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, 2003
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
BETHLEHEM, PENNSYLVANIA 18016-7699
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 694-6997
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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934).
Yes No X
----- -----
Number of Shares of Common Stock Outstanding as of November 13, 2003:
135,486,463
BETHLEHEM STEEL CORPORATION AND CONSOLIDATED SUBSIDIARIES
INDEX
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statements of Operations -
Three and Nine Months Ended September 30, 2003
and 2002 (unaudited)................................................... 2
Consolidated Statement of Net Liabilities in Liquidation -
September 30, 2003 (unaudited) ........................................ 3
Consolidated Balance Sheet -
December 31, 2002...................................................... 4
Consolidated Statements of Cash Flows -
Four Months Ended April 30, 2003 and
Nine Months Ended September 30, 2002 (unaudited)....................... 5
Consolidated Statement of Receipts and Disbursements-
May 1 to September 30, 2003 (unaudited)................................ 6
Notes to Consolidated Financial Statements (unaudited)..................... 7
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition............................... 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk........... 16
Item 4. Controls and Procedures.............................................. 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................. 17
Item 3. Defaults Upon Senior Securities............................... 17
Item 5. Other Information............................................. 17
Item 6. Exhibits and Reports on Form 8-K.............................. 18
Signatures ................................................................... 20
1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BETHLEHEM STEEL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in millions)
(unaudited)
(Note 1) (Note 1)
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
September 30 September 30 September 30 September 30
2003 2002 2003 2002
- ------------ ----------- ------------ ------------
$ - $ 938.5 NET SALES $ 1,238.8 $ 2,675.8
- ------------ ----------- ------------ ------------
COSTS AND EXPENSES
- 887.5 Cost of sales 1,152.5 2,630.2
- 64.1 Depreciation 70.8 187.0
- 19.7 Selling, administration and general expense 22.5 67.1
- 2.5 Unusual charges (Note 3) 2,300.0 22.5
- ------------ ----------- ------------ ------------
- 973.8 TOTAL COSTS AND EXPENSES 3,545.8 2,906.8
- ------------ ----------- ------------ ------------
- (35.3) LOSS FROM OPERATIONS (2,307.0) (231.0)
- (4.9) REORGANIZATION ITEMS (Note 5) (7.7) (10.7)
- (14.0) FINANCING EXPENSE - NET (Note 6) (16.7) (39.0)
- ------------ ----------- ------------ ------------
- (54.2) LOSS BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE (2,331.4) (280.7)
- - BENEFIT FROM INCOME TAXES (Note 7) - 10.3
- ------------ ----------- ------------ ------------
- (54.2) LOSS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE (2,331.4) (270.4)
- - CUMULATIVE EFFECT OF ACCOUNTING CHANGE (Note 4) (12.5) -
- ------------ ----------- ------------ ------------
- (54.2) NET LOSS (2,343.9) (270.4)
8.7 9.8 DIVIDEND REQUIREMENTS ON PREFERRED AND PREFERENCE STOCK (Note 9) 27.3 29.6
- ------------ ----------- ------------ ------------
$ (8.7) $ (64.0) NET LOSS APPLICABLE TO COMMON STOCK $ (2,371.2) $ (300.0)
============ =========== ============ ============
NET LOSS PER COMMON SHARE (BASIC AND DILUTED):
$ (0.06) $ (0.49) Net loss before cumulative effect of accounting change $ (17.74) $ (2.29)
- - Cumulative effect of accounting change (0.10) -
- ------------ ----------- ------------ ------------
$ (0.06) $ (0.49) Net loss per common share $ (17.84) $ (2.29)
============ =========== ============ ============
AVERAGE SHARES OUTSTANDING:
135.7 131.0 Basic and Diluted 132.9 131.0
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
2
BETHLEHEM STEEL CORPORATION
CONSOLIDATED STATEMENT OF NET LIABILITIES IN LIQUIDATION
(dollars in millions)
SEPTEMBER 30
2003
(unaudited)
------------------
CURRENT ASSETS:
Cash and cash equivalents $ 94.1
Other current assets 1.3
------------------
TOTAL CURRENT ASSETS 95.4
INVESTMENTS AND MISCELLANEOUS ASSETS 15.0
------------------
TOTAL ASSETS 110.4
------------------
CURRENT LIABILITIES:
Accounts payable and other accrued liabilities $ 30.1
LIABILITIES SUBJECT TO COMPROMISE (Note 8) 5,847.7
------------------
TOTAL LIABILITIES 5,877.8
------------------
NET LIABILITIES IN LIQUIDATION (Note 2) $ (5,767.4)
==================
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
3
BETHLEHEM STEEL CORPORATION
