Amicus Curiae Brief — Pension Benefit Guaranty Corporation v. LTV Corp.

wOTiON FILER

DEC \ 4 1989 : - No. 89-390 |

IN THE

Supreme Court of the United *tates

OcTOBER TERM, 1989

PENSION BENEFIT GUARANTY CORPORATION.

Petitioner

v.-

THe LTV Corporation, LTV Steet Company, Inc... Oprictial

COMMITTEE OF UNSECURED CREDITORS OF LTV CoRPORATION

SUBCOMMITTEE OF PARENT CREDITORS OF THE OFFICIAL

COMMITTEE OF UNSECURED CREDITORS OF LTV CoRPORATION

LTV BANK Group, OFFICIAL COMMITTEE OF Equrry SECURITY

HOLDERS, BANCTEXAS DALLAS, N.A., FrptH THrep BANK.

HUNTINGTON NATIONAL BANK, CITIBANK, N.A.. Davip H

MILLER, AND WILLIAM W. SHAFFER.

Responde nis

ON PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

POR THE SECOND CIRCUIT

MOTION FOR LEAVE TO FILE BRIEF AMICUS CURIAE IN SUPPORT OF

THE PENSION BENEFIT GUARANTY CORPORATION

AND

BRIEF AMICUS CURIAE OF ARMCO, BETHLEHEM STEEL

CORPORATION, INLAND STEEL INDUSTRIES, INC.. NATIONAL STEEL

CORPORATION, AND USX CORPORATION

BENJAMIN R. CIVILETT!

Counsel of Record

(,. Stewart Web), Jr

W. Warren Harn

Venable, Baetyer and Howard

1800 Mercantile Bank & Trust Bu

Two Heypkir “ Viaza

Baltimore, Maryland 21201

(Ol) 244 7400

dingy

‘willie Y ys fer lm j

MOTION FOR LEAVE TO FILE BRIEF

AMICUS CURIAE

Armeo, Bethlehem Steel Corporation, Inland Steel Indus

tries, Inc., National Steel Corvoration and USX Corporation

hereby move this Court for leave to file a brief amicus

curiae in support of the Pension Benefit Guaranty Corpora

tion's appeal to enforce the Restoration Notice in the cap

tioned case, pursuant to Rule 36.3 of the Supreme Court

Rules

Armeo, Bethlehem Steel Corporation, Inland Steel Indus

tries, Inc., National Steel Corporation and USX Corporation

(collectivly the “Steel Companies) are five of the six larg

est domestic steel producers The sixth company and the

third largest domestic steel producer ts LTV Steel ( ompany

(“LTV Steel”), a subsidiary of LTV Corporation (*LT\

Corp.) The Steel Companies produce ti percent of the

stee! manufactured in the United States. All of the Stee

Companies fund separate pension plans that are currently

covered by the Pension Benefit Guaranty Corporatior

(“PBGC"’') which was created under Title IV of the

Employee Retirement Income Security Act (*ERISA’), 29

tS SISO]. ef eg Together the Stee! { ompanies pension

plans pay benefits to thousands of retirees and other benef

cares. Parti ipants (employee Ss. retirees and other bene

mares) m the retirement plans maintained fy the Stes

( ompanies constitute i marority of all the part pants

pension Plans if the domestic ste« miustr\

Ih Stee! ( CTT peal es Nave rect mterest mm) The il ry\e

of this appeal for two reasons. First, as sponsors of pens

pians amd contributors to the tedera nsurance progran th

ste Lon panies have il nterest ’ i strong ami we

funded PBGC insurance program. The failure of the Court

f Appeals for the Second Circuit to enforce the Restorat

‘\ The perl try lee Het transter The’ eT rvyni rhMairviet

LTV Corp.'s pension plan terminations to other comy

‘ ’ ’ it ste ‘ mil ‘ ’ | , ore

insurance program, and by in all likelihood forcing another

increase in PBGC insurance premiums.

