "Job Creation and Workers Assistance Act of 2002" that was
enacted on March 8, 2002. The Act provides us the ability to carry back a
portion of our 2001 Alternative Minimum Tax loss for a refund of taxes paid in
prior years that was not previously available. We received the refund in July
2002.
Bethlehem incurred financial accounting losses in 1999 through 2001. Our
results during 2001 were worse than we anticipated at the beginning of the year
and we were not able to use any of the NOL expiring in 2001 in our federal
income tax return for the year. In the absence of specific favorable factors,
application of FASB Statement No. 109, issued in 1992, and its subsequent
interpretations require a 100% valuation allowance for any deferred tax asset
when a company has cumulative financial accounting losses, excluding unusual
items, over several years. Accordingly, in the second quarter of 2001, we
provided a 100% valuation allowance for our deferred tax asset, increasing our
non-cash provision for income taxes and net loss for the second quarter 2001 by
$1,009 million. We provided a 100% valuation allowance for our deferred income
tax asset for the balance of 2001 and for 2002. We will continue that policy
in the future, until, at a minimum, a chapter 11 plan of reorganization is
confirmed.
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7. Liabilities subject to compromise at September 30, 2002 and December 31,
2001 follows ($ in millions):
September 30, December 31,
2002 2001
------------- ------------
Other postemployment benefits $ 2,043.4 $ 2,005.7
Pension liability 1,729.2 1,624.0
Unsecured debt 526.7 526.7
Accounts payable 197.9 220.8
Accrued employment costs 208.2 270.6
Other accrued liabilities 173.6 152.8
Accrued taxes and interest 77.2 77.5
----------- ----------
Total $ 4,956.2 $ 4,878.1
=========== ==========
8. Because of the decline in market value of our pension trust assets,
continuing pension payments from the trust and declining interest rates, our
pension plan is now about $3.2 billion underfunded at today's market.
Applicable accounting principles will require us to record a non-cash, direct
charge to stockholders' deficit of about $1.5 billion if the market remains the
same at year-end. This charge is only required at year-end and will not affect
our 2002 operating results.
9. Our financing arrangement with General Electric Capital Corporation
restricts dividend payments. Preferred dividends are in arrears since the
second quarter of 2001.
10. In the second quarter of 2002, we acquired the remaining 50% portion of the
Columbus Coatings Company (CCC) and Columbus Processing Company (CPC) joint
ventures from LTV Steel Corporation. CCC is an automotive quality, hot-dipped
galvanized coating line and CPC is a steel slitting facility, both located in
Columbus, Ohio. These interests were acquired on June 5, 2002 for cash, a
release of LTV's guarantee of CCC's debt and forgiveness of claims against LTV
by Bethlehem and CCC. The acquisition was accounted for as a purchase. CCC's
and CPC's results are included in the Consolidated Financial Statements from
the date of acquisition. Pro-forma amounts for the year are not significant.
The value assigned to assets and liabilities acquired follows ($ in millions):
Property, plant & equipment $155.3
Debt and capital lease obligation (105.9)
Other - net (.3)
-------
Net assets 49.1
Less:
Investment in and receivable from joint
ventures and LTV (46.7)
-------
Cash purchase price, net of cash acquired $ 2.4
=======
CCC's construction costs were financed in part with a loan under a 1999
agreement with a group of lenders. Bethlehem has guaranteed the full amount of
the construction loan. Bethlehem provided CCC's lenders with a collateralized
letter of credit for $30 million and a mortgage on our corporate headquarters
building as additional collateral. In July 2002, CCC lenders used the letter
of credit to reduce the outstanding loan balance by $30 million.
Because of our chapter 11 filing, CCC and Bethlehem are in default under the
construction loan agreements which allows the lenders to call the full amount
of the loan. We believe that the market value of CCC exceeds the net loan
amount. We are working with the CCC lenders and others to resolve open issues
or refinance the net outstanding debt. We believe these matters can be
resolved without any additional significant impact on our liquidity.
