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1994
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
F O R M 10-K
(Mark One)
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-1941
B E T H L E H E M S T E E L C O R P O R A T I O N
(Exact name of registrant as specified in its charter)
DELAWARE 24-0526133
(State of Incorporation) (I.R.S. Employer Identification No.)
1170 EIGHTH AVENUE
BETHLEHEM, PENNSYLVANIA 18016-7699
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (610) 694-2424
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange on
Title of each class which registered
------------------- -------------------------
Common Stock--$1 par value per share New York Stock Exchange
Chicago Stock Exchange
Preference Stock Purchase Rights New York Stock Exchange
Chicago Stock Exchange
Preferred Stock -- $1 par value per share
$5.00 Cumulative Convertible New York Stock Exchange
(stated value $50.00 per share)
$2.50 Cumulative Convertible New York Stock Exchange
(stated value $25.00 per share)
6-7/8% Debentures. Due March 1, 1999 New York Stock Exchange
9% Debentures. Due May 15, 2000 New York Stock Exchange
8-3/8% Debentures. Due March 1, 2001 New York Stock Exchange
8.45% Debentures. Due March 1, 2005 New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
(Title of class)
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
------ ------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
Aggregate Market Value of Voting Stock held by Non-Affiliates: $1,717,158,980.25
The amount shown is based on the closing price of Bethlehem Common Stock on
the New York Stock Exchange Composite Tape on March 15, 1995. Voting stock
held by directors and executive officers of Bethlehem is not included in
the computation. However, Bethlehem has made no determination that such
individuals are "affiliates" within the meaning of Rule 405 under the
Securities Act of 1933.
Number of Shares of Common Stock outstanding as of March 15, 1995: 110,056,163
DOCUMENTS INCORPORATED BY REFERENCE:
Selected portions of the 1994 Annual Report to Stockholders of Bethlehem
Steel Corporation are incorporated by reference into Part II of this Report on
Form 10-K.
Selected portions of the 1995 Proxy Statement of Bethlehem Steel
Corporation are incorporated by reference into Part III of this Report on Form
10-K.
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PART I
ITEM 1. BUSINESS.
Bethlehem(1) is the second largest steel producer in the United States
and is engaged primarily in the manufacture and sale of a wide variety of steel
mill products. Bethlehem also produces and sells coal and other raw materials,
repairs ships and offshore drill rigs and manufactures and sells forgings and
castings.
For financial reporting purposes, Bethlehem has disaggregated the
results of its operations and certain other financial information into two
segments, Basic Steel Operations and Steel Related Operations. Note C to the
Consolidated Financial Statements sets forth certain financial information
relating to Bethlehem's industry segments for 1994, 1993 and 1992. The table
below shows the percentage contribution to Bethlehem's net sales of each
segment and of major classes of products for each of the years 1992 through
1994:
1994 1993 1992
-------- -------- --------
Basic Steel Operations
Steel mill products:
Sheets and tin mill products . . . . . . . . . . . . . . . 66.1% 63.1% 59.1%
Plates . . . . . . . . . . . . . . . . . . . . . . . . . . 14.0 13.6 13.3
Structural shapes and piling . . . . . . . . . . . . . . . 6.7 8.5 9.6
Rail products . . . . . . . . . . . . . . . . . . . . . . 2.8 3.6 2.8
Bars, rods and semifinished . . . . . . . . . . . . . . . 1.2 1.2 2.6
Other steel mill products . . . . . . . . . . . . . . . . 1.3 .8 1.2
Other products and services (including raw materials) . . . . 5.5 6.8 7.5
-------- ------- -------
97.6 97.6 96.1
Steel Related Operations . . . . . . . . . . . . . . . . . . . . 2.4 2.4 3.9
-------- -------- --------
100.0% 100.0% 100.0%
======== ======== ========
BASIC STEEL OPERATIONS
Bethlehem's Basic Steel Operations produces a wide variety of steel
mill products, including hot rolled, cold rolled and coated sheets and strip,
plates, structural shapes, piling, tin
- --------------------
(1) "Bethlehem" when used herein means Bethlehem Steel Corporation, a
Delaware corporation, and where applicable includes its consolidated
subsidiaries. Bethlehem was incorporated in Delaware in 1919.
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mill products, specialty blooms, carbon and alloy bars, rail and pipe. Basic
Steel Operations includes the following Business Units: the Burns Harbor
Division, the Sparrows Point Division, Bethlehem Structural Products
Corporation ("Structural Products") and Pennsylvania Steel Technologies, Inc.
Also included in Basic Steel Operations are iron ore and coal operations
(which provide raw materials to Bethlehem's steelmaking facilities and sell
such materials to trade customers), railroad operations (which primarily
transport raw materials and semifinished steel products within various
Bethlehem operations) and lake shipping operations (which primarily transport
raw materials to the Burns Harbor Division). See "ITEM 2. PROPERTIES" of
this Report for a description of the facilities of these business units and
operations.
As reported by the American Iron and Steel Institute ("AISI"), the
steel industry's raw steel production capability for 1994 was 108 million tons,
and the preliminary average rate of industry utilization of that capability was
91 percent, compared to 110 million tons and 89 percent for 1993 and 113
million tons and 82 percent for 1992. Bethlehem's raw steel production
capability was 11.5 million tons for 1994 and 1993, and 16 million tons for
1992. Its average rate of utilization of that capability was 85 percent for
1994, 90 percent for 1993 and 66 percent for 1992.
The following table shows, for each of the years indicated, the raw
steel production of Bethlehem and of the entire domestic steel industry:
RAW STEEL PRODUCTION
------------------------------------------
Domestic Bethlehem as a
Steel % of Domestic
Bethlehem Industry* Steel Industry
--------- -------- --------------
(millions of net tons)
1994 . . . . . . . . . . . . . . . . . . . . . . 9.8 97.9** 10.0
1993 . . . . . . . . . . . . . . . . . . . . . . 10.3 97.9 10.5
1992 . . . . . . . . . . . . . . . . . . . . . . 10.5 92.9 11.3
- --------------
* The figures are as reported by the AISI.
** Based on preliminary AISI figures.
Of Bethlehem's 1994 raw steel production, 95 percent was produced by basic
oxygen furnaces and 5 percent by electric furnaces. Bethlehem's three
continuous slab casters for light flat-rolled products and plates produced
approximately 78 percent of the slabs needed for these products in 1994
compared to 86 percent in 1993 and 87 percent in 1992.
Bethlehem's raw steel production and slab production for 1994
decreased from 1993 primarily due to the rebuild of one of Burns Harbor's two
coke oven batteries and the reline of one of its two blast furnaces. See "ITEM
1. BUSINESS--General--Capital Expenditures" of this Report.
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The following table shows, for each of the years indicated, the
percentage of the total net tons of steel mill products shipped by Bethlehem's
Basic Steel Operations to each of its principal markets, including shipments to
its own Steel Related Operations:
1994 1993 1992
-------- -------- --------
Service centers, processors and converters
(including semifinished customers) . . . . . . . . . . . . . 45.9% 47.3% 46.3%
Transportation (including automotive) . . . . . . . . . . . . 24.2 22.2 19.9
Construction . . . . . . . . . . . . . . . . . . . . . . . . . 14.7 15.5 16.0
Containers . . . . . . . . . . . . . . . . . . . . . . . . . . 5.7 5.4 4.8
Machinery . . . . . . . . . . . . . . . . . . . . . . . . . . 4.9 5.1 5.5
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.6 4.5 7.5
-------- -------- --------
100.0% 100.0% 100.0%
======== ======== ========
Steel products are distributed by Bethlehem principally through its
own sales organizations, which have sales offices at various locations in the
United States, Canada and Mexico, and through foreign sales agents. In
addition to selling to customers who consume steel products directly, Bethlehem
sells steel products to steel service centers, distributors, processors and
converters. Export sales for this segment were 2 percent of total sales in
1994 and 1993, and 5 percent in 1992.
Trade orders on hand for Basic Steel Operations at December 31, 1994,
and December 31, 1993, were approximately $1,166 million and $1,133 million,
respectively. Substantially all of the orders on hand at December 31, 1994 are
expected to be filled in 1995.