Second, the Steel Companies, as major competitors of

LTV Steel, have been and will continue to be adversely

impacted by LTV Corp.'s transfer of unfunded pension lia-

bilities to the PBGC. LTV Steel has gained a sizable compet-

itive edge against the Steel Companies in the domestic and

international steel markets by transferring responsibility for

over two billion dollars in pension liabilities to the PBGC.

All of the Steel Companies are attempting to modernize and

restructure facilities, but none of the Steel Companies has

shed its pension liabilities onto the PBGC, and each con-

tinues to meet or exceed ERISA’s minimum funding stan-

dards. By comparison, LTV Steel has diverted resources

that would otherwise have gone to meet its pension funding

obligations to modernize its facilities, reduce its production

costs and to otherwise dramatically improve its competitive

position, all while continuing to make a profit and provide

its workers with essentially the level of pension benefits

that existed prior to the bankruptcy filing. This artificial

competitive advantage gained by LTV Steel through abuse of

the federal pension insurance program subverts the

declared national policy in favor of fostering and maintain-

ing a strong domestic steel industry without a federal bailout.

The issues raised by the PBGC present important ques-

tions regarding the integrity of the national pension insur-

ance program and the continued protection of its

participants and beneficiaries. These issues are of great sig-

nificance to the Steel Companies because if the decision of

the Second Circuit is allowed to stand, LTV Steel will have

received, in effect, a bailout loan from the federal govern-

ment, one which grants a decisive competitive advantage to

LTV Steel and distorts competition in the steel industry as a

whole, and one which seriously weakens the financial integ-

rity of the federal pension insurance program. Such a result,

if allowed to stand, subverts the national policy in favor of a

strong domestic steel industry and undermines the purpose

of Tithe TV of ERISA.

Counsel for the Steel Companies has requested consent of

the parties below to file the accompanying Brief Amicus

Curiae. The Steel Companies have received consent of the

PBGC*, LTV Corp. and LTV Steel*, the Parent Creditors of

the Official Committee of Unsecured Creditors*, the Official

Committee of Equity Security Holders*, David H. Miller

and William W. Schaffer*, and BancTexas+. The remaining

parties below have not responded as of the time of press.

For the foregoing reasons, the Steel Companies seek leave

of this Court to file the following brief amicus curiae in

support of the PBGC in the captioned appeal.

Respectfully submitted,

Benjamin R. Civiletti

Counsel of Record

G. Stewart Webb, Jr.

W. Warren Hamel

Venable, Baetjer and Howard

1800 Mercantile Bank & Trust Building

2 Hopkins Plaza

Baltimore, Maryland 21201

(301) 244-7400

Attorneys for Movants

Armco, Bethlehem Steel Corporation,

Inland Steel Industries, Inc., Nationa!

Steel Corporation and USX Corporation

*A copy of a written consent has been filed with the Clerk along with

this Motion and Brief.

+A copy of a written consent will be filed with the Clerk when it is

received.

tBy order dated October 30, 1989, this Court granted the Motion of the

Steel Companies to file a brief amicus curiae in support of the PBGC's

Petition for a Writ of Certiorari.

MOTION FOR LEAVE TO APPEAR

AND GIVE ORAL ARGUMENT

The Steel Companies move this Court, pursuant to Rule

38.7 of the Supreme Court Rules, for leave to appear and

give oral argument before the Court at the time and date

scheduled for argument of the parties on the merits. Coun-

sel of Record for the Steel Companies requested consent of

the PBGC to appear and give oral argument, but the PBGC

has declined the request. The Steel Companies believe that

the instant appeal presents issues of extraordinary impor-

tance to the national steel industry, and that the Stee! Com-

panies, as amici curiae, are uniquely situated to present

iegal and policy arguments that will place the dispute

between LTV and the PBGC in its full and proper context.