CONSOLIDATED BALANCE SHEET
(dollars in millions)
ASSETS
DECEMBER 31
2002
---------------
CURRENT ASSETS:
Cash and cash equivalents $ 67.6
Receivables - net 350.2
Inventories:
Raw materials 224.6
Finished and semifinished 516.3
---------------
Total Inventories 740.9
Other current assets 27.6
---------------
TOTAL CURRENT ASSETS 1,186.3
INVESTMENTS AND MISCELLANEOUS ASSETS 76.9
PROPERTY, PLANT AND EQUIPMENT - NET 2,615.5
---------------
TOTAL ASSETS $ 3,878.7
===============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 167.6
Accrued employment costs 102.6
Accrued taxes 31.3
Debt and capital lease obligations - current 695.7
Other current liabilities 50.1
---------------
TOTAL CURRENT LIABILITIES 1,047.3
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS 84.9
DEFERRED GAIN 81.5
LONG-TERM LIABILITIES 41.8
LIABILITIES SUBJECT TO COMPROMISE (Note 8) 6,073.4
STOCKHOLDERS' DEFICIT:
Preferred Stock 11.3
Preference Stock 2.0
Common Stock 136.1
Common Stock held in treasury at cost (65.9)
Additional paid-in capital 1,909.9
Accumulated other comprehensive loss (1,905.0)
Accumulated deficit (3,538.6)
---------------
TOTAL STOCKHOLDERS' DEFICIT (3,450.2)
---------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 3,878.7
===============
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
4
BETHLEHEM STEEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
(unaudited)
(Note 1)
FOUR MONTHS NINE MONTHS
ENDED ENDED
APRIL 30 SEPTEMBER 30
2003 2002
-------------------- --------------------
OPERATING ACTIVITIES:
Net loss $ (2,343.9) $ (270.4)
Adjustments for items not affecting cash from operating activities:
Depreciation and amortization 70.8 187.0
Unusual charges (Note 3) 2,300.0 22.5
Cumulative effect of accounting change (Note 4) 12.5 -
Recognition of deferred gains (7.2) (16.3)
Reorganization items 7.7 10.7
Other - net 0.7 8.8
Working capital (excluding financing and investing activities):
Receivables (27.6) (37.6)
Inventories 38.9 (20.3)
Accounts payable 33.0 (20.7)
Other (12.0) 25.2
Funding postretirement benefits:
Pension funding less than expense (Note 1) - 103.7
Retiree healthcare and life insurance benefit payments (more)
less than expense (7.3) 35.9
-------------------- --------------------
CASH PROVIDED BY OPERATING ACTIVITIES BEFORE REORGANIZATION ITEMS 65.6 28.5
-------------------- --------------------
Reorganization items (7.7) (10.7)
-------------------- --------------------
CASH PROVIDED BY OPERATING ACTIVITIES 57.9 17.8
-------------------- --------------------
INVESTING ACTIVITIES:
Capital expenditures (26.1) (74.5)
Cash proceeds from asset sales 11.9 25.7
-------------------- --------------------
CASH USED FOR INVESTING ACTIVITIES (14.2) (48.8)
-------------------- --------------------
FINANCING ACTIVITIES:
Borrowings 15.0 90.6
Debt and capital lease payments (25.5) (58.2)
Other payments (10.6) (19.1)
-------------------- --------------------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES (21.1) 13.3
-------------------- --------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 22.6 (17.7)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 67.6 104.0
-------------------- --------------------
- END OF PERIOD $ 90.2 $ 86.3
==================== ====================
SUPPLEMENTAL CASH INFORMATION:
Interest and other financing costs, net of amount capitalized $ 18.7 $ 32.4
Income taxes received - (8.0)
Capital lease obligations incurred - 1.9
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
5
BETHLEHEM STEEL CORPORATION
CONSOLIDATED STATEMENT OF RECEIPTS AND DISBURSEMENTS
(dollars in millions)
(unaudited)
MAY 1 TO
SEPTEMBER 30
2003
------------------
RECEIPTS:
Proceeds from asset sale (Note 1) $872.4
Proceeds from benefit trusts 15.5
Refund letters of credit collateralization 3.1
Litigation settlements 2.9
Returned premiums from insurance policies 2.8
Other 2.2
------------------
Total Receipts 898.9
DISBURSEMENTS:
Debt repayments 617.0
Accrued payroll 66.3
Accrued employee benefits 55.1
Property and other taxes 16.4
Reorganization costs (Note 5) 13.8
Settlement of litigation (Note 1) 10.0
Working capital adjustment (Note 1) 9.3
Collateralize letters of credit 11.6
Other 4.0
Reclamation claim settled 1.3
------------------
Total Disbursements 804.8
------------------
CASH ON HAND, ENDING $94.1
==================
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
6
BETHLEHEM STEEL CORPORATION
NOTES TO SEPTEMBER 30, 2003 CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. These Consolidated Financial Statements are unaudited and should be read
together with audited financial statements in Bethlehem's Annual Report on Form
10-K for the year ended December 31, 2002 and other reports filed with the
Securities and Exchange Commission during 2003.