On August 1, 2001, we purchased the remaining 45% ownership interest of Chicago
Cold Rolling (CCR) that we did not already own for $1 million plus assumption
of $19 million in debt. The acquisition was accounted for using the purchase
method of accounting. Our results include the operations of CCR since the date
of acquisition.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
On October 15, 2001, Bethlehem Steel Corporation and 22 of its wholly owned
subsidiaries (collectively, the Debtors) filed voluntary petitions under
chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy
Court for the Southern District of New York (the Court). Bethlehem continues
to manage its properties and operate its businesses under Sections 1107 and
1108 of the Code as a debtor-in- possession. Due to material uncertainties, it
is not possible to predict the length of time the Debtors will operate under
chapter 11 protection, the outcome of the reorganization in general, the effect
of the reorganization on the Debtors' businesses or the recovery by creditors
of the Debtors and equity holders of Bethlehem.
As a result of the chapter 11 filing, there is no assurance that the
carrying amounts of the assets will be realized or that liabilities will be
settled for amounts recorded. Bethlehem is pursuing a stand alone plan of
reorganization while continuing to consider alternative opportunities for,
among other things, possible consolidation and joint ventures with other steel
operators and liquidation of part or all of Bethlehem's assets. There can be
no assurance that any such alternatives will be implemented. After further
consideration of such alternatives and negotiations with various parties in
interest, Bethlehem expects to present a chapter 11 plan, which will likely
cause a material change to the carrying amount of assets and liabilities in the
financial statements.
Because of the decline in market value of our pension trust assets,
continuing pension payments from the trust and declining interest rates, our
pension plan is now about $3.2 billion underfunded at today's market.
Accordingly, we now have over $6 billion of unfunded pension and other
postretirement obligations, principally healthcare, that we simply cannot
support and make us unattractive to potential buyers. Further, like many
companies with defined benefit pension plans, the increase in the market value
of our unfunded pension obligation will require us to record a non-cash, direct
charge to stockholders' deficit of about $1.5 billion if the market remains the
same at year-end. This charge is only required at year-end and will have no
effect on our 2002 operating results. The increase in our unfunded pension
obligation will, however, increase our 2003 pension expense.
Domestic steel consumption remains fairly strong, driven principally by
automobile sales. The problem of excess global capacity, however, remains a
significant hurdle for the steel industry. As previously announced, the key
for Bethlehem to emerge from chapter 11 bankruptcy protection is the
substantial reduction or elimination of our unfunded pension and retiree health
care obligations together with a new labor agreement with the United
Steelworkers of America. Negotiations are underway with the union to achieve a
new labor agreement that will allow Bethlehem to become cost competitive with
other restructured integrated producers and the mini mills.
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REVIEW OF RESULTS:
Third Quarter and First Nine Months 2002
Third Quarter and First Nine Months 2001
Our third quarter 2002 net loss of $54 million was an improvement from the
loss of $152 million recorded in the third quarter of 2001. Our nine-month net
loss of $270 million compares to a net loss of $1,403 million for the same
period in 2001. Our recent losses include several unusual or non-cash items as
reflected in the following table:
Third Quarter First Nine Months
------------------- ---------------------
2002 2001 2002 2001
-------- -------- -------- ----------
Net Loss $ (54.2) $(152.2) $(270.4) $(1,402.5)
Loss on closure of pipe mill 2.5 - 2.5 -
Loss on sales of interest in iron
ore facility and excess ore 8.0 - 8.0 -
Blast furnace outages 2.3 - 25.7 -
Environmental accrual - - 20.0 -
Income tax benefit - - (10.3) -
Loss on closure of Lackawanna Coke - 40.0 - 40.0
Gain on sale of MBR - (22.2) - (22.2)
Reserving deferred taxes - - - 984.0
Write-off equity investment - - - 3.4
-------- -------- -------- ----------
Net loss excluding unusual items $ (41.4) $(134.4) $(224.5) $ (397.3)
======== ======== ======== ==========
Our pipe mill located in Steelton, Pennsylvania has not operated since June
1999 and we recently announced the permanent closing of the facility. As a
result, we recorded a $2.5 million charge in the third quarter of 2002 to
account for the required employee benefit costs.