Competition within the domestic steel industry is intense. Principal
competitors are domestic mini-mills, foreign and domestic integrated steel
companies and reconstituted mills. Bethlehem experiences strong competition in
all principal markets served by Basic Steel Operations with respect to, among
other things, price, service and quality.
Domestic integrated producers, such as Bethlehem, have lost market
share in recent years to domestic mini-mills. Mini-mills provide significant
competition in certain product lines, including structural shapes and hot
rolled sheets. Mini-mills are relatively efficient, low-cost producers that
produce steel from scrap in electric furnaces, have low employment and
environmental costs and target regional markets. Thin slab casting
technologies have allowed mini-mills to enter certain sheet markets which have
traditionally been supplied by integrated producers. Certain companies have
announced plans for, or have indicated that they are currently considering,
additional mini-mill plants for sheet products in the United States.
Domestic steel producers also face significant competition from
foreign producers and have been adversely affected by unfairly traded imports.
Imports of finished steel products have accounted for approximately 19 percent
of the domestic market in 1994, approximately 15 percent of the domestic market
in 1993 and approximately 16 percent of the domestic market in 1992. The major
restructuring of the domestic steel industry, which began in the late 1970s and
early 1980s,
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has removed the steelmaking capacity that once existed to meet market demand
during peak periods. Nineteen ninety-four was the strongest domestic shipment
year since 1979. A portion of the demand that exceeded steelmaking capacity
was met by domestic producers who imported semifinished slabs for rolling into
finished products in their own mills. The remaining demand, which could not be
met by domestic rolling mills, was met by increased imports of finished
products, primarily hot and cold rolled sheets, and plates, resulting in the
increased import share in 1994. A significant portion of these incremental
imports went into inventory.
Many foreign steel producers are owned, controlled or subsidized by
their governments. Decisions by these foreign producers with respect to
production and sales may be influenced to a greater degree by political and
economic policy considerations than by prevailing market conditions. The
following table, which is based on data reported by the AISI, shows the
percentage of domestic apparent consumption of steel mill products captured
by imports for various classes of products.
1994* 1993 1992
----- ---- ----
Structural shapes and piling . . . . . . . . . . . . . . 12% 10% 9%
Bars, rods, tool steel and semifinished . . . . . . . . 35 29 20
Plates . . . . . . . . . . . . . . . . . . . . . . . . . 23 16 18
Sheets, strip and tin mill products . . . . . . . . . . 19 13 17
Rail . . . . . . . . . . . . . . . . . . . . . . . . . . 28 18 27
All Products** . . . . . . . . . . . . . . . . . . . . . 25 19 18
- --------------
* Preliminary
** Excludes steel imported in the form of manufactured goods, such as
automobiles, but includes semifinished steel.
Excluding semifinished steel, imports of steel mill products were approximately
22.1 million tons in 1994, 14.5 million tons in 1993 and 14.7 million tons in
1992.
Antidumping and countervailing duty orders covering imports of
corrosion resistant sheet from 6 countries, cold rolled sheet from 3 countries
and plates from 11 countries, which resulted from unfair trade cases filed by
Bethlehem and 11 other companies in 1992, remain in place. The Court of
International Trade in New York has affirmed all of the negative ITC injury
determinations on hot and cold rolled sheet which had been appealed by
Bethlehem and the other petitioners. Decisions on appeals of the affirmative
ITC injury determinations on corrosion resistant sheet and plate by respondents
are still pending.
Imports of flat rolled products from countries not covered by
antidumping and countervailing duty orders, particularly imports of plate from
Russia and the Ukraine, surged throughout 1994 and are diminishing the impact
of the successful cases.
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The intensely competitive conditions within the domestic steel
industry have been exacerbated by the continued operation, modernization and
upgrading of marginal steel production facilities through bankruptcy
reorganization procedures, thereby perpetuating overcapacity in certain
industry product lines. Overcapacity is also perpetuated by the continued
operation of marginal steel production facilities that have been sold by
integrated steel producers to new owners, which operate such facilities with a
lower cost structure.
In the case of many steel products, there is substantial competition
from manufacturers of products other than steel, including plastics, aluminum,
ceramics, glass, wood and concrete.
STEEL RELATED OPERATIONS
Bethlehem's Steel Related Operations includes BethForge, Inc. and
CENTEC. BethForge, Inc. manufactures and fabricates forgings and castings.
CENTEC produces centrifugally cast rolls for the metalworking industry. The
operations of BethForge, Inc. and CENTEC are located in Bethlehem,
Pennsylvania.
Steel Related Operations also includes the BethShip Division, which
repairs and services ships and offshore drill rigs and fabricates industrial
products. The facilities of the BethShip Division consist of a ship repair
yard at Sparrows Point, Maryland, and a dry dock facility for the repair and
inspection of offshore drill rigs and other vessels at Port Arthur, Texas.
Bethlehem sells this segment's fabricated steel products to the steel,
machinery, transportation, energy, defense and utility industries. These
products are distributed principally through Bethlehem's own sales
organization. The markets for these products overlap to a certain extent with
the principal markets for products included in Basic Steel Operations.
Bethlehem obtains the major portion of the materials and products used in the
manufacture and fabrication of the products of this segment from its own steel
mills.
Competition is strong in all principal markets for the products of
this segment, particularly with respect to price, quality and service.
Principal competitors are foreign and domestic independent steel and marine
fabricating companies. As is the case with Basic Steel Operations, there is
substantial competition with respect to some fabricated steel products from
certain of Bethlehem's competitors operating under the protection of the United
States Bankruptcy Code, from manufacturers of products other than steel and
from imports. The operations of this segment are generally subject to the
cyclical fluctuations characteristic of the construction and capital goods
industries.
Trade orders on hand for Bethlehem's Steel Related Operations at
December 31, 1994, and December 31, 1993, were approximately $46 million and
$82 million, respectively. Substantially all the orders on hand at December
31, 1994 are expected to be filled in 1995.
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GENERAL
Capital Expenditures
Capital expenditures were $445 million in 1994 compared to $327
million in 1993 and $329 million in 1992. Capital expenditures for 1995 are
currently estimated to be approximately $350 million.
During 1994, one of Burns Harbor's two coke oven batteries was rebuilt
and one of its two blast furnaces was relined. Burns Harbor's operating costs
per ton were higher while these projects were under way due primarily to lower
raw steel and coke production and increased costs for purchased slabs and coke.
Work also was completed during 1994 on the construction of a coal injection
facility that will lower the Division's operating costs through elimination of
the use of natural gas as a blast furnace injectant and a reduction of the use
of coke in the blast furnaces. This facility is expected to be fully
operational in the first quarter of 1995.
In late 1994, Pennsylvania Steel Technologies completed a
modernization program which includes a state-of-the-art DC electric furnace,
in-line rail head-hardening equipment, a ladle furnace and a vacuum degassing
unit.
Approximately $259 million of additional capital expenditures were
authorized in 1994. At December 31, 1994, the estimated cost of completing
authorized capital expenditures was approximately $325 million compared to $676
million at December 31, 1993. Such authorized capital expenditures are
expected to be completed during the 1995-1997 period.
Environmental Control and Cleanup Expenditures
Bethlehem is subject to stringent federal, state and local
environmental laws and regulations concerning, among other things, air
emissions, waste water discharges, and solid and hazardous waste disposal.
During the five years ended December 31, 1994, Bethlehem spent approximately
$275 million for environmental control equipment. Expenditures for new
environmental control equipment totaled approximately $44 million in 1994, $35
million in 1993 and $18 million in 1992. The costs incurred in 1994 to operate
and maintain existing environmental control equipment were approximately $115
million (excluding interest costs but including depreciation charges of $18
million) compared to $125 million in 1993 and $130 million in 1992. In
addition, Bethlehem has been required to pay various fines and penalties
relating to violations or alleged violations of laws and regulations in the
environmental control area. Bethlehem paid approximately $3.9 million in 1994,
$3.7 million in 1993 and $5.8 million in 1992 for such fines and penalties.
Under the Clean Air Act, as amended, coke-making facilities will have
to meet progressively more stringent standards over the next 30 years.
Bethlehem currently operates coke-making facilities at the Burns Harbor
Division, Structural Products and at Lackawanna, New
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York. While Bethlehem continues to evaluate the impact applicable emission
control regulations will have on these operations, it believes that these
operations will be able to comply.