On October 15, 2001, Bethlehem Steel Corporation and 22 of its wholly owned
subsidiaries (collectively, the Debtors) filed voluntary petitions for relief
under chapter 11 of the United States Code (the Code) in the United States
Bankruptcy Court for the Southern District of New York (the Court).
On March 12, 2003, we signed an asset purchase agreement (APA) to sell
substantially all of our assets to a subsidiary of International Steel Group,
Inc. (ISG) for cash, ISG Class B common stock and the assumption of certain
liabilities. The APA was approved by the Court on April 22, 2003. In connection
with the approval of the APA, among other matters, the United Steelworkers of
America agreed to release substantially all claims against Bethlehem and
subsidiary companies; the trustees of the funds under the Coal Industry Health
Benefit Retiree Act of 1992 agreed to withdraw their civil action filed on March
18, 2003 in the United States District Court for the District of Columbia for
injunctive relief and agreed to settle certain claims against Bethlehem and
"related persons"; and the Pension Benefit Guaranty Corporation (PBGC) agreed to
release certain claims against any member of Bethlehem's "controlled group"
under Title IV of ERISA.
Closing of the sale of substantially all of our assets to ISG was completed on
May 7, 2003, however, the effective closing date for financial purposes was the
opening of business on May 1, 2003. At closing Bethlehem received approximately
$752 million in cash and a $120 million receivable (all of which has
subsequently been collected), the total of which is expected to be sufficient to
satisfy all allowed secured, administrative and priority claims, with any excess
cash being paid to ISG before Bethlehem's chapter 11 case is closed. Bethlehem
also received at closing ISG Class B common stock, with an expected value of $15
million. Under the terms of the APA, the class B common stock will be returned
to ISG if all allowed secured, administrative and priority claims are not paid.
The terms of the APA required a minimum level of working capital at April 30,
2003. Subsequent to the sale, Bethlehem and ISG determined that ISG was due
approximately $9 million for adjustments to April 30, 2003 working capital.
Bethlehem returned this amount to ISG during August 2003.
As a result of the sale, Bethlehem no longer has operations effective April 30,
2003. Bethlehem filed a chapter 11 Plan of Liquidation (Plan) and a Disclosure
Statement with the Court on July 29, 2003. At a hearing held on October 22,
2003, the Court confirmed the Plan. Under the terms of the Plan, all
administrative expense claims, priority and non-priority tax claims and all
other secured claims will be satisfied and then Bethlehem and its debtor
subsidiaries will either be dissolved or merged into another debtor, as
appropriate. Bethlehem expects this process will be completed by December 31,
2003. Upon dissolution, a liquidating trust will be formed to distribute to
allowed unsecured creditors the $15 million in ISG class B common stock or the
proceeds from the sale of such stock, $0.6 million in proceeds from a benefit
trust and proceeds from any bankruptcy avoidance actions. No value will be
distributed to Bethlehem's common, preferred or preference equity holders. A
copy of the Plan has been filed with the Securities and Exchange Commission.
As a result of no longer having operations, the consolidated statement of
operations for the third quarter of 2003 does not include any operating results
and the 2003 year-to-date results include only four months of operating results
through April 30, 2003. The consolidated statement of cash flows for 2003 is for
the period January 1, 2003 through April 30, 2003. A consolidated statement of
receipts and disbursements for the period May 1, 2003 through September 30, 2003
has been included as part of the consolidated financial statements. Bethlehem
has adopted the liquidation basis of accounting effective April 30, 2003 and the
consolidated financial statements include a consolidated statement of net
liabilities in liquidation as of September 30, 2003.
7
On March 25, 2003, the Court approved a motion under section 1114 of the Code
terminating retiree health care and life insurance benefits (OPEB) for claims
incurred after March 31, 2003, for substantially all current and future retired
employees and their eligible dependents. Claims incurred on or before March 31,
2003 and received on or before May 31, 2003 will be paid. If sufficient funds
are available after all allowed secured, priority and administrative claims have
been paid, the Court also has required Bethlehem to reimburse up to two weeks of
COBRA premiums paid by Bethlehem's COBRA enrollees. Bethlehem expects to have
sufficient funds for this reimbursement and has reflected the amounts in other
current liabilities at September 30, 2003. As a result of the Court's action, we
did not record any OPEB expense for the month of April 2003.