Thus, the Steel Companies seek leave of this Court to

appear and give oral argument for a period of fifteen (15)

minutes in addition to the time allotted to the parties.

Respectfully submitted,

Benjamin R. Civiletti

Counsel of Record

G. Stewart Webb, Jr.

W. Warren Hamel

Venable, Baetjer and Howard

1800 Mercantile Bank & Trust Building

2 Hopkins Plaza

Baltimore, Maryland 2120]

(301) 244-7400

Attorneys for Movants

Armco, Bethlehem Steel Corporation,

Inland Steel Industries, Inc., National

Steel Corporation and USX Corporation

TABLE OF CONTENTS

Motion for Leave to File Brief Amicus Curiae .......

Motion for Leave to Appear and Give Oral Argument .

ERE TA SE A LE MA OPA EE Ph ae

ee I 65 gen cuckccassccuk decisive

I ews uwcuuuuny

pO eT eT eae wee eee ae

Failure of the Second Circuit to Enforce the

PBGC’s Restoration Order Subverts the Express

Congressional Intent to Create a Pension

Insurance Program of Last Resort and to

Maintain a Strong and Competitive Domestic

CE doch bws 0440400045000 0000e0e%

A.

C,

D.

The PBGC’s Restoration Notice Fully

Accords with the Goals and Policies of

PS cukinnetieteciue Rath ocebeeac uc

The Decision of the Second Circuit

Frustrates the National Goal of Fostering a

Strong and Competitive Steel Industry

without Federal Funds ...................

Failure to Enforce the Restoration Notice

Provides LTV Steel with Unfair Competitive

PE 656-065 secddcehcneudacatesess

The Second Circuit's Decision May Invite

Other Employers to Shed Pension Plans onto

the PBGC, thus Further Burdening the Fund

SRP hoax ceaddceeéaccudccys

TABLE OF CONTENTS—(Continued)

Page

II. The PBGC’s Finding that LTV is Able to Meet

its Minimum Funding Obligations to the

Terminated Plans is Fully Supported by the

Administrative Record ...................... 17

A. Analysis of Results in 1987, 1988 and 1989

and Comparison with Performance of

Similarly Situated Major Competitors of LTV

Further Demonstrate that LTV is able to

meet its Pension Funding Obligations ...... 18

A a yee Mall oat he he 22

RI, ns od eR ek A-l

vi

TABLE OF AUTHORITIES

Cases Page

In re Chateaugay Corp., 9 E.B.C. 2236 (S.D.N.Y.

ME Aabbecdabestddscudticctaddecue<aesccce 16

Fogarty v. United States, 340 U.S. 8 (1950) ....... 8

Nachman Corp. v. Pension Benefit Guaranty Corp.,

Se ED Suvedeceeciscuavesececic. 4,5

Pension Benefit Guaranty Corp., et al. v. LTV

Corp., et al., 875 F.2d 1008 (2d Cir. 1989) ....... 6,8,10

Securities and Exchange Commission v. Chenery

Corp., 332 U.S. 194 (1947) .................... 7,8

United States v. Price, 361 U.S. 304 RS as s

Waterman Steamship Corp. v. United States, 381

RE er ae aa ea 8

Statutes and Regulations

Employee Retirement Income Security Act

(“ERISA”),

29 U.S.C. $1301 ef seg. .. 2.2.2... eee 2

we Re ee oe 7

a ig i ad 7

eS a eee 7

ee 7

Single-Employer Pension Plan Amendment Act

(“SEPPAA”)

29 U.S.C. §1001 et seg. 2.2.0.0 6

29 U.S.C. §1001b(ay4) 2.2... 6

29 U.S.C. §1001b(DN2) ..................... 6,7

29 U.S.C. §1001b(cNS).... 2.2... owes 6,7

Steel and Aluminum Energy Conservation and

Competitiveness Act of 1988, 15 U.S.C.

USNR ANE be eOGEGu Keb casOdeececete 10,11

Steel Imports Stabilization Act, Pub. L. 98-573.