Negotiations between Bethlehem and federal and state regulatory
agencies are being conducted to resolve differences in interpretation of
certain environmental control requirements. In some instances, those
negotiations are being held in connection with the resolution of pending
environmental proceedings. Bethlehem believes that there will not be any
significant curtailment or interruptions of any of its important operations as
a result of these proceedings and negotiations. Existing environmental laws
may be amended and new laws may be enacted by Congress and state legislatures
and new environmental regulations may be issued by regulatory agencies. For
these reasons, Bethlehem cannot predict the specific environmental control
requirements that it will face in the future. Based on existing and
anticipated regulations promulgated under presently enacted legislation,
Bethlehem currently estimates that capital spending for installation of new
environmental control equipment will range from $40 million to $50 million in
each of the next two years. However, estimates of the future capital
expenditures and operating costs required for environmental compliance are
imprecise due to numerous uncertainties, including the evolving nature of the
regulations, the possible imposition of more stringent requirements, the
availability of new technologies and the timing of expenditures.
Under the Resource Conservation and Recovery Act, as amended ("RCRA"),
the owners of certain facilities that managed hazardous waste after 1980 are
required to investigate and, if appropriate, remediate certain historic
environmental contamination found at the facility. All of Bethlehem's major
facilities are subject to this "Corrective Action Program", and Bethlehem is
currently implementing the program at its facilities located in Steelton,
Pennsylvania; Lackawanna, New York; and Burns Harbor, Indiana. At Steelton,
Bethlehem has completed a RCRA Facility Investigation ("RFI"), a Corrective
Measures Study ("CMS") and a remediation program, which program received
formal approval of the United States Environmental Protection Agency (the
"EPA") and was completed in 1994 at a cost of $316,000. At Lackawanna,
Bethlehem is conducting an RFI which, due to regulatory delays and
agency-initiated modifications to the original scope of work, will not be
completed until April 1995 at the earliest. Bethlehem has requested formal
approval from the EPA for extension of the investigation to incorporate work
requested by the agency. If the extension is not granted, it is anticipated
that an RFI report will be submitted to the EPA in April for its review and
comment. At Burns Harbor, Bethlehem is negotiating its proposed scope of work
for an RFI which, following EPA approval, will require several years to
complete. Also, to date, the EPA has not promulgated a final rule to
implement the corrective action program, and such a rule is not expected to be
proposed until later this year at the earliest. Accordingly, the potential
costs for possible remediation activities at Lackawanna and Burns Harbor and
the timeframe for implementation of these activities cannot be reasonably
estimated until the RFIs, and possibly the CMSs, have been completed and the
final corrective action rule has been promulgated.
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Under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA", also known as "Superfund"), the
EPA has authority to impose liability for site remediation on waste generators,
past and present site owners and operators, and transporters regardless of
fault or the legality of the original disposal activity. Bethlehem has been
advised that it may be considered a potentially responsible party under CERCLA
or the corresponding state superfund legislation at a total of 21 sites. Based
on its experience regarding site remediation and its knowledge of and extent of
involvement in such sites, Bethlehem expects that its share of the costs for
remediation of these sites will not be material.
Although it is possible that Bethlehem's future results of operations
in particular quarterly or annual periods could be materially affected by the
future costs of environmental compliance, Bethlehem does not believe the future
costs of environmental compliance will have a material adverse effect on its
consolidated financial position or on its competitive position with respect to
other integrated domestic steelmakers that are subject to the same
environmental requirements.
Raw Materials
Bethlehem obtains the major portion of the iron ore and less than half
of the coal essential to its steelmaking business from properties that are
owned by it or in which it has substantial interests. The balance of
Bethlehem's iron ore and coal requirements is purchased from commercial
sources. See "ITEM 2. PROPERTIES--Properties Relating to the Basic Steel
Operations Segment--Raw Material Properties and Interests" of this Report.
Research and Development
Bethlehem engages in its own research activities for the improvement
of existing products and the development of new products and more efficient
operating processes. During 1994, 1993 and 1992, Bethlehem incurred costs of
approximately $24 million, $24 million and $27 million, respectively, in its
research and development activities. Bethlehem owns a number of patents that
relate to a wide variety of products and processes, has pending various patent
applications and is licensed under a number of patents. During 1994, eight
United States patents covering a variety of new developments were awarded to
Bethlehem. Bethlehem believes that no one of its patents or licenses, which
expire from time to time, or any group of patents or licenses relating to a
particular product or process is of material importance in its overall
business. Bethlehem also owns registered trademarks for certain of its
products and services which, unlike patents and licenses, are renewable so long
as they are continued in use and properly protected.
During 1994, Bethlehem and U. S. Steel Group, a unit of USX
Corporation, entered into a Cooperative Research and Development Agreement.
Under the Agreement, Bethlehem and U. S. Steel are conducting joint research
and development activities in the field of basic ironmaking and steelmaking
technologies and processes, such as primary iron and steel process
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development, finishing process development, and process instrumentation
development. Notice of the Cooperative Research and Development Agreement was
filed in accordance with the National Cooperative Research and Development Act
of 1993.
Employees and Employment Costs
At year end 1994, Bethlehem had approximately 19,900 employees
compared to approximately 20,600 employees at the end of 1993 and 22,600
employees at the end of 1992. Approximately two-thirds of Bethlehem's
employees are covered by its labor agreements with the United Steelworkers of
America (USWA).
Under the terms of Bethlehem's 1993 labor agreements with the USWA,
eligible employees at most steel operations received lump sum bonuses totaling
$14 million during 1994. On March 1, 1995, each eligible employee received a
bonus of either $500 or 25 shares of Bethlehem Common Stock, at the election of
the employee and on August 1, 1995, each such employee will receive a $.50
per hour wage increase.
Under the terms of the 1993 labor agreements, a new profit-sharing
plan was established, effective January 1, 1994, equal to eight percent of
corporate income before taxes as defined in the agreements, unusual items and
expenses applicable to the plan plus two percent of adjusted profits of certain
operations. Bethlehem and the USWA are currently having discussions concerning
the implementation and possible modification of the profit-sharing plan. In
addition, under other provisions of the labor agreements, Bethlehem is required
to pay "shortfall amounts" each year up to 10% of the first $100 million and
20% in excess of $100 million of consolidated income before taxes, unusual
items and expenses applicable to the plan. Shortfall amounts arise when
employees terminate employment and ESOP Preference Stock, held in trust for
employees in reimbursement for wage and benefit reductions in prior years, is
converted into Common Stock and sold for amounts less than the stated value of
the Preference Stock ($32 for Series A and $40 for Series B). Bethlehem expects
to pay approximately $30 million for profit-sharing and shortfall amounts in
early 1995. As of December 31, 1994, shortfall amounts to be paid out of
future profits were about $7 million. In addition, eligible employees are
entitled to receive a one-time special payment equal to $.50 per hour not to
exceed $1,000 per eligible employee if Bethlehem's consolidated income, as
calculated under the profit-sharing plan, is $250 million or more for 1995.
The special payment would be paid to eligible employees in early 1996.
Bethlehem may elect to pay the one-time special payment in cash or Bethlehem
Common Stock.
Under the terms of the profit-sharing plan provided for in the 1989
labor agreement with the USWA, no material profit-sharing payments were
required for the 1992 and 1993 plan years. Under other provisions of that
labor agreement, Bethlehem issued approximately 134,800 shares of Series B
Preference Stock in 1994 and approximately 211,400 shares in 1993 to a trustee
for the benefit of employees for 1993 and 1992, respectively, and expects to
issue approximately 40,800 shares in early 1995 for the 1994 plan year.
For further information with regard to Bethlehem's employment costs,
see "Employment Cost Summary -- All Employees" under "Financial Review and
Operating Analysis" in Bethlehem's 1994 Annual Report to Stockholders. As set
forth on page 24 of this Report, such discussion is incorporated
herein by reference.