On December 18, 2002, the PBGC filed a complaint in the United States District
Court for the Eastern District of Pennsylvania alleging there was sufficient
cause under applicable laws to terminate the Pension Plan of Bethlehem Steel
Corporation and Subsidiary Companies (the Pension Plan). The complaint
requested, among other things, that December 18, 2002 be established as the
Pension Plan's termination date and that the PBGC be appointed the Pension
Plan's ERISA trustee with full responsibility for managing Pension Plan assets
and administering Pension Plan benefits. By agreement dated April 30, 2003, the
litigation was resolved on the basis that the Pension Plan be terminated
effective December 18, 2002 and the PBGC assumed the duties of ERISA trustee of
the Pension Plan effective April 30, 2003. As a result of the PBGC's action to
terminate Bethlehem's Pension Plan, we did not record any pension expense in
2003.
On September 30, 2003 the Court approved an order settling a lawsuit filed by
certain former salaried employees related to alleged severance benefits.
Bethlehem disbursed about $7 million in October 2003 related to this settlement
and has reflected this amount in other current liabilities as of September 30,
2003 in the consolidated statement of net liabilities.
2. As a result of the events mentioned in Note 1, Bethlehem recorded a loss for
impairment of long-lived assets of approximately $2.3 billion and a loss for
unrecognized past service cost resulting from the termination of OPEB of $10
million in March 2003. In addition, Bethlehem adopted the liquidation basis of
accounting as of April 30, 2003. The liquidation basis of accounting required
Bethlehem to accrue approximately $28 million as an estimate for expenses to be
incurred during the period through closing the chapter 11 case. It also requires
that assets be stated at their estimated net realizable value which was
accomplished with the impairment charge recognized in March 2003. Bethlehem also
adjusted certain liabilities to reflect net realizable value. Bethlehem's
pre-petition unsecured liabilities of approximately $6 billion continue to be
valued at their historical basis until "legal release" by the Court. This
release will occur when the ISG Class B common stock, with an expected value of
$15 million, becomes available to distribute to allowed pre-petition unsecured
creditors. Such creditors are also entitled to receive the benefits of any
bankruptcy avoidance claims that Bethlehem may have. These claims have not been
valued at this time.
A summary of changes in net liabilities from March 31 to September 30, 2003
follows ($ in millions):
Stockholders' Deficit at March 31, 2003 $ (5,816.0)
April 2003 net income 22.3
Adoption of liquidation accounting:
Accrual of estimated expenses and other liabilities through closing
the chapter 11 case and other required adjustments 26.3
------------------
Net liabilities at September 30, 2003 $ (5,767.4)
==================
8
The pro forma statement of net liabilities as of September 30, 2003 reflecting
the revaluation of pre-petition unsecured liabilities upon "legal release" to
their anticipated settlement value and other adjustments follows ($ in
millions):
BETHLEHEM STEEL CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF NET LIABILITIES
SEPTEMBER 30, 2003
(a)
Historical Adjustments Pro Forma
----------------- ----------------- -------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 94.1 $ - $ 94.1
Other current assets 1.3 - 1.3
----------------- ----------------- -------------------
Total Current Assets 95.4 - 95.4
Investments 15.0 - 15.0
----------------- ----------------- -------------------
Total Assets 110.4 - 110.4
----------------- ----------------- -------------------
LIABILITIES
Current Liabilities:
Accounts payable and other accrued liabilities 30.1 80.3 110.4
Liabilities Subject to Compromise 5,847.7 (5,847.7) -
----------------- ----------------- -------------------
Total Liabilities 5,877.8 (5,767.4) 110.4
----------------- ----------------- -------------------
Net Liabilities $ (5,767.4) $ 5,767.4 $ -
================= ================= ===================
Notes:
a- Adjustment to write-down liabilities of approximately $5.8 billion to
anticipated settlement amount and reclass to accounts payable and to record
other required adjustments.
3. In March 2003, Bethlehem recorded a loss for impairment of long-lived assets
of approximately $2.3 billion and a loss for unrecognized past service costs
resulting from the termination of OPEB of $10 million as a result of events
described in Note 1 above. In 2002, we recorded a $20 million non-cash charge to
reflect the most current estimate of the probable remediation costs at
Lackawanna. 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.
4. On January 1, 2003, Bethlehem adopted FASB Statement No. 143, Accounting for
Asset Retirement Obligations. The Statement requires the recognition of a
liability and an asset for the estimated cost of disposal as part of the initial
cost of a long-lived asset and subsequent amortization of the asset to expense.