We recently determined that our ownership percentage of Hibbing Taconite,
our iron ore joint venture in Minnesota, exceeded the future iron ore
requirements at our Burns Harbor plant. As a result, during the third quarter
we sold an 8% interest in the venture and agreed to sell excess ore inventory.
While we recognized a total loss of $8 million from these transactions, they
avoided temporary production shutdowns of the iron ore facility that would have
increased our costs and consumed cash in excess of the loss recognized.
As previously reported, during the second quarter of 2002, the large bell
on our D blast furnace at Burns Harbor failed, causing an extended repair
outage and related lost production. The furnace was returned to full operation
in June. Carryover costs related to the outage were about $2 million in the
third quarter of 2002. The combination of the repair costs, unabsorbed costs
from lost production and other related costs decreased net income by about $17
million in the second quarter. The
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first quarter of 2002 included carryover higher costs of $7 million from a
separate blast furnace outage that occurred in the fourth quarter of 2001.
During the second quarter of 2002, Bethlehem personnel attended a meeting
requested by the New York Department of Environmental Conservation (NYDEC) to
discuss the contents and timing of a Consent Order to conduct a RCRA Corrective
Measures Study and to begin to implement an agreed upon plan of remediation at
our closed steel manufacturing facility in Lackawanna, New York. Based upon
the information received and the conceptual agreements reached at that meeting,
we recorded a $20 million non-cash charge to reflect Bethlehem's most current
estimate of the probable remediation costs at Lackawanna. The cash
requirements for remediation are expected to be expended over a protracted
period of years, according to a schedule to be agreed upon by Bethlehem and the
NYDEC.
The $10 million income tax benefit recorded in 2002 represents a tax refund
as a result of the "Job Creation and Workers Assistance Act of 2002" that was
enacted on March 8, 2002. The Act provides us the ability to carry back a
portion of our 2001 Alternative Minimum Tax loss for a refund of taxes paid in
prior years that was not previously available. We received the refund in July
2002.
Unusual non-cash charges for the nine months ended September 30, 2001
included fully reserving our net deferred tax asset, a provision for closure of
our Lackawanna, New York coke plant, a gain on the sale of our interest in a
Brazilian iron ore property and writing off our equity investment in Metal
Site, an internet marketplace for steel that ceased operations. During the
second quarter of 2001, it was determined that the cumulative financial
accounting losses had reached the point that fully reserving the deferred tax
asset was required. See Notes 3 and 6 to the accompanying Notes to September
30, 2002 Financial Statements for further details on these items.
Excluding unusual items previously mentioned, Bethlehem's net loss of $41
million for the third quarter of 2002 is a $93 million improvement over the
prior year net loss of $134 million. This improvement resulted from higher
prices and an improved product mix, partially offset by higher costs. Average
realized prices, on a constant mix basis, improved by about 12% from the same
period last year. Our product mix shipped improved, as our percentage of
higher margin, cold-rolled, coated and tin products increased and we reduced
the percentage of lower margin secondary products. Costs were higher mainly
from increased pension expense and reorganization expense partially offset by
lower interest expense. Interest expense declined because, after filing for
protection under chapter 11 on October 15, 2001, we are no longer accruing
interest on unsecured debt.
Our net loss before unusual items for the nine months ended September 30,
2002 of $225 million compares with a net loss of $397 million for the same
period in 2001. The improvement is mainly attributable to improvements in
prices, product mix and reduced costs, offset by lower shipments. Average
realized prices on a constant mix basis have increased by about 4%. Our
product mix shipped improved, as our
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percentage of shipments of higher margin, cold-rolled, coated and tin products
increased, while we reduced the percentage of lower margin hot-rolled and
secondary products. Costs were lower mainly from decreases in natural gas
prices, employee reductions and lower interest expense, partially offset by
higher pension expense and the effects of lower production volume at our plate
operations. As previously mentioned, interest expense declined because we are
no longer accruing interest on unsecured debt. Shipments were lower by about
4%, primarily in plate products, as business investment continues to lag, and
from increased competition from new entrants into the plate marketplace.