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Employee Postretirement Obligations
Bethlehem has substantial financial obligations related to its
employee postretirement plans for pensions and healthcare. Moreover, due to
the excess of projected benefit obligations over pension fund assets,
Bethlehem's annual pension expense is substantially higher on a per ton basis
than that of most other domestic steel producers. This pension expense,
combined with postretirement healthcare expense, puts Bethlehem at a
competitive disadvantage with respect to such costs compared to most other
domestic steel producers. As of December 31, 1994, Bethlehem's consolidated
balance sheet reflects liabilities of $1.12 billion and $1.58 billion for the
actuarial present value of unfunded accumulated benefit obligations for
pensions and postretirement benefits other than pensions, respectively. The
calculation of the actuarial present value of the accumulated benefit
obligations for active employees assumes continued employment with projections
for retirements, deaths, resignations and discharges. If the actual retirement
of active employees is significantly earlier than projected (for plant closings
or other reasons), the accumulated benefit obligations would increase
substantially. The charges for employees terminated as a result of plant
shutdowns or restructurings vary depending upon the demographics of the work
force, but could be approximately $100,000 per employee. The recording of
these charges could result in a material adverse impact on Bethlehem's
financial condition because of the increase in recorded liabilities, decrease
in stockholders' equity and increases in required contributions to the pension
fund and retiree healthcare payments.
During 1994, long-term interest rates in the United States increased
about 150 basis points. As a result, Bethlehem increased the discount rate
used to calculate the actuarial present value of its accumulated benefit
obligation for pensions from the 7.5% used at December 31, 1993, to 9.0% at
December 31, 1994. This increase in the discount rate reduced Bethlehem's
accumulated benefit obligation for pensions by about $540 million and restored
$60 million ($50 million after-tax) to additional paid-in capital as required
by generally accepted accounting principles. For each 25 basis point change in
such future discount rate, Bethlehem's accumulated benefit obligation for
pensions changes by about $90 million. A decrease in interest rates at
December 31, 1995, from December 31, 1994, would require Bethlehem to increase
the actuarial present value of its accumulated benefit obligation for pensions
and might again require Bethlehem to reduce additional paid-in capital
depending on the then market value of Bethlehem's pension trust fund assets
(which, at December 31, 1994, was $3.3 billion). For postretirement benefits
other than pensions, principally healthcare and life insurance, the same
increase in the discount rate as of December 31, 1994, and potential future
changes also apply to the actuarial present value of Bethlehem's accumulated
benefit obligation. However, because different accounting principles apply,
there is no immediate change in the recorded liability or potential charge to
equity.
Bethlehem has contributed amounts to its pension fund substantially in
excess of amounts required under current law and regulations, including net
proceeds of approximately $355 million from the public offering in March 1994
of 17,250,000 shares of Bethlehem Common Stock. As a result, Bethlehem
currently has a funding standard credit balance which would allow it under
current law and regulations to defer all pension funding for about two years,
although it presently
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has no plans to do so. In December 1994 Congress passed new pension
legislation. The new legislation is not expected to significantly increase
Bethlehem's annual required minimum contribution to its pension plans for the
next several years, but it will increase over time the annual premium due to
the Pension Benefit Guaranty Corporation.
Bethlehem adopted Financial Accounting Standards Board Statement No.
106, Accounting for Postretirement Benefits Other than Pensions, effective
with its 1992 financial statements. See Note B to the Consolidated Financial
Statements.
Restructuring Activities
As part of Bethlehem's efforts to make its business and operations
more competitive, Bethlehem has implemented, and will continue to consider, a
wide range of restructuring alternatives.
Asset Sales. Since early 1986 Bethlehem has implemented an extensive
program of asset sales. Approximately 35 businesses have been sold since the
program began. Bethlehem cannot continue indefinitely to raise substantial
cash from asset sales.
Joint Ventures, Partnerships, Facility Sharing Arrangements and
Mergers. Bethlehem has considered, and discussed with others, various
opportunities for joint ventures, partnerships, facility sharing arrangements
and mergers of all or part of Bethlehem. Bethlehem will continue to explore
such opportunities. See "ITEM 2. PROPERTIES." of this Report for a
description of joint ventures in which Bethlehem participates.
Facility Shutdowns and Restructurings. During the last five years,
Bethlehem has shut down or restructured facilities and operations and has
reduced its annual steelmaking capability from 16.0 million tons to 11.5
million tons. Bethlehem has recorded charges of approximately $1.5 billion in
connection with these actions, including a $350 million restructuring charge
($290 million after-tax) reflected in its results for 1993. See Note D to the
Consolidated Financial Statements. Although Bethlehem has no current plans to
do so, if it becomes necessary for Bethlehem to shut down or restructure
additional businesses and operations in the future, it could incur substantial,
additional charges in the process. The recording of these charges could have
a material adverse impact on Bethlehem's financial condition because of the
increase in recorded liabilities and decrease in stockholders' equity.
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ITEM 2. PROPERTIES.
PROPERTIES RELATING TO THE BASIC STEEL OPERATIONS SEGMENT
Burns Harbor Division
The principal operations of the Burns Harbor Division are located
along the shore of Lake Michigan near Chicago, Illinois. The principal
products of the Burns Harbor Division are hot rolled and cold rolled sheets and
coated sheets for the automotive, service center, container, office furniture
and appliance markets and plates for the construction, machinery and service
center markets. Principal facilities include a sintering plant, two coke oven
batteries, two blast furnaces including new coal injection facilities, three
basic oxygen furnaces with a combined annual raw steel production capability of
approximately five million tons, a vacuum degassing facility, two continuous
slab casters with a combined annual production capability of four million tons,
a 50 x 96-inch slabbing mill, two sheared plate mills (110-inch and 160-inch),
an 80-inch hot-strip mill, an 80-inch five stand cold reducing mill, sheet
finishing mills, a continuous heat treating line, batch annealing facilities, a
48-inch continuous electrogalvanizing line and a new 72-inch hot-dip galvanizing
line. About 80 percent of the steel produced at Burns Harbor is continuously
cast; the remaining 20 percent is ingot cast. Ingot cast slabs are used
primarily to make steel plates.
The Galvanized Products Division, an operating unit of the Burns
Harbor Division, is located in Lackawanna, New York. Facilities of the
Galvanized Products Division include a continuous pickling line, a four stand
cold reducing mill, a sheet finishing complex and a 72-inch hot-dip galvanizing
line. The Burns Harbor Division also operates coke-making facilities at
Lackawanna, New York.
The Burns Harbor Division's utilization of raw steel production
capability was 92 percent during 1994, reflecting the reline of one of its two
blast furnaces. See "ITEM 1. BUSINESS--General--Capital Expenditures" of this
Report.
Sparrows Point Division
The operations of the Sparrows Point Division are located along the
Chesapeake Bay near Baltimore, Maryland. The principal products of the
Sparrows Point Division are hot rolled and cold rolled sheets, tin mill
products, galvanized sheet, Galvalume(R) sheet and plates for service centers
and the container, construction, appliance and other metals markets. Principal
facilities include a sintering plant, three coke oven batteries (which are cold
idled), a large blast furnace, two basic oxygen furnaces with an annual raw
steel production capability of approximately 3.5 million tons, a two strand
continuous slab caster with a present annual production capability of
approximately 3.5 million tons, a 160-inch sheared plate mill, a 68-inch
hot-strip mill, three cold reducing mills (66-inch, 56-inch and 48-inch),
continuous and batch annealing facilities, a galvanizing line, two Galvalume(R)
lines, tin mill facilities and a 48-inch hot-dip galvanizing line.
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Sparrows Point is currently obtaining coke from Structural Products and from
various commercial sources. The Division continuously casts essentially 100
percent of its total production volume. The Sparrows Point Division's
utilization of raw steel production capability was 104 percent during 1994.
Bethlehem Structural Products Corporation
The operations of Bethlehem Structural Products Corporation are
located in Bethlehem, Pennsylvania. Its principal products are structural
steel shapes and piling products primarily for the building and construction
markets and ingot molds for the metals industry. Principal facilities include
three coke oven batteries, one blast furnace, two basic oxygen furnaces with a
combined annual raw steel production capability of 1.5 million tons, one
40-inch blooming mill, a 48-inch structural rolling mill, a 44-inch structural
rolling mill, and an ingot mold foundry. The existing iron and steelmaking
operations, which include the blast furnace, basic oxygen furnaces, the
48-inch structural rolling mill and related facilities, will be discontinued
during 1995. Structural Products' utilization of raw steel production
capability was 72 percent during 1994.