As a result of adopting this Statement, we increased property, plant and
equipment, net by $1 million, other long-term liabilities by $13 million and
recorded a $12 million charge for the "cumulative effect of a change in
accounting principle" to account for depreciation and interest expense that
would have been recorded since the affected assets were placed in service
through December 31, 2002.
9
5. Net costs resulting from reorganization of the businesses, prior to the sale
of substantially all of our assets to ISG, have been reported in the statement
of operations separately as reorganization items. As a result of no longer
having operations only four months of costs are reflected in the nine-month 2003
amounts. For three-month and nine-month periods ended September 30, 2003 and
2002, the following have been recorded ($ in millions):
Three Months Ended Nine Months Ended
----------------------------------- ------------------------------------
2003 2002 2003 2002
----------------- ----------------- ------------------ ----------------
Professional and other fees $ - $ 5.1 $ 7.8 $ 13.3
Gains from termination of contracts - - - (2.0)
Interest income - (0.2) (0.1) (0.6)
----------------- ----------------- ------------------ ----------------
Total $ - $ 4.9 $ 7.7 $ 10.7
================= ================= ================== ================
Net costs resulting from reorganization of the businesses, subsequent to the
sale of substantially all of our assets to ISG, have been reported in the
statement of receipts and disbursements as reorganization items. For the
five-month period ended September 30, 2003, the following have been recorded ($
in millions):
Professional and other fees $ 12.1
Contract termination costs 2.0
Interest income (0.3)
------------------
Total $ 13.8
==================
6. Interest at the stated contractual amount on unsecured debt that was not
charged to earnings as a result of our chapter 11 filing was $0 and
approximately $19 million for the three and nine-month periods ended September
30, 2003 compared to $11 and $32 million for the three-month and nine-month
periods ended September 30, 2002.
7. The income tax benefit recorded in 2002 represents a $10 million tax refund
as a result of the "Job Creation and Workers Assistance Act of 2002" that was
enacted on March 8, 2002. The Act provides us the ability to carry back a
portion of our 2001 Alternative Minimum Tax loss for a refund of taxes paid in
prior years that was not previously available.
8. Liabilities subject to compromise at September 30, 2003 and December 31, 2002
follows ($ in millions):
September 30, December 31,
2003 2002
------------------ --------------------
Pension liability $ 2,849.0 $ 2,849.0
Other post-employment benefits 2,047.1 2,059.0
Unsecured debt 526.7 526.7
Accounts payable 144.0 190.7
Accrued employment costs 161.4 186.7
Other accrued liabilities 68.4 194.6
Accrued taxes and interest 51.1 66.7
------------------ --------------------
Total $ 5,847.7 $ 6,073.4
================== ====================
10
The bar date by which creditors, other than employees and former employees, were
required to file proofs of claim with the Court was September 30, 2002. The bar
date by which employees and former employees as creditors were required to file
proofs of claim was July 11, 2003. 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 claims filed, will take considerable time to complete.
Accordingly, the ultimate number and amount of allowed claims is not presently
known. It is reasonably possible that the amount of claims ultimately allowed by
the Court will differ materially from the amounts presently recorded by
Bethlehem.
9. Pursuant to Delaware law we are not permitted to declare dividends on our
Common Stock, Cumulative Preferred Stock or Preference Stock. No value will be
distributed to our equity holders under our Plan of Liquidation.
11
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 for
relief under chapter 11 of the United States Code (the Code) in the United
States Bankruptcy Court for the Southern District of New York (the Court).
On March 12, 2003, we signed an asset purchase agreement (APA) to
sell substantially all of our assets to a subsidiary of International Steel
Group, Inc. (ISG) for cash, ISG Class B common stock and the assumption of
certain liabilities. The APA was approved by the Court on April 22, 2003. In
connection with the approval of the APA, among other matters, the United
Steelworkers of America agreed to release substantially all claims against
Bethlehem and subsidiary companies; the trustees of the funds under the Coal
Industry Health Benefit Retiree Act of 1992 agreed to withdraw their civil
action filed on March 18, 2003 in the United States District Court for the
District of Columbia for injunctive relief and agreed to settle certain claims
against Bethlehem and "related persons"; and the Pension Benefit Guaranty
Corporation (PBGC) agreed to release certain claims against any member of
Bethlehem's "controlled group" under Title IV of ERISA.