Title VIII, §§801-808 (Notes to 19 U.S.C. §2253,

SE ali dais ceiest a cakenenhccscden, 1

Vil

TABLE OF AUTHORITIES (Continued)

Cases Page

Legislative History

S.Rep.No. 383, 93rd Cong., Ist Sess., reprinted in

1974 U.S. Code Cong. and Admin. News, Vol. 3,

and Legislative History of the Employment

Retirement Income Security Act of 1974, Vol. I

PR EL SD ecccisccastecuebsaccose 4

120 Cong. Ree. H4283 (1974), reprinted in Il

Te TT ere TTT Tree 5

133 Cong.Rec. $11387 (Aug. 6, 1987) ............ 15

133 Cong.Rec. $14901 (Oct. 22, 1987) ............ 16

133 Cong.Rec. H11971 (Dec. 21, 1987) ........... 16

134 Cong.Rec. H10019 (Oct. 12, 1988) ............ 10

134 Cong.Rec. H10020 (Oct. 12, 1988) ............ 11

135 Cong.Rec. H6418 (Oct. 2, 1989) .............. 11

135 Cong.Rec. $16941 (Nov. 21, 1989) ........... 12

Other Sources

1987 LTV. Corp. Annual Report ................. 14,19

1987 Annual American Iron and Steel Institute

PE cad ceccckdueaneasceuececececessseses 14

1987 LTV Steel Form 10-Q ..................... 19

1987 Bethlehem Steel Annual Report ............ 21

1988 LTV Corp. Annual Report ................. 19

1988 Bethlehem Steel Third Quarter Report ...... 21

1988 LTV Corp. Form 10-Q (June 30, 1988) ....... 19

1989 LTV Corp. Form 10-Q (Sept. 30, 1989)... ... 20

vill

No. 89-390

IN THE

Supreme Court of the United States

OCTOBER TERM, 1989

PENSION BENEFIT GUARANTY CORPORATION,

Petitioner

—Vi—

THe LTV Corporation, LTV STEEL Company, INC., OFFICIAL

COMMITTEE OF UNSECURED CREDITORS OF LTV CORPORATION,

SUBCOMMITTEE OF PARENT CREDITORS OF THE OFFICIAL

COMMITTEE OF UNSECURED CREDITORS OF LTV CORPORATION,

LTV Bank Group, OFFICIAL COMMITTEE OF Equity SECURITY

HoLpeRS, BANCTEXAS DALLAS, N.A., FirtH THIRD BANK,

HUNTINGTON NATIONAL BANK, CITIBANK, N.A., Davip H.

MILLER, AND WILLIAM W. SHAFFER.

Respondents.

BRIEF AMICUS CURIAE OF ARMCO,. BETHLEHEM STEEL

CORPORATION, INLAND STEEL INDUSTRIES, INC.. NATIONAL STEEL

CORPORATION, AND USX CORPORATION

INTEREST OF AMICI

Armco, Bethlehem Steel Corporation, Inland Steel Indus-

tries, Inc., National Steel Corporation and USX Corporation

(collectivly the “Steel Companies’’) are five of the six larg-

est domestic steel producers. The sixth company and the

third largest domestic steel producer is LTV Steel Company

(“LTV Steel’), a subsidiary of LTV Corporation (“LTV

Corp.’’).' The Steel Companies produce 47 percent of

‘LTV Corp. and its subsidiary, LTV Steel, will be referred to collec-

tively as “LTV.”

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Securities and Exchange Commission v. Chenery Corp., 332

in ERISA’s statement of purpose in the broadest terms.’ See

U.S. 194, 209 (1947) (independent agency is not limited to

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denved from Congresmonal acton of macton wm 1987 absent a specific

statement on Use part of Congress that a given amendment was rejected

because Congress beheved that the PBUC should net have such power In

States, 381 US. 252, 268-69 (1965) (“The wews of a subsequent Congress

form « hazardous basis for inferring the intent of an earlier one.)