In 1994 Bethlehem announced a plan for Structural Products to reduce
costs and improve competitiveness. Under the plan, Structural Products will
focus on the production and sale of sheet piling, standard sections and light
and medium wide-flange sections, which comprise about 80 percent of the
wide-flange market in the United States. The plan is the result of a number of
market developments, including a reduction in the demand for heavy wide-flange
sections caused by reduced high-rise building construction activity, continued
low occupancy rates in commercial buildings, trends toward lighter construction
in buildings and delays in the rebuilding of the nation's infrastructure.
Structural Products will continue to manufacture heavy wide-flange
structurals until it phases out its iron and steelmaking operations. Its
44-inch structural rolling mill complex will be upgraded and modernized and
will be sourced with continuously cast steel produced primarily at
Pennsylvania Steel Technologies' newly modernized state-of-the-art operations
in Steelton, Pennsylvania. The plan should make the division more competitive
and should permit production of certain wide-flange sections up to 24 inches.
Other benefits include higher utilization of the 44-inch structural rolling
mill, higher utilization of the steelmaking facilities at Pennsylvania Steel
Technologies, improved product quality and better utilization of Bethlehem's
overall financial and other resources.
Pennsylvania Steel Technologies, Inc.
The operations of Pennsylvania Steel Technologies, Inc. are located
near Harrisburg, Pennsylvania. Its principal products are railroad rails,
specialty blooms, carbon and alloy bars, billets, special sections, and large
diameter pipe. Its principal markets are rail transportation, forging,
railroad axles, rerollers and oil and gas industries.
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Pennsylvania Steel Technologies completed a modernization program in
late 1994 designed to establish it as the low cost North American producer of
high quality railroad rails, flat bars and specialty blooms. The program
included a state-of-the-art DC electric furnace, a ladle furnace, a vacuum
degassing unit, and in-line rail head-hardening equipment.
Principal facilities include two electric arc furnaces with a combined
annual raw steel production capability of about 1.2 million tons, a continuous
bloom caster, a 44-inch blooming mill, a 20-inch bar mill, a 28-inch rail mill,
finishing and shipping facilities for long-length (80 foot) rails and an
electric fusion welded pipe mill. Pennsylvania Steel Technologies' utilization
of raw steel production capability was 38 percent during 1994.
Bethlehem also owns another rail mill located in Monessen,
Pennsylvania, which is not operating. Bethlehem has announced it is seeking
buyers for the production equipment of this mill.
Joint Ventures
Bethlehem participates in a joint venture, known as Double G Coatings
Company, L.P., which operates a 270,000 ton per year sheet coating line near
Jackson, Mississippi. The new line produces galvanized and Galvalume(R) coated
sheets primarily for the construction market. Sparrows Point provides cold
rolled coils for approximately half of Double G's annual capacity and is
responsible for marketing its share of the finished product.
Bethlehem also participates in a joint venture which owns and operates
a 400,000 ton per year electrogalvanizing line at Walbridge, Ohio. This
facility produces corrosion resistant sheet steel primarily for the automobile
industry and other consumer durables markets. Burns Harbor provides cold
rolled coils for 75 percent of Walbridge's annual capacity and is responsible
for marketing its share of the finished product.
In order to better serve the needs of the Burns Harbor Division's
automotive customers, Bethlehem participates in a joint venture with a steel
service center to produce tailored welded steel blanks for automotive stampings
through use of a technologically advanced welding process.
Bethlehem also has indirect equity interests in various iron ore
properties. See "Raw Material Properties and Interests" below.
Raw Material Properties and Interests
Iron Ore. Bethlehem has indirect equity interests in various iron ore
operating properties, which (excluding tonnages applicable to interests owned
by others) it estimates contained recoverable reserves at December 31, 1994
sufficient to produce at least 14 million tons of direct shipping iron ore
located in Brazil and 446 million tons of iron ore concentrates and pellets, of
which 182 million tons are located in Minnesota and 264 million tons in Canada.
In addition
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to the estimated reserves at operating properties, Bethlehem also has indirect
equity interests in undeveloped or nonoperating iron ore properties, which
(excluding tonnages applicable to interests owned by others) it estimates
contained recoverable reserves at December 31, 1994 sufficient to produce at
least 29 million tons of direct shipping iron ore located in Brazil and 126
million tons of iron ore pellets located in Minnesota.
The iron ore operating properties in which Bethlehem has interests
have mining and processing facilities that are capable of supplying the major
portion of Bethlehem's current annual iron ore requirements. However, taking
into account the location of Bethlehem's steel operations and the iron ore
products best suited to these facilities, Bethlehem has found it advantageous
to engage in iron ore sales and exchanges with other consumers and to purchase
a portion of its iron ore requirements. These purchases have been from various
sources, including sources in which it has ownership interests, under a variety
of contractual arrangements extending over varying periods of time.
Bethlehem's share of the annual iron ore pellet production by
enterprises in which it had ownership interests, for Bethlehem's use or sale to
trade customers, was 13.8 million tons in 1994 and 12.5 million tons in 1993.
In addition to these sources, Bethlehem purchased 1.6 million tons and 1.7
million tons of iron ore in 1994 and 1993, respectively, from sources in which
it had no ownership interests.
In 1994 Bethlehem obtained approximately 67 percent of its iron ore
requirements from operations in which it had ownership interests, compared to
70 percent in 1993. Of the iron ore consumed by Bethlehem in 1994,
approximately 56 percent consisted of pellets and 44 percent of sinter.
Through December 31, 1995, Bethlehem is committed to purchase from
sources in which it has ownership interests .4 million tons of iron ore in
excess of such ownership interests.
Bethlehem had trade sales of iron ore in 1994 and 1993 of 2.3 million
tons and 2.0 million tons, respectively. Additional iron ore trade sales
commitments through December 31, 1996 presently aggregate 1.1 million tons.
The interests in foreign iron ore properties described above are
subject to the risks associated with investments in foreign countries,
including the risk of nationalization.
Coal and Coke. Bethlehem owns and leases coal operating properties in
West Virginia, which it estimates contained recoverable reserves at December
31, 1994 sufficient to produce at least 84 million tons of coal, of which
approximately 26 percent and 74 percent, respectively, are metallurgical and
steam coal.
In addition to the estimated reserves at operating properties,
Bethlehem also owns and leases undeveloped or nonoperating coal properties in
Pennsylvania and West Virginia, which it
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estimates contained recoverable reserves at December 31, 1994 sufficient to
produce at least 168 million tons of coal, of which approximately 89 percent
and 11 percent, respectively, are metallurgical and steam coal.
Bethlehem's coal operations produced 3.9 million tons of coal in 1994
and in 1993. Trade shipments of coal were 2.7 million tons in 1994 compared to
2.5 million tons in 1993.
In 1994 Bethlehem obtained approximately 33 percent of its coal
requirements from its own mines, compared to 31 percent in 1993. The balance
of Bethlehem's requirements is purchased from commercial sources.
Bethlehem continues to operate coke-making facilities at Structural
Products, Burns Harbor and at Lackawanna. During 1993 a rebuild was completed
of one of the two coke oven batteries at Burns Harbor.
Other Raw Materials. Bethlehem purchases its other raw material
requirements from commercial sources.
Transportation
Bethlehem owns five subsidiary shortline railroads which primarily
transport raw materials and semifinished steel products within various
Bethlehem operations. Bethlehem also owns a flat-bed trucking company serving
Bethlehem's steel operations and other facilities.
The Burns Harbor Division operates two 1,000 foot ore vessels (one
owned and one under long-term charter), which are used for the transportation
of iron ore on the Great Lakes.
PROPERTIES RELATING TO THE STEEL RELATED OPERATIONS SEGMENT
BethForge, Inc. has a facility for the production of forgings and
castings located in Bethlehem, Pennsylvania. An ingot teeming facility and
vacuum stream degassing unit are being installed for BethForge's use at
Pennsylvania Steel Technologies, Inc. in order to take advantage of the new DC
electric arc furnace, ladle refining station and vacuum tank degassing unit
recently installed as part of Pennsylvania Steel Technologies' modernization
program. This new facility, with its lower cost, higher quality ingots, will
replace BethForge's existing steelmaking facility during 1995.