Closing of the sale of substantially all of our assets to ISG was
completed on May 7, 2003, however, the effective closing date for financial
purposes was the opening of business on May 1, 2003. At closing Bethlehem
received approximately $752 million in cash and a $120 million receivable (all
of which has subsequently been collected), the total of which is expected to be
sufficient to satisfy all allowed secured, administrative and priority claims,
with any excess cash being paid to ISG before Bethlehem's chapter 11 case is
closed. Bethlehem also received at closing ISG Class B common stock, with an
expected value of $15 million. Under the terms of the APA, the class B common
stock will be returned to ISG if all allowed secured, administrative and
priority claims are not paid.
The terms of the APA required a minimum level of working capital at
April 30, 2003. Subsequent to the sale, Bethlehem and ISG determined that ISG
was due approximately $9 million for adjustments to April 30, 2003 working
capital. Bethlehem returned this amount to ISG during August 2003.
As a result of the sale, Bethlehem no longer has operations effective
April 30, 2003. Bethlehem filed a chapter 11 Plan of Liquidation (Plan) and a
Disclosure Statement with the Court on July 29, 2003. At a hearing held on
October 22, 2003, the Court confirmed the Plan. Under the terms of the Plan, all
administrative expense claims, priority and non-priority tax claims and all
other secured claims will be satisfied and then Bethlehem and its debtor
subsidiaries will either be dissolved or merged into another debtor, as
appropriate. Bethlehem expects this process will be completed by December 31,
2003. Upon dissolution, a liquidating trust will be formed to distribute to
12
allowed unsecured creditors the $15 million in ISG class B common stock or
proceeds from the sale of such stock, $0.6 million in proceeds from a benefit
trust and proceeds from any bankruptcy avoidance actions. No value will be
distributed to Bethlehem's common, preferred or preference equity holders. A
copy of the confirmed Plan has been filed with the Securities and Exchange
Commission.
As a result of no longer having operations, the consolidated
statement of operations for the third quarter of 2003 does not include any
operating results and the 2003 year-to-date results include only four months of
operating results through April 30, 2003. The consolidated statement of cash
flows for 2003 is for the period January 1, 2003 through April 30, 2003. A
consolidated statement of receipts and disbursements for the period May 1, 2003
through September 30, 2003 has been included as part of the consolidated
financial statements. Bethlehem has adopted the liquidation basis of accounting
effective April 30, 2003 and the consolidated financial statements include a
consolidated statement of net liabilities in liquidation as of September 30,
2003.
On March 25, 2003, the Court approved a motion under section 1114 of
the Code terminating retiree health care and life insurance benefits (OPEB) for
claims incurred after March 31, 2003, for substantially all current and future
retired employees and their eligible dependents. Claims incurred on or before
March 31, 2003 and received on or before May 31, 2003 will be paid. If
sufficient funds are available after all allowed secured, priority and
administrative claims have been paid, the Court also has required Bethlehem to
reimburse up to two weeks of COBRA premiums paid by Bethlehem's COBRA enrollees.
Bethlehem expects to have sufficient funds for this reimbursement and has
reflected the amounts in other current liabilities at September 30, 2003. As a
result of the Court's action, we did not record any OPEB expense for the month
of April 2003.
On December 18, 2002, the PBGC filed a complaint in the United States
District Court for the Eastern District of Pennsylvania alleging there was
sufficient cause under applicable laws to terminate the Pension Plan of
Bethlehem Steel Corporation and Subsidiary Companies (the Pension Plan). The
complaint requested, among other things, that December 18, 2002 be established
as the Pension Plan's termination date and that the PBGC be appointed the
Pension Plan's ERISA trustee with full responsibility for managing Pension Plan
assets and administering Pension Plan benefits. By agreement dated April 30,
2003, the litigation was resolved on the basis that the Pension Plan be
terminated effective December 18, 2002 and the PBGC assumed the duties of ERISA
trustee of the Pension Plan effective April 30, 2003. As a result of the PBGC's
action to terminate Bethlehem's Pension Plan, we did not record any pension
expense in 2003.
On September 30, 2003 the Court approved an order settling a lawsuit
filed by certain former salaried employees related to alleged severance
benefits. Bethlehem disbursed about $7 million in October 2003 related to this
settlement and has reflected this amount in other current liabilities as of
September 30, 2003 in the consolidated statement of net liabilities.