Uneted States » Pree, 361 US. 304, 313 (1960) Fogerty © Uneted States.

340 U.S. 8 14 (1960) (abortive action of subsequent Congress cannot

ings derived therefrom to recapitalize, modernize and revi-

talize the company as a going concern. Such a result is not

purpose for which ERISA was enacted, nor for which

PBGC and the pension insurance program were created.

decision below conflicts with congressional intent with

regard to ERISA and turns the PBGC into a federal bailout

program for troubled companies, a result which, in practice,

PBGC’s original decision to terminate LTV’s pension

was justified in late 1986 and early 1987, given the

of the steel market and prospects for the domestic

industry as a whole. Yet, the bleak outlook predicted in

nue

:

|

i

is, in effect, a federal bailout of LTV Steel.

subsidy to continue subverts the policy of

|

B. The Decision of the Second Circuit Frustrates the

Nationa! Goal of Fostering a Strong and

Competitive Steel Industry without Federal Funds.

Special concern has been expressed by members of Con-

gress about the health and survival of the domestic steel

*See Petition of PBGC at 4 (“Despite . . . repeated increases [in annual

premiums] the PBGC currently has liabilities of $4 billion and assets of

only $2.4 billion, leaving a deficit of more than $1.5 billion, exclusive of the

lahilities at issue in this case.'') (emphasis added).

"Based on historical precedent, a rise in premium costs is a very real

and immediate concern. See Petition of PBGC at 4 n.4.

10

industry because of its importance to both the national econ-

omy and national security. The PBGC’s Restoration Notice

to LTV Steel accords with this congressional concern by

steel producers that is so vital to fostering and nurturing a

strong domestic steel industry. Conversely, the decision of

the Second Circuit to vacate the Restoration Notice has

granted LTV Steel significant unfair competitive advan-

tages over other steel producers who are competing in the

steel market while continuing to fund their pension plans.

The Second Circuit’s decision distorts and weakens the com-

petitive environment in the domestic steel industry.*

In 1988, Congress considered the Steel and Aluminum

Energy Conservation and Technology Competitiveness Act

of 1988, 15 U.S.C. §§5101-5110. Speaking in support of the

bill, Congressman Walgren of Pennsylvania stated that

modernization of the steel industry is critical because:

continuous and adequate supply of steel is the foun-

dation of our economy and our national security.

Many industries, like automobiles, depend on steel;

many communities have steel at their core. The

National Academy of Science has observed that

there are four times as many indirect jobs in indus-

tries depending upon steel for business per year as

there are direct jobs in the steel industry.

Representative Walgren also emphasized that production of

military hardware depends on steel and that the United

States must maintain a strong steel industry capable of

providing for national defense needs. 134 Cong. Rec.

H10019 (Oct. 12, 1988).

*Despite condemning the PBGC for failing to consider areas 0/ national

policy other than the integrity of the ERISA insurance fund, 875 F.2d at

1015-16, the Second Circuit at no point considered national steel policies

in its decision.

11

Congressional support for a strong steel industry was also

expressed in the Findings and Purposes of the Steel Imports

Stabilization Act, introduced in 1984. Section 802(a\X6) of

the Act stated the finding that implementation of a

“national [program] for the steel industry will substantially

improve the economy and employment in both the steel and

iron ore-producing sectors.”” Pub. L. 98-573, Title VIII,

§801-808 (Oct. 30, 1984) (now codified as an amendment to

19 U.S.C. §2253; see Notes to 19 U.S.C. §2253 (1989

Supp.)).