CENTEC has a facility for the production of centrifugally cast rolls
located in Bethlehem, Pennsylvania.
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Bethlehem's BethShip Division has marine construction facilities
consisting of a ship repair yard at Sparrows Point, Maryland, and a dry dock
facility for the repair and inspection of offshore drill rigs and other vessels
at Port Arthur, Texas. The dry dock facility at Port Arthur, Texas is for
sale.
GENERAL
While Bethlehem's principal operations and facilities are adequately
maintained, they are of varying ages, technologies and operating efficiencies.
Bethlehem believes that most of its operations and facilities currently are
competitive with the operations and facilities of its principal competitors.
Bethlehem will continue to make capital expenditures to maintain the
competitiveness of its operations and facilities. See "ITEM 1.
BUSINESS--General--Capital Expenditures" of this Report for a discussion of
Bethlehem's capital expenditures.
All principal operations and facilities are owned in fee by Bethlehem
except for two continuous casters at Sparrows Point and Burns Harbor, a coal
cleaning and processing facility at High Power Mountain in West Virginia and
the drill rig repair facility at Port Arthur, Texas, each of which is being
leased. As discussed in Note F to the Consolidated Financial Statements,
Bethlehem capitalized the expenditures related to the leases for two continuous
casters, and financed the construction of two new hot-dip galvanizing lines at
its Burns Harbor and Sparrows Point operations. These two facilities are
pledged as collateral for the borrowings.
ITEM 3. LEGAL PROCEEDINGS.
Bethlehem is a party to numerous legal proceedings incurred in the
ordinary course of its business, including the matters specifically discussed
below.
On October 4, 1990, the State of Maryland Department of the
Environment (the "MDE") filed a civil action against Bethlehem in the Circuit
Court of Baltimore County, Maryland seeking civil penalties for alleged
violations of the Maryland air pollution regulations arising out of exceedances
of the visible emissions standards established for various sources at the
Sparrows Point Division by an October 1987 Consent Order, as amended in June
1989. On April 30, 1991, the MDE filed a complaint in intervention in a civil
action filed on April 25, 1991 by the Justice Department on behalf of the
United States Environmental Protection Agency (the "EPA") against Bethlehem,
alleging violations of the Clean Air Act resulting from alleged violations of
Maryland air pollution regulations at the Sparrows Point Division. The
complaint in intervention, which was approved by the Court on June 14, 1991,
incorporated all of the violations alleged in the MDE complaint. On May 1,
1992, a settlement between the parties to the EPA action was memorialized in a
Consent Decree, which was entered by the Court on July 1, 1992. The Consent
Decree resolved all of the issues in both the federal and state actions except
for a single count in the MDE action dealing with alleged violations from the
basic oxygen furnace. Bethlehem and the MDE have entered into discussions
concerning potential settlement of the remaining count in the MDE action.
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On October 16, 1990, the Justice Department on behalf of 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 remains pending before the Seventh Circuit.
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
for emissions from the Lackawanna coke ovens. The Order, which originally
covered alleged violations for the period from May 1, 1990 through October 7,
1991, has been supplemented to cover all alleged violations of state air
pollution regulations up to the date of execution of the proposed Order and to
cite Bethlehem for failure to properly operate its sulfur recovery system in
the coal chemical by-products plant and failure to properly certify opacity
monitors on the under fire stacks of the coke oven batteries. In addition, the
currently proposed Order includes a civil penalty of $1.1 million. Bethlehem
has entered into negotiations with the DEC to attempt to resolve this matter.
If those negotiations are unsuccessful, Bethlehem believes it has meritorious
defenses and will vigorously defend the action.
BethEnergy Mines Inc. (formerly Bethlehem Minerals Company), a
subsidiary of Bethlehem, is a party to an action entitled Church and Mullins,
et al v. Bethlehem Minerals Company, et al. The case involves 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.
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On December 23, 1994, the Court denied the Motion, upholding the original
verdict, plus interest. Bethlehem has paid $37.6 million, representing the
full amount of the judgment, including interest, into the trial court and
intends to seek review by the U. S. Supreme Court. An adverse final
resolution of the case will not have any other effect on Bethlehem's results of
operations because Bethlehem sold its Kentucky coal operations in 1988.
The Justice Department, the EPA and the Texas Natural Resource
Conservation Commission (formerly Texas Water Commission) have 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 includes the above
operations and the usage, treatment, storage and disposal of those materials.
Bethlehem has cooperated with the authorities as to the conduct of the
investigation. The Department of Justice has indicated that it intends to
institute a criminal action against BethShip Sabine Yard, and Bethlehem is
engaged in discussions seeking a resolution of the issues involved.
On January 13, 1993, the EPA issued an Administrative Complaint
alleging that Bethlehem had failed to report certain spills of hazardous
substances from various locations at the Burns Harbor Division as required by
Section 103 of the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"). The EPA proposed a civil penalty
of $207,750. Bethlehem and the EPA entered into discussions concerning
potential settlement of the action. Following meetings in which Bethlehem
demonstrated to the EPA that none of the spills involved reportable quantities,
the EPA filed motions with the Administrative Law Judge to withdraw all counts
of the complaint. On December 14, 1994, the Administrative Law Judge dismissed
the complaint.
On June 9, 1994, the EPA issued an administrative Complaint and Notice
of Opportunity for Hearing alleging several violations of the polychlorinated
biphenyl (PCB) regulations under the Toxic Substance Control Act by Bethlehem
at the Sparrows Point Division. The Complaint sets forth a proposed civil
penalty of $145,500. On June 30, 1994, Bethlehem filed its Answer and Request
for Hearing. Settlement discussions have been initiated between Bethlehem and
the EPA. If such discussions do not succeed, Bethlehem believes it has
meritorious defenses and will vigorously defend the action.
See "ITEM 1. BUSINESS--General--Environmental Control and Cleanup
Expenditures" of this Report for a discussion of Bethlehem's potential
responsibilities for environmental cleanup at certain sites under RCRA and
CERCLA.
Bethlehem cannot predict with any certainty the outcome of any legal
proceedings to which it is a party. However, in the opinion of Bethlehem's
management, adequate reserves have been recorded for losses which are likely to
result from these proceedings. To the extent that such reserves prove to be
inadequate, Bethlehem would incur a charge to earnings which could be material
to its future results of operations in particular quarterly or annual periods.
The outcome of these proceedings, however, is not currently expected to have a
material adverse effect on Bethlehem's consolidated financial position.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders during
the fourth quarter of 1994.
- -------------------------------
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EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers of Bethlehem as of March 15, 1995, are as
follows:
NAME AGE POSITION
---- --- --------
Curtis H. Barnette 60 Chairman (Chief Executive Officer)
Roger P. Penny 58 President (Chief Operating Officer)
Gary L. Millenbruch 57 Executive Vice President (Chief
Financial Officer) and Treasurer
John A. Jordan, Jr. 59 Senior Vice President (Administration)
David P. Post 61 Senior Vice President (Commercial)
Lonnie A. Arnett 49 Vice President and Controller
(Accounting)
Dr. Walter N. Bargeron 52 President, Services Division (Chief
Technology Officer)
Stephen G. Donches 49 Vice President (Public Affairs)
Duane R. Dunham 53 President, Sparrows Point Division
Joseph F. Emig 57 President, Burns Harbor Division
Andrew R. Futchko 52 President, Pennsylvania Steel
Technologies, Inc.
William H. Graham 49 Vice President (Law),
General Counsel and Secretary
John L. Kluttz 52 Vice President (Union Relations)
Timothy Lewis 57 President, Bethlehem Structural
Products Corporation
Dr. Carl F. Meitzner 55 Vice President (Planning)
Dr. Augustine E. Moffitt, Jr. 49 Vice President (Safety, Health and
Environment)
William E. Wickert, Jr. 63 Vice President (Federal Government
Affairs)
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All of the executive officers have held responsible management or
professional positions with Bethlehem or its subsidiaries for more than the
past five years.
The By-laws of Bethlehem provide that the officers shall be chosen
annually by the Board of Directors and that each officer shall hold office
until his successor shall have been elected and shall qualify or until his
earlier death or his earlier resignation or removal in the manner provided in
the By-laws.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS.