13
The pro forma statement of net liabilities as of September 30, 2003
reflecting the revaluation of pre-petition unsecured liabilities upon "legal
release" to their anticipated settlement value and other required adjustments
follows ($ in millions):
BETHLEHEM STEEL CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF NET LIABILITIES
SEPTEMBER 30, 2003
(a)
Historical Adjustments Pro Forma
----------------- ----------------- -------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 94.1 $ - $ 94.1
Other current assets 1.3 - 1.3
----------------- ----------------- -------------------
Total Current Assets 95.4 - 95.4
Investments 15.0 - 15.0
----------------- ----------------- -------------------
Total Assets 110.4 - 110.4
----------------- ----------------- -------------------
LIABILITIES
Current Liabilities:
Accounts payable and other accrued liabilities 30.1 80.3 110.4
Liabilities Subject to Compromise 5,847.7 (5,847.7) -
----------------- ----------------- -------------------
Total Liabilities 5,877.8 (5,767.4) 110.4
----------------- ----------------- -------------------
Net Liabilities $ (5,767.4) $ 5,767.4 $ -
================= ================= ===================
Notes:
a- Adjustment to write-down liabilities of approximately $5.8 billion to
anticipated settlement amount and reclass to accounts payable and to record
other required adjustments.
The bar date by which creditors, other than employees and former
employees, were required to file proofs of claim with the Court was September
30, 2002. The bar date by which employees and former employees as creditors were
required to file proofs of claim was July 11, 2003. 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 claims filed, will take
considerable time to complete. Accordingly, the ultimate number and amount of
allowed claims is not presently known. It is reasonably possible that the amount
of claims ultimately allowed by the Court will differ materially from the
amounts presently recorded by Bethlehem.
14
REVIEW OF RESULTS:
THIRD QUARTER AND FIRST NINE MONTHS OF 2003
THIRD QUARTER AND FIRST NINE MONTHS OF 2002
As a result of the sale of substantially all of our assets to ISG, we
no longer have operations and therefore had no net income for the third quarter
2003. As of April 30, 2003, Bethlehem adopted the liquidation basis of
accounting and accrued approximately $28 million as an estimate for expenses to
be incurred from April 30 through closing the chapter 11 case. Our net loss for
the third quarter 2002 was $54 million. Our net loss of $2.3 billion for the
first nine months of 2003 includes only four months of operating results. This
compares to a net loss of $270 million in 2002. The net loss in 2003 includes a
$2.3 billion impairment charge recorded in anticipation of the sale of
substantially all of our assets to ISG which occurred on May 7, 2003.
LIQUIDITY AND CASH FLOW
The closing of the sale of substantially all of our assets to ISG
occurred on May 7, 2003. At closing Bethlehem received approximately $752
million in cash and a $120 million receivable, all of which has been
subsequently received, that are expected to be sufficient to satisfy all allowed
secured, administrative and priority claims, with any excess cash being paid to
ISG. Under the terms of the APA, the class B common stock will be returned to
ISG if all allowed secured, administrative and priority claims are not paid.
At a hearing held on October 22, 2003, the Bankruptcy Court confirmed
Bethlehem's Plan of Liquidation (Plan). Under the terms of the Plan, all
administrative expense claims, priority and non-priority tax claims and all
other secured claims will be satisfied and then Bethlehem and its debtor
subsidiaries will either be dissolved or merged into another debtor, as
appropriate. Bethlehem expects this process will be completed by December 31,
2003. After dissolution, a liquidating trust will be formed to distribute to
allowed unsecured creditors the $15 million in ISG class B common stock or the
proceeds from the sale of such stock, $0.6 million in proceeds from a benefit
trust and proceeds from any bankruptcy avoidance actions. No value will be
distributed to Bethlehem's common, preferred or preference equity holders.
In conjunction with closing, Bethlehem disbursed approximately $654
million of the sale proceeds, including: $617 million for debt repayments to
fully repay all of Bethlehem's secured debt; $16 million to escrow pre-petition
property taxes; $11 million to fully collateralize existing letters of credit;
and $10 million to settle litigation. After these disbursements, cash and cash
equivalents on hand at May 7, 2003 was $98 million. Subsequent to closing
Bethlehem collected the $120 million receivable related to the ISG sale.
Bethlehem's disbursements subsequent to closing through September 30, 2003
included: about $66 million for accrued payroll that existed as of April 30,
2003; about $40 million (net of transfers from benefit trusts) for active and
retiree medical benefit run-off; and about $14 million for professional fees
15
related to the chapter 11 cases. Total cash and cash equivalents at September
30, 2003 was $94 million.
DIVIDENDS
Pursuant to Delaware law we are not permitted to declare a dividend
on our Common Stock, Cumulative Convertible Preferred Stock or Preference Stock.
No value will be distributed to our equity holders pursuant to our Plan of
Liquidation.
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.
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 and whether we will have sufficient funds to pay all of our allowed
secured, administrative and priority claims. 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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Bethlehem's management evaluated, with the participation of its Chief
Executive Officer and Chief Financial Officer, the effectiveness of Bethlehem's
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), as
of September 30, 2003. Based on their evaluation, Bethlehem's Chief Executive
Officer and Chief Financial Officer concluded that Bethlehem's disclosure
controls and procedures were effective as of September 30, 2003.