Members of Congress and the Executive Branch have

expressed with equal clarity a preference that the steel

industry modernize and reorganize to become more competi-

tive without significant federal intervention in the form of

financial support. For instance, Congressman Ernest

Konnyu of California, speaking in support of the Steel and

Aluminum Energy Conservation and Technology Competi-

tiveness Act of 1988, stated that it is the private sector’s

investments, rather than those of the federal government,

that are necessary to maintain a viable domestic steel indus-

try. 134 Cong. Rec. H10020 (Oct. 12, 1988). President

Reagan issued a Steel Decision in 1984, in which he rejected

government intervention in the steel market, choosing to

rely instead on fair trade and market forces to maximize

opportunity for the domestic steel industry to recover and

modernize. 49 Fed. Reg. No. 184, 36813 (Sept. 20, 1984).

Congress recently extended the Steel Imports Stabiliza-

tion Act, 19 U.S.C. §2253 et seq., by passing H.R. 3275, the

Steel Trade Liberalization Program Implementation Act,

which allows the President to extend the Voluntary

Restraint Agreements (“VRAs”) negotiated with steel

exporting nations. Speaking in support of extending the

Act, Representative Gaydos repeated Congressional con-

cern for the health of the steel industry: ‘“[T}he steel indus-

try is basic to the economic health of this country . . . [and] a

strong steel industry is vital if the United States is to

remain competitive in the world market.” 135 Cong. Rec.

H6418 (Oct. 2, 1989). Likewise, Senator Lloyd Bentsen,

12

speaking in favor of the measure during consideration by

the Senate, emphasized the link between fair trade policies

implemented by the federal government and investment and

modernization on the part of the steel industry itself:

This link between the continuation of enforcement

authority and industry efforts is a key element of

our steel policy. Import protection alone will not

accomplish our objective, a viable and internation-

ally competitive domestic steel industry. It must be

matched by affirmative industry efforts to modern-

ize and become more productive.

135 Cong. Rec. 816941 (Nov. 21, 1989). President Bush

recently signed H.R. 3275 to implement the Steel Trace

Liberalization Program through March 31, 1992, thus con-

tinuing the policy of the Reagan Administration and of the

Congress to encourage continued modernization of the

domestic steel industry by supporting fair competition with-

out government subsidies.

By vacating the PBGC’s Restoration Notice, the Second

Circuit has directly undercut the goal of fostering a strong

national steel industry. As a practical matter, the Second

Circuit’s decision gives LTV an unfair advantage over other

major steel producers in efforts to reinvest and modernize

to become more competitive. Although the financial condi-

tion of LTV has now improved sufficiently to enable it to

meet its funding obligations for the three terminated plans,

LTV, unlike the other steel producers, has been freed from

those obligations by the Second Circuit’s decision. As a con-

sequence, LTV has gained approximately $200 million each

year for use to modernize its industrial base in the course of

reorganization. By comparison, the Steel Companies have

met or exceeded the minimum funding requirements of

ERISA for their pension plans, and continue to do so, all the

while struggling to allocate sufficient resources for capital

improvements in order to remain competitive in the market.

13

C. Failure to Enforce the Restoration Notice

Provides LTV Steel With Unfair Competitive

Advantages.

Failure to restore the pension plans is projected by the

Steel Companies to provide LTV with a cost of

about $20 per ton,® which in turn will favorably affect LTV’s

profit margins. Such a cost advantage will also result in

access by LTV to capital at more satisfactory terms, making

excess of base spending required to maintain facilities at current operat.

ing capacity and efficiency.

15

14

These capital expenditures will reduce LTV Steel's costs

in

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the steel market. Based on LTV’s average

$495 per ton of steel (1987 LTV

had an average net loss equivalent to

the period 1979 to 1987 and for which

annual steel related net income for

Steel Institute (“AISI”) companies as a

1987

verage

He

pe

Es

ae!

ayy

The cost advantage gained by LT’ if its pension plans are

not restored also provides it with the flexibility to pursue

Se Sa eae

RUHE

jlaiaia

a a

Employers to Shed Pension Plans onto the PBGC,

thus Further Burdening the Fund and its

D. The Second Circuit's Decision May Invite Other

The liabilities transferred to the PBGC by the decision of

rp peg ener ye may NRE

8

HE

iit iy

From 1987 through mid-1989, demand for steel remained

“See, infra, Section II at 17.