As of March 15, 1995, there were 110,056,163 shares of Bethlehem
Common Stock outstanding held by approximately 40,000 stockholders of record.
The principal market for Bethlehem Common Stock is the New York Stock Exchange.
Bethlehem Common Stock is also listed on the Chicago Stock Exchange. Dividends
on Bethlehem Common Stock are paid quarterly when declared by
Bethlehem's Board of Directors.
Under the provisions of Bethlehem's 10-3/8% Senior Notes due 2003,
Bethlehem's ability to pay dividends on its Common Stock is restricted. See
Note L to the Consolidated Financial Statements. At March 15, 1995, $435
million was available for the payment of Common Stock dividends under these
provisions.
Bethlehem has not paid a dividend on its Common Stock since the fourth
quarter of 1991. In accordance with Bethlehem's policy, future dividends will
be determined by the Board of Directors (subject to any applicable
restrictions) on the basis of attained results and the business outlook.
The following table sets forth, for the periods indicated, the high
and low sales prices of Bethlehem Common Stock as reported in the consolidated
transaction reporting system. The closing sale price of Bethlehem Common Stock
on March 15, 1995, as reported in the consolidated transaction reporting
system, was $15.625.
1994 1993
------------------------- ---------------------------
SALES PRICES SALES PRICES
------------------------- ---------------------------
PERIOD HIGH LOW HIGH LOW
------ ---- --- ---- ---
First Quarter $24.125 $19.875 $20.000 $14.875
Second Quarter 21.875 16.875 21.000 16.375
Third Quarter 23.750 18.875 19.125 12.875
Fourth Quarter 20.625 16.500 20.625 13.750
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this Item is incorporated by reference
from page 22 of Bethlehem's 1994 Annual Report to Stockholders. With the
exception of the information specifically incorporated by reference, the 1994
Annual Report to Stockholders is not to be deemed filed as part of this Report
for purposes of this Item.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The information required by this Item is incorporated by reference
from pages 2 to 5 and 7 to 10, inclusive, of Bethlehem's 1994 Annual Report to
Stockholders. With the exception of the information specifically incorporated
by reference, the 1994 Annual Report to Stockholders is not to be deemed filed
as part of this Report for purposes of this Item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this Item is incorporated by reference
from pages 11 to 20, inclusive, of Bethlehem's 1994 Annual Report to
Stockholders. With the exception of the information specifically incorporated
by reference, the 1994 Annual Report to Stockholders is not to be deemed filed
as part of this Report for purposes of this Item.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
In addition to the information set forth under the caption "Executive
Officers of the Registrant" in Part I of this Report, the information required
by this Item is incorporated by reference from pages 2 to 6, inclusive, of
Bethlehem's Proxy Statement for the 1995 Annual Meeting of Stockholders. With
the exception of the information specifically incorporated by reference,
Bethlehem's Proxy Statement is not to be deemed filed as part of this Report
for purposes of this Item.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is incorporated by reference
from pages 10 to 16, inclusive, of Bethlehem's Proxy Statement for the 1995
Annual Meeting of Stockholders. With the exception of the information
specifically incorporated by reference, Bethlehem's Proxy Statement is not to
be deemed filed as part of this Report for purposes of this Item.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information required by this Item is incorporated by reference
from pages 7 and 17 to 18, inclusive, of Bethlehem's Proxy Statement for the
1995 Annual Meeting of Stockholders. With the exception of the information
specifically incorporated by reference, Bethlehem's Proxy Statement is not to
be deemed filed as part of this Report for purposes of this Item.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is incorporated by reference
from the material appearing under the heading "Indemnification Assurance
Agreements" appearing on page 17 of Bethlehem's Proxy Statement for the 1995
Annual Meeting of Stockholders. With the exception of the information
specifically incorporated by reference, Bethlehem's Proxy Statement is not to
be deemed filed as part of this Report for purposes of this Item.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(a) DOCUMENTS FILED AS PART OF THIS REPORT:
The following is an index of the financial statements,
schedules and exhibits included in this Report or incorporated herein
by reference.
(1) FINANCIAL STATEMENTS.
BETHLEHEM STEEL CORPORATION AND CONSOLIDATED SUBSIDIARIES
PAGE
----
Consolidated Statements of Income for the years 1994, 1993 and 1992 . . . . . . . . . *
Consolidated Balance Sheets, December 31, 1994 and
December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
Consolidated Statements of Cash Flows for the years 1994,
1993 and 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
Notes to Consolidated Financial Statements
(Including Quarterly Financial Data) . . . . . . . . . . . . . . . . . . . . . . . *
(2) CONSOLIDATED FINANCIAL STATEMENT SCHEDULES.
Report of Independent Auditors On Consolidated Financial
Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Schedules:
II -- Valuation and Qualifying Accounts and Reserves, years
ended December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . F-3
-----------------------
* Incorporated in this Report by reference from pages 11 to 20,
inclusive, of Bethlehem's 1994 Annual Report to Stockholders
referred to below.
26
28
The Consolidated Financial Statements, together with the report thereon
of Price Waterhouse LLP dated January 25, 1995, appearing on pages 11 to 21,
inclusive, of the 1994 Annual Report to Stockholders are incorporated by
reference in this Form 10-K Annual Report. With the exception of those pages,
the 1994 Annual Report to Stockholders is not to be deemed filed as part of
this Report for purposes of this Item. The Schedules listed above should be
read in conjunction with the consolidated financial statements in such 1994
Annual Report to Stockholders.
Schedules not included have been omitted because they are not
applicable or the required information is shown in the consolidated financial
statements or notes thereto.
Separate financial statements of subsidiaries not consolidated and 50
per cent or less owned persons accounted for by the equity method have been
omitted because considered in the aggregate as a single subsidiary they do not
constitute a significant subsidiary.
(3) EXHIBITS.
The following is an index of the exhibits included in this Report or
incorporated herein by reference.
(3)(a) Second Restated Certificate of Incorporation (Incorporated
by reference from Exhibit 3 to Bethlehem's quarterly report
on Form 10-Q for the quarter ended March 31, 1994).
(b) By-laws of Bethlehem Steel Corporation, as amended October
1, 1988 (Incorporated by reference from Exhibit (3)(b) to
Bethlehem's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993).
(4)(a) Rights Agreement, dated as of September 28, 1988, between
Bethlehem Steel Corporation and Morgan Shareholder Services
Trust Company (Incorporated by reference from Exhibit
(4)(a) to Bethlehem's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993).
*(10)(a) Excess Benefit Plan of Bethlehem Steel Corporation and
Subsidiary Companies, as amended July 29, 1992
(Incorporated by reference from Exhibit 10(a) to
Bethlehem's quarterly report on Form 10-Q for the quarter
ended June 30, 1992).
*(b) 1988 Stock Incentive Plan of Bethlehem Steel Corporation
(Incorporated by reference from Exhibit 10(b) to
Bethlehem's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992).
- --------------------------
* Compensatory plans in which Bethlehem's directors and executive officers
participate.
27
29
*(c) 1994 Stock Incentive Plan of Bethlehem Steel Corporation
(Incorporated by reference from Exhibit 1 to Bethlehem's
Proxy Statement in connection with its Annual Meeting of
Shareholders held on April 26, 1994).
*(d) 1994 Non-Employee Directors Stock Plan of Bethlehem Steel
Corporation (Incorporated by reference from Exhibit 2 to
Bethlehem's Proxy Statement in connection with its Annual
Meeting of Shareholders held on April 26, 1994).
*(e) Special Incentive Compensation Plan of Bethlehem Steel
Corporation, which is contained in Article Seven of the
Second Restated Certificate of Incorporation referred to in
Exhibit 3(a) to this Report.
*(f) Supplemental Benefits Plan of Bethlehem Steel Corporation
and Subsidiary Companies, as amended July 29, 1992
(Incorporated by reference from Exhibit 10(b) to
Bethlehem's quarterly report on Form 10-Q for the quarter
ended June 30, 1992).
*(g) Post-Retirement Retainer Plan for Non-Officer Directors
(Incorporated by reference from Exhibit (10)(o) to
Bethlehem's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992).
(h) Form of Indemnification Assurance Agreement between
Bethlehem Steel Corporation and each of its directors and
executive officers listed on Schedule A thereto.