There have been no changes in Bethlehem's internal control over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) that occurred during Bethlehem's fiscal quarter ended September
30, 2003, that have materially affected, or are reasonably likely to materially
affect, Bethlehem's internal control over financial reporting.
16
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On October 15, 2001, Bethlehem and 22 of its direct and indirect
subsidiaries filed voluntary petitions for relief 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)). As a result of the chapter 11
cases, all pending litigation against Bethlehem and the 22 subsidiaries is
stayed automatically by section 362 of the Bankruptcy Code and, absent further
order of the Bankruptcy Court, no party may take any action to recover on
pre-petition claims against Bethlehem and such subsidiaries.
Bethlehem, in the ordinary course of its business, is the subject of
various pending or threatened legal actions involving governmental agencies or
private interests. Prosecution of certain of these actions may be stayed by
Bethlehem's chapter 11 filing. Bethlehem believes that any ultimate liability
arising from these actions should not have a material adverse effect on its
consolidated financial position at September 30, 2003.
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, 2003 is approximately $90 million.
ITEM 5. OTHER INFORMATION.
On October 29, 2003 all of Bethlehem's directors, other than R. S.
Miller, Jr., Bethlehem's Chief Executive Officer, resigned and W. H. Graham,
Bethlehem's Senior Vice President, General Counsel and Secretary, and E.P.
Reybitz, Bethlehem's current Chief Financial Officer were elected to the Board.
The size of the Board was reduced to three. In addition, Mr. Reybitz was elected
Vice President, Chief Financial Officer and Treasurer of Bethlehem. The Board
determined that following the confirmation of Bethlehem's Plan of Liquidation
and the status of Bethlehem's continuing liquidation it was no longer necessary
to have a board comprised of a majority of independent directors and independent
committees.
17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS.
The following exhibits are included in this Report on Form 10-Q:
2.1 Debtors' Plan of Liquidation under Chapter 11 of the
Bankruptcy Code, dated October 21, 2003, as filed with the
U.S. Bankruptcy Court for the Southern District of New
York (Incorporated by reference from Exhibit 2.1 to
Bethlehem's Current Report on Form 8-K filed October 28,
2003)
2.2 Bankruptcy Court Order, dated October 22, 2003, confirming
the Debtors' Plan of Liquidation under Chapter 11 of the
Bankruptcy Code (Incorporated by reference from Exhibit
2.2 to Bethlehem's Current Report on Form 8-K filed
October 28, 2003)
11 Statement Regarding Computation of Earnings Per Share
31.1 Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification of Chief 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 since the end of its
Second Quarter:
1. July 21, 2003 - Consolidated Monthly Operating Statement
for the Month of June, 2003, as filed with the Bankruptcy
Court.
2. July 30, 2003 - Plan of Liquidation and Disclosure
Statement, as filed with the Bankruptcy Court.
3. August 20, 2003 - Consolidated Monthly Operating Statement
for the Month of July, 2003, as filed with the Bankruptcy
Court.
18
4. August 27, 2003 - Consolidated Monthly Operating Statement
for the Month of April, 2003, as amended and filed with
the Bankruptcy Court.
5. September 22, 2003 - Consolidated Monthly Operating
Statement for the Month of August, 2003, as filed with the
Bankruptcy Court.
6. September 23, 2003 - Approved form of Disclosure
Statement, as filed with the Bankruptcy Court.
7. October 20, 2003 - Consolidated Monthly Operating
Statement for the Month of September, 2003, as filed with
the Bankruptcy Court.
8. October 28, 2003 - Confirmed Plan of Liquidation, as filed
with the Bankruptcy Court.
19
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/ E. P. Reybitz
------------------------------------------
E. P. Reybitz
Vice President, Chief Financial Officer
and Treasurer
(principal financial officer)
Date: November 14, 2003
20
EXHIBIT INDEX
The following is an index of the exhibits included in this Report:
Item
No. Exhibit
- --- -------
2.1 Debtors' Plan of Liquidation under Chapter 11 of the Bankruptcy Code,
dated October 21, 2003, as filed with the U.S. Bankruptcy Court for
the Southern District of New York (Incorporated by reference from
Exhibit 2.1 to Bethlehem's Current Report on Form 8-K filed October
28, 2003)
2.2 Bankruptcy Court Order, dated October 22, 2003, confirming the
Debtors' Plan of Liquidation under Chapter 11 of the Bankruptcy Code
(Incorporated by reference from Exhibit 2.2 to Bethlehem's Current
Report on Form 8-K filed October 28, 2003)
11 Statement Regarding Computation of Earnings Per Share
31.1 Certification of Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
21