Wall Street Journal
October 16, 2001
Major Business News
By R OBERT G UY M ATTHEWS
Staff Reporter of T
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Bethlehem Steel Corp., the nation's third-largest steelmaker, filed for
Chapter 11 bankruptcy-court protection from creditors and said it is adopting a four-pronged strategy to speed its restructuring.
Bethlehem, which made its filing in a New York court, said its finances have been crippled by cheap foreign imports, high labor costs and pension and health-care expenses for thousands of retired employees.
The company, based in Bethlehem, Pa., reported a loss for the third quarter of $152.2 million, or $1.25 a share, compared with a loss of
$34.8 million, or 34 cents, a year earlier. Sales fell 17% to $825.4 million from $998.8 million.
Robert S. Miller, Bethlehem's chairman and chief executive, who joined the ailing company last month with the purpose of turning it around, said in an interview that he plans to seek a merger partner for
Bethlehem. He also plans to sell assets, attempt to obtain government protection from cheaper steel imports and try to negotiate a new, lower-cost labor contract. He insists that each goal is critical to
Bethlehem's survival but each is fraught with difficulty. "It's a tough balancing act," he said.
The move comes as the world's steel industry is mired in one of its most unprofitable periods ever, leaving in its wake dozens of weak companies searching for buyers and only a handful of companies strong enough to acquire additional assets. LTV Corp., the nation's fourth-largest steelmaker, continues to operate under Chapter 11 since it filed for bankruptcy-court protection Dec. 29. Since 1998, nearly two dozen domestic steelmakers have filed under Chapter 11 provisions of the bankruptcy code.
For Bethlehem to find a merger partner, a critical step is dealing with the staggering pension and health-care payouts to its retirees, called legacy costs. Those costs plague the domestic industry and make it nearly impossible for a competitor to consolidate, merge or purchase

outright the assets of integrated domestic steel mills. Most foreign competitors don't have the burden of legacy costs, as most governments abroad assume those expenses.
Bethlehem Steel Hires
Nonsteel Executive to
Lead Turnaround as
Chairman, CEO (Sept. 25)
Steelmakers Push for
Trade Protections, Calling
Sector Key to National
Security (Sept. 19)
Bethlehem has 13,000 active employees, but 74,000 retirees. Mr. Miller estimates that the company's $6.4 billion pension fund will be underfunded by $1.85 billion at the end of this year. "We also have an annual
$300 million health-care bill for all our employees," he said.
Bethlehem Steel Posts Net
Loss of $1.13 Billion, Halts
Dividends (July 26)
In order to reduce that obligation, Mr.
Miller would have to get the United
Steelworkers of America to agree to forgo some benefits. "We can't afford to keep doing it like we have been. Neither is it our intention to walk away from the liability," he said. "We want to see if we can come up with a formula that works and perhaps getting some assistance from the government on legacy costs." So far, the U.S. government has been reluctant to take on the steel industry's pension and health-care costs, for fear that other industries would seek similar treatment.
Leo Gerard, president of the USWA, said he expects to begin talks with Mr. Miller soon. But Mr. Gerard said he wouldn't allow
Bethlehem, or any other financially troubled steelmaker, to cut retirees' benefits as a way to save money. "We are not going in any way to back away from having health care for our 700,000 retirees," Mr. Gerard said.
At this point, Mr. Miller said he isn't in discussions with any other companies about acquiring or merging with Bethlehem. "It is tough to see an environment where Bethlehem would be acquired," said
Michelle Applebaum, a metals analyst for Salomon Smith Barney. "It is tough everywhere."
Last year, Ispat International , a steel company based in the
Netherlands, was searching in the U.S. for steel assets, yet no deals were made partly because the legacy costs were too high to make a purchase economically worthwhile. Now that the world's economy has slowed, even Ispat is pulling back until steel prices rise again.
If not for legacy costs, Bethlehem would be an extremely attractive acquisition for many foreign steelmakers, says Peter Marcus, a steel analyst for World Steel Dynamics. Its Burns Harbor plant on Lake
Michigan makes automotive-grade steel and would prove to be a

lucrative deal for any steelmaker anxious to get into making steel for the domestic automotive industry. Bethlehem's Sparrow's Point plant on the Chesapeake Bay outside Baltimore is state of the art and recently underwent an overhaul with more efficient equipment. The company also owns one of just three steel rail mills in the country.
Ironically, filing for bankruptcy-court protection will now increase the competitive pressure on Bethlehem's rivals. By shielding Bethlehem from creditors, the court filing allows the company to maintain market share by selling steel cheaper than non-Chapter 11 steelmakers.
As foreign imports rise ...
Trying Times
Steel companies have felt the crunch …
CHAPTER 11 FILINGS DATE
Bethlehem Steel
LTV
Oct. 15, 2001
Dec. 29, 2000
Wheeling-Pittsburgh Steel Nov. 16, 2000
Gulf States Steel July 1, 1999
Geneva Steel Feb. 1, 1999
EMPLOYEES
13,000
18,000
4,800
1,906
2,600
Despite the industry's attempt to fight back ...
NOV. 1998: U.S. Steel, LTV, Bethlehem file anti-dumping petitions to Dept. of
Commerce and the U.S. International Trade Commission for hot-rolled sheet from Russia, Japan and Brazil. Duties, quotas and minimum pricing

agreements imposed.
FEB. 1999: Big steelmakers file petitions against Japan, South Korea, India,
Indonesia, France, and Italy for certain plate steel. Duties and countervailing duties imposed.
JUNE 22, 2001: The Bush administration formally asks the ITC for a "Section
201" inquiry to determine whether import restrictions are needed to help the domestic steel industry get back on its feet.
Source: American Iron & Steel Institute; World Steel Dynamics; Schagrin
Associates
Write to Robert Guy Matthews at robertguy.matthews@wsj.com