Liquidity and Cash Flow
Total liquidity (cash, cash equivalents and funds available under our
committed credit arrangements) was $234 million at September 30, 2002 and $276
million at December 31, 2001.
Cash provided by operating activities for the first nine months of 2002 was
$18 million compared with $57 million of cash being used by operating
activities during the same period in 2001, an improvement of $75 million. Cash
provided by operations before working capital was $82 million in 2002 compared
to cash used of $58 million in 2001, principally from the reduced net loss.
Working capital used about $57 million more cash in 2002 versus the prior year.
Prior to 1999, we had contributed amounts to our pension fund substantially
in excess of amounts required under current law and regulations. Because of
these contributions and better than assumed earnings performance on our pension
fund assets through 2000, we built a funding credit balance that is expected to
allow us to defer pension funding, except for minor administrative expenses and
other payments, until the third quarter of 2003. We currently estimate pension
funding of about $185 million will be required in the second half of 2003. We
expect our annual 2002 pension expense to be about $150 million compared to
$103 million in 2001.
We paid $28 million of retiree health and insurance benefits (OPEB) in the
first quarter of 2001 from existing trust fund assets. After that,
substantially all OPEB benefits are being paid directly by Bethlehem until
certain restrictions are removed on the $15 million remaining trust fund
assets. For the year 2002, we expect to pay directly about $230 million which
is less than our expected expense of $280 million.
Capital expenditures were about $75 million for the first nine months of
2002 and are expected to be about $145 million for the year. We continue to
invest to maintain and to enhance our facilities after having reduced spending
in 2001. In the first nine months of 2002, we received about $26 million from
the sale of surplus land and environmental emission credits.
- 11 -
13
As previously reported, during the second quarter, we purchased the
remaining 50% interests in Columbus Coatings Company and Columbus Processing
Company joint ventures from LTV Steel Corporation (see Note 10 to the
accompanying Notes to September 30, 2002 Financial Statements). CCC's
construction costs were financed in part with a loan under a 1999 agreement
with a group of lenders. Bethlehem has guaranteed the full amount of the
construction loan. Bethlehem had provided CCC's lenders with a collateralized
letter of credit for $30 million and a mortgage on our corporate headquarters
building as additional collateral. During the third quarter, Bethlehem and the
CCC lenders agreed to use the letter of credit to reduce the outstanding loan
balance by $30 million.
Because of our chapter 11 filing, CCC and Bethlehem are in default under
the construction loan agreements, which would allow the lenders to call the
full amount of the loan. We believe that the market value of CCC exceeds the
net loan amount. We are working with the CCC lenders and others to resolve
open issues or refinance the net outstanding debt. We believe these matters
can be resolved without any additional significant impact on our liquidity.
We expect to have sufficient liquidity into 2003 to pursue various
strategic alternatives toward a plan of reorganization.
Dividends
Pursuant to Delaware law and our financing with General Electric Capital
Corporation, we are not permitted to declare a dividend on our Common Stock,
Cumulative Convertible Preferred Stock or Preference Stock.