tl

:

iss5t

16

to increase PBGC premiums substantially, stated that “LTV

Corporation is the most prominent example of management

that has chosen to put its money elsewhere [rather than

contributing to its sponsored pension plans] and now

expects to have others pay for the pension benefits it prom-

ised.” 133 Cong. Rec. H11971 (Dec. 21, 1987). Permitting a

major actor in the steel market to gain additional funding

for investment by abusing the Title IV pension insurance

program weakens the domestic steel industry and leaves the

enormous deficit thereby created in the PBGC fund to be

made up through increased premium payments from other

steel companies and other employers.

The District Court in this case recognized the logic of the

PBGC’s concern that, without restoration, the path of LTV

Steel may become “irresistible” to other steel. companies. Jn

re "Rateaugay Corporation, 9 E.B.C. 2236, 2249 (S.D.N.Y.

'988). Indeed, other steel companies might conclude that

they ¥ no other choice. The resulting financial disruption

‘oud Surt the steel industry and cripple the PBGC at the

same time. The danger of this unfortunate prospect was

recognized in the Senate by Senator David Durenburger of

Minnesota, speaking in support of the Steel Retirement

Benefits Funding Act (S.1811):

[Wjhen the LTV Corp. filed a Chapter 11 bank-

ruptcy petition last year, it sent a clear signal to its

domestic competitors. The message from LTV was

simply that the easiest way for a steel company to

cut cost was to declare bankruptcy and unload the

company’s pension liabilities onto the Pension Bene-

fit Guaranty Corporation. . . . Moreover, it is no

secret that other steel companies have considered

following LTV’s path in an effort to resolve their

pension liability responsibility.

133 Cong. Rec. $14901 (Oct. 22, 1987). Thus, the decision of

the Second Circuit could have a corrosive effect on the will

of the domestic steel industry to continue to meet pension

obligations, and runs directly counter to the policy of foster-

17

ing and maintaining a strong domestic steel industry with-

out federal funds. The twin goals of preserving the termina-

tion insurance program under Title IV of ERISA to protect

the pensions of American workers when a true disaster

occurs, while at the same time fostering a strong and more

competitive domestic steel industry, are clearly enhanced by

enforcement of the Restoration Notice issued by the PBGC.

The Second Circuit’s decision significantly undermines these

goals. Enforcement of the Restoration Notice by this Court

is necessary to preserve the integrity of the insurance pro-

gram and to restore the competitive forces required for a

strong domestic steel industry.

Il. The PBGC’s Finding that LTV is Able to Meet its

Minimum Funding Obligations to the Terminated

Plans is Fully Supported by the Administrative

Record.

The financial condition of LTV has improved significantly

since the termination of its plans in January, 1987. This

improvement reflects, in large part, the favorable economic

change which affected all domestic steel companies, begin-

ning in 1987 and continuing to mid-1989. LTV, like other

companies in the steel industry, benefited from a reduction

in imports, increased domestic demand, and improvement in

productivity and prices. LTV’s improved financial condition

cannot, therefore, be wholly attributed to the Chapter 11

reorganization process. One significant advantage which

LTV Steel derived from the Chapter 11 proceedings, how-

ever, was the ability to reject unfavorable supply contracts—

a benefit that should continue after reorganization and

should be unaffected by the restoration of the LTV pension

plans.