(11) Statement regarding computation of per share earnings.
(13) Those portions of the 1994 Annual Report to Stockholders of
Bethlehem Steel Corporation which are incorporated by
reference into this Form 10-K Annual Report.
(21) Subsidiaries of Bethlehem Steel Corporation.
(23) Consent of Independent Auditors (included on page F-2 of
this Report).
(24) Power of Attorney.
(27) Financial Data Schedule.
- --------------------------
* Compensatory plans in which Bethlehem's directors and executive officers
participate.
28
30
(B) REPORTS ON FORM 8-K.
During the quarter ended December 31, 1994, no reports on Form 8-K
were filed by Bethlehem.
29
31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, Bethlehem Steel Corporation has
duly caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized, on the 23rd day of March, 1995.
BETHLEHEM STEEL CORPORATION,
by /s/ Lonnie A. Arnett
--------------------------------------
Lonnie A. Arnett
Vice President and Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has been signed below by the following persons on behalf
of Bethlehem Steel Corporation and in the capacities indicated on the 23rd
day of March, 1995.
/s/ Curtis H. Barnette *
---------------------------------------- ----------------------------------------
Curtis H. Barnette John B. Curcio
Chairman and Director Director
(principal executive officer)
/s/ Gary L. Millenbruch *
---------------------------------------- ----------------------------------------
Gary L. Millenbruch William C. Hittinger
Executive Vice President, Treasurer Director
and Director
(principal financial officer)
/s/ Lonnie A. Arnett *
---------------------------------------- ----------------------------------------
Lonnie A. Arnett Thomas L. Holton
Vice President and Controller Director
(principal accounting officer)
* *
---------------------------------------- ----------------------------------------
Benjamin R. Civiletti Lewis B. Kaden
Director Director
* *
---------------------------------------- ----------------------------------------
Worley H. Clark Harry P. Kamen
Director Director
* *
---------------------------------------- ----------------------------------------
Herman E. Collier, Jr. Winthrop Knowlton
Director Director
30
32
* *
---------------------------------------- ----------------------------------------
Robert McClements, Jr. William A. Pogue
Director Director
* *
---------------------------------------- ----------------------------------------
Roger P. Penny John F. Ruffle
Director Director
*
----------------------------------------
Dean P. Phypers
Director
*By /s/ Lonnie A. Arnett
------------------------------------
Lonnie A. Arnett
(Attorney-in-Fact)
31
33
REPORT OF INDEPENDENT AUDITORS
ON FINANCIAL STATEMENT SCHEDULES
To the Board of Directors and Stockholders
of Bethlehem Steel Corporation
Our audits of the consolidated financial statements referred to in our report
dated January 25, 1995 appearing on page 21 of the 1994 Annual Report to
Stockholders of Bethlehem Steel Corporation (which report and consolidated
financial statements are incorporated by reference in this Annual Report on
Form 10-K) also included an audit of the Financial Statement Schedules listed
in Item 14(a)(2) of this Form 10-K. In our opinion, these Financial Statement
Schedules present fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.
/s/ PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, NY 10036
January 25, 1995
F-1
34
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 2-90795, No. 2-71699, No. 2-53880, No. 2-90796,
No. 2-67314, No. 33-23516, No. 33-23688, No. 33-52267, No. 33-58019
and No. 33-58021) of our report dated January 25, 1995, appearing
on page 21 of the 1994 Annual Report to Stockholders of Bethlehem
Steel Corporation which is incorporated by reference in Bethlehem Steel
Corporation's Annual Report on Form 10-K for the year ended December 31, 1994.
We also consent to the incorporation by reference of our report on the
Financial Statement Schedules, which appears on page F-1 of this Form 10-K.
/s/ PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, NY 10036
March 23, 1995
F-2
35
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(dollars in millions)
Charged
Balance at (Credited) Deductions Balance at
Classification 12/31/93 to Income From Reserves Other 12/31/94
- -------------- ---------- ---------- ------------- ----- ----------
Allowance for doubtful receivables and returns..... $16.3 $2.4 ($0.1)(a) $ - $18.6
Allowance for long-term receivables................ 4.5 - - - 4.5
Allowance for deferred income tax asset............ 406.7 (13.0) - (10.5)(b) 383.2
Balance at Charged Deductions Balance at
Classification 12/31/92 to Income From Reserves Other 12/31/93
- -------------- ---------- ---------- ------------- ----- ----------
Allowance for doubtful receivables and returns..... $15.7 $7.5 ($6.9)(a) $ - $16.3
Allowance for long-term receivables................ 5.3 - (0.8)(a) - 4.5
Allowance for deferred income tax asset............ 309.2 87.0 - 10.5(b) 406.7
Balance at Charged Deductions Balance at
Classification 12/31/91 to Income From Reserves Other 12/31/92
- -------------- ---------- ---------- ------------- ----- ----------
Allowance for doubtful receivables and returns..... $18.1 $6.0 ($8.4)(a) $ - $15.7
Allowance for long-term receivables................ 4.9 1.2 (0.8)(a) - 5.3
Allowance for deferred income tax asset............ - 309.2 - - 309.2
(a) Amounts written-off less collections and reinstatements.
(b) Represents the valuation allowance recorded for a $60.5 million ($50
million after-tax) adjustment to equity required to recognize the minimum
pension liability. See Note H to the Consolidated Financial Statements.
F-3
36
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
(3)(a) Second Restated Certificate of Incorporation (Incorporated
by reference from Exhibit 3 to Bethlehem's quarterly report
on Form 10-Q for the quarter ended March 31, 1994).
(b) By-laws of Bethlehem Steel Corporation, as amended October
1, 1988 (Incorporated by reference from Exhibit (3)(b) to
Bethlehem's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993).
(4)(a) Rights Agreement, dated as of September 28, 1988, between
Bethlehem Steel Corporation and Morgan Shareholder Services
Trust Company (Incorporated by reference from Exhibit
(4)(a) to Bethlehem's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993).
*(10)(a) Excess Benefit Plan of Bethlehem Steel Corporation and
Subsidiary Companies, as amended July 29, 1992
(Incorporated by reference from Exhibit 10(a) to
Bethlehem's quarterly report on Form 10-Q for the quarter
ended June 30, 1992).
*(b) 1988 Stock Incentive Plan of Bethlehem Steel Corporation
(Incorporated by reference from Exhibit 10(b) to
Bethlehem's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992).
- --------------------------
* Compensatory plans in which Bethlehem's directors and executive officers
participate.
37
*(c) 1994 Stock Incentive Plan of Bethlehem Steel Corporation
(Incorporated by reference from Exhibit 1 to Bethlehem's
Proxy Statement in connection with its Annual Meeting of
Shareholders held on April 26, 1994).
*(d) 1994 Non-Employee Directors Stock Plan of Bethlehem Steel
Corporation (Incorporated by reference from Exhibit 2 to
Bethlehem's Proxy Statement in connection with its Annual
Meeting of Shareholders held on April 26, 1994).
*(e) Special Incentive Compensation Plan of Bethlehem Steel
Corporation, which is contained in Article Seven of the
Second Restated Certificate of Incorporation referred to in
Exhibit 3(a) to this Report.
*(f) Supplemental Benefits Plan of Bethlehem Steel Corporation
and Subsidiary Companies, as amended July 29, 1992
(Incorporated by reference from Exhibit 10(b) to
Bethlehem's quarterly report on Form 10-Q for the quarter
ended June 30, 1992).
*(g) Post-Retirement Retainer Plan for Non-Officer Directors
(Incorporated by reference from Exhibit (10)(o) to
Bethlehem's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992).
(h) Form of Indemnification Assurance Agreement between
Bethlehem Steel Corporation and each of its directors and
executive officers listed on Schedule A thereto.
(11) Statement regarding computation of per share earnings.
(13) Those portions of the 1994 Annual Report to Stockholders of
Bethlehem Steel Corporation which are incorporated by
reference into this Form 10-K Annual Report.
(21) Subsidiaries of Bethlehem Steel Corporation.
(23) Consent of Independent Auditors (included on page F-2 of
this Report).
(24) Power of Attorney.
(27) Financial Data Schedule.
- --------------------------
* Compensatory plans in which Bethlehem's directors and executive officers
participate.