Forward-looking Statements
Certain statements in this report are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Actual
results may differ materially from those indicated in such statements due to a
number of factors, including changes arising from our chapter 11 filing,
changes in customer spending patterns and in demand for steel products. Due to
material uncertainties, it is not possible to predict the length of time we
will operate under chapter 11 protection, the outcome of the proceedings in
general, whether we will continue to operate under our current organizational
structure, or the effect of the proceedings on our business and the interests
of our various creditors and security holders. Additional factors that may
affect our business and financial results are the effect of planned and
unplanned outages on our operations; the potential impact of strikes or work
stoppages at facilities of our customers and suppliers; the sensitivity of our
results to relatively small changes in prices we obtain for our products;
intense competition due to excess global steel capacity, low-cost electric
furnace facilities, unfairly-traded steel imports and substitute materials; the
consolidation of many of our customers and suppliers; the high capital
- 12 -
14
requirements associated with integrated steel facilities; the significant costs
associated with environmental control requirements; availability of and prices
associated with raw materials, supplies, utilities and other services and items
required by our operations; employment matters, including costs and
uncertainties associated with our collective bargaining unit agreements, and
employee postretirement obligations; the effect of possible future closure or
exit of businesses; our highly leveraged capital structure and our ability to
obtain new capital at reasonable costs and terms; financial difficulties
encountered by joint venture partners; and the effect of existing and possible
future lawsuits against us. The forward-looking statements included in this
document are based on information available to us as of the date of this
report, and we assume no obligation to update any of these statements.
Item 4. Controls and Procedures
Within the 90-day period prior to the date of this report, Bethlehem
carried out an evaluation, under the supervision and with the participation of
management, including its Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of Bethlehem's disclosure
controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that Bethlehem's disclosure controls and procedures are effective to timely
alert them to material information relating to Bethlehem (including its
consolidated subsidiaries) required to be included in Bethlehem's Exchange Act
filings.
There have been no significant changes in Bethlehem's internal controls or
in other factors that could significantly affect internal controls subsequent
to the date that Bethlehem carried out its evaluation.
- 13 -
15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On October 15, 2001, Bethlehem and certain of its direct and indirect
subsidiaries filed voluntary petitions under chapter 11 of title 11, United
States Code (the "Bankruptcy Code") in the United States Bankruptcy Court for
the Southern District of New York (Case Nos. 01-15288 (BRL) through 01-15302
(BRL) and 01-15308 (BRL) through 01-15315 (BRL)). Bethlehem and its
subsidiaries remain in possession of their assets and properties, and continue
to operate their businesses and manage their properties as
debtors-in-possession pursuant to sections 1107(a) and 1108 of the Bankruptcy
Code.
In the ordinary course of its business, Bethlehem is involved in various
pending or threatened legal proceedings. These proceedings include a large
number of cases in which plaintiffs allege injury due to exposure to asbestos,
allegedly resulting from past operations of Bethlehem and others. All of the
asbestos cases resolved to date have either been dismissed or settled for
immaterial amounts. We cannot predict with certainty the outcome of any legal
proceedings to which Bethlehem is a party. In our opinion, however, (1)
adequate reserves have been recorded for losses that are probable to result
from all legal proceedings relating to events occurring prior to September 30,
2002, and (2) the amount of additional losses beyond the reserves recorded that
are reasonably possible is not material to the financial statements. The
prosecution of any claims and any payments related to litigation existing on
October 15, 2001, the date of filing for protection under chapter 11 of the
Bankruptcy Code, are automatically stayed pending resolution of all unsecured
claims as part of a chapter 11 plan.
Bethlehem does not have any material developments in legal proceedings to
report for the third quarter of 2002.
Item 3. Defaults Upon Senior Securities.
As a result of its chapter 11 filing, Bethlehem has not made principal or
interest payments on unsecured indebtedness incurred prior to October 15, 2001
without approval of the Bankruptcy Court. In addition, Bethlehem is not
permitted to pay dividends on its Common Stock, Cumulative Convertible
Preferred Stock or Preference Stock. The dividend arrearage from June 30, 2001
through September 30, 2002 is approximately $50 million.
- 14 -
16
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 Loss Per Share.
99.1 Certification of Principal Executive Officer pursuant to
Section 906 of The Sarbanes-Oxley Act of 2002.
99.2 Certification of Principal Financial Officer pursuant to
Section 906 of The Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K.
Bethlehem filed the following Current Reports on Form 8-K with
the Securities and Exchange Commission during the third quarter:
1. July 9, 2002 - Press release addressing the current status of
Bethlehem's restructuring plans.
2. July 22, 2002 - Consolidated Monthly Operating Statement for
the month of June, 2002, as filed with the Bankruptcy Court.