LTV’s improvement was readily apparent at the time of

the PBGC’s Restoration Notice. Moreover, LTV has contin-

ued to show increasing financial strength. The PBGC cor-

rectly recognized LTV’s improved financial condition when

it ordered restoration. The Administrative Record below

demonstrates that the PBGC examined LTV Steel’s finan-

18

cial condition in detail before concluding that it was able to

fund its terminated pension plans. The financial data were

presented to a working group meeting of the SEPPA Com-

mittee on August 10, 1987. The working group concluded

that LTV could fund the terminated plans, and, indeed, that

LTV Steel alone was able to fund its obligations to the

terminated pension plans. J. App. at 317-18. The working

group recommended three grounds for restoration, and

these became the bases of the Restoration Notice ultimately

issued: “LTV Steel’s establishment after the termination of

the plan of a retirement program [that resulted in} an abuse

of the pension plan termination insurance system estab-

lished by Title IV of ERISA; LTV Steel’s improved financial

circumstances; and LTV Steel’s demonstrated willingness to

fund employee retirement arrangements.” Appendix to

Petition of PBGC at 182a.

Further analysis of LTV based upon public documents also

demonstrates that LTV is fully able to meet its pension

obligations under the terminated plans. These factors alone

are sufficient to support the PBGC’s decision to enforce the

Restoration Notice.

A. Analysis of Results in 1987, 1988 and 1989 and

Comparison with Performance of Similarly

Situated Major Competitors of LTV Steel Further

Demonstrate that LTV Steel is able to meet its

Pension Funding Obligations.

An analysis of LTV’s public disclosure of financial infor-

mation shows that LTV is and*has been capable of meeting

its pension obligations under the terminated plans, and,

indeed is in no worse condition than any other major steel

producer in the market.

LTV Corp. and LT'V Steel cannot dispute that their over-

all financial picture improved substantially in 1987.!2 In

'?The PBGC’s administrative decision was predicated on LTV’s

improved financial condition as shown by the first two quarters of 1987.

We have set forth additional data confirming PBGC’s determination that

LTV’s positive results would continue for the full 1987 year, and in 1988

and 1989, in an Appendix to this Brief. See App. at A-1.

19

1987, LTV Corp.’s liquidity improved by more than $480

million over 1986 (1987 LTV Corp. Annual Report, p.2), and

LTV experienced a net cash flow from operations of $761

million.* This positive result was achieved after capital

expenditures of $344 million and repayment of bank debt

and principal repayments on long-term debt of $450 million.

LTV Steel accounted for a significant portion ($370 mil-

lion) of LTV Corp.’s overall 1987 cash flow from operations.

During 1987, LTV Steel also invested $286 million in capital

expenditures to modernize facilities which will further

enhance its future competitive position. In addition, LTV

Finance paid $300 million and LTV Steel paid $137 million

of debt outstanding under bank credit facilities. (1987 LTV

Steel Form 10-Q, p. 35).'* At the same time, the improved

profitability of LTV Steel permitted LTV Corp. to maintain

a balance of cash and marketable securities in the amount of

$585 million at the end of 1987."

LTV Corp.’s financial condition continued to improve sub-

stantially in 1988. For calendar year 1988, LTV Corp.’s net

cash flow was $423 million after $413 million in capital

expenditures. See App. A-1. Thus, a total cash balance of

$1.009 billion was achieved by year end 1988. Although LTV

Steel had zero net cash flow for 1988, it produced that

‘The cash flow data referred to in this section of the brief is set out in

the Appendix hereto. Cash flow data is used because measurement and

consideration of net cash flow, stated in terms of available cash and

marketable securities is more relevant to the question of an employer's

ability to fund its pension obligations than ‘‘net income.”’

“Subsequent to its Chapter 11 filing and through the first six months

of 1988, LTV Steel has transferred all available cash to LTV Corp.,

including $175 million in the first six months of 1988 thereby increasing

its cash advance to LTV Corp. to $433 million at June 30, 1988. (LTV

Corp. June 30, 1988 Form 10-Q, pp. 17-18).

'’The overall 1987 results stemmed in large part from the elimination

of LTV Steel’s unfunded pension liabilities, though Chapter 11 related

factors also contributed to the outcome as well. (1987 LTV Corp. Annual

Report p. 2).