3. July 22, 2002 - Press release announcing Bethlehem's Second
Quarter Results.
4. August 13, 2002 - CEO/CFO Certifications, as required by the
SEC.
5. August 20, 2002 - Consolidated Monthly Operating Statement for
the month of July, 2002, as filed with the Bankruptcy Court.
6. August 27, 2002 - Press release announcing the permanent
closure of Bethlehem's large-diameter pipe facilities in
Steelton, PA.
7. September 20, 2002 - Consolidated Monthly Operating Statement
for the month of August, 2002, as filed with the Bankruptcy
Court.
- 15 -
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Bethlehem Steel Corporation has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Bethlehem Steel Corporation
(Registrant)
by
/s/ L. A. Arnett
-----------------------------
L. A. Arnett
Vice President and Controller
(principal accounting officer)
Date: October 18, 2002
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CERTIFICATIONS OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL
FINANCIAL OFFICER REGARDING FACTS AND CIRCUMSTANCES RELATING TO
QUARTERLY REPORTS
I, R. S. Miller, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Bethlehem Steel
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
- 17 -
19
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: October 18, 2002
/s/ R. S. Miller, Jr.
-----------------------
R. S. Miller, Jr.
Chief Executive Officer
- 18 -
20
CERTIFICATIONS OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL
FINANCIAL OFFICER REGARDING FACTS AND CIRCUMSTANCES RELATING TO
QUARTERLY REPORTS
I, L. M. Anthony, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Bethlehem Steel
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
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21
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: October 18, 2002
/s/ L. M. Anthony
-----------------------
L. M. Anthony
Chief Financial Officer
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EXHIBIT INDEX
The following is an index of the exhibits included in this Report:
Item
No. Exhibit
- ---- -------
11 Statement Regarding Computation of Loss Per Share.
99.1 Certification of Principal Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification of Principal Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
- 21 -
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EXHIBIT (11)
Bethlehem Steel Corporation
Statement Regarding Computation of Loss Per Share
(dollars in millions and shares in thousands, except per share data)
Three Months Nine Months
Ended September 30 Ended September 30
- --------------------- ------------------------
2002 2001 Basic Loss Per Share 2002 2001
---- ---- -------------------- ---- ----
($54.2) ($152.2) Net Loss ($270.4) ($1,402.5)
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)
(4.2) (4.5) $3.50 Preferred Dividend (12.7) (13.5)
- (0.1) 5% Preference Dividend - (0.3)
- -------- -------- -------- ----------
Total Preferred and Preference Dividend
(9.8) (10.2) Requirements (29.6) (30.6)
- -------- -------- -------- ----------
($64.0) ($162.4) Net Loss Applicable to Common Stock ($300.0) ($1,433.1)
======== ======== ======== ==========
130,972 130,240 Average Shares of Common Stock 130,954 129,992
($0.49) ($1.25) Basic Loss Per Share ($2.29) ($11.02)
======== ======== ======== ==========
Diluted Loss Per Share
----------------------
($54.2) ($152.2) Net Loss ($270.4) ($1,402.5)
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)
(4.2) (4.5) $3.50 Preferred Dividend (12.7) (13.5)
- (0.1) 5% Preference Dividend - (0.3)
- -------- -------- -------- ----------
($64.0) ($162.4) Net Loss Applicable to Common Stock ($300.0) ($1,433.1)
======== ======== ======== ==========
Average Shares of Common Stock and
Other Potentially Dilutive Securities Outstanding:
130,972 130,240 Common Stock 130,954 129,992
- - Stock Options - -
* * $2.50 Preferred Stock * *
* * $5.00 Preferred Stock * *
* * $3.50 Preferred Stock * *
* * 5% Preference Stock * *
- -------- -------- -------- ----------
130,972 130,240 Total 130,954 129,992
======== ======== ======== ==========
($0.49) ($1.25) Diluted Loss Per Share ($2.29) ($11.02)
======== ======== ======== ==========
1412:
* Antidilutive
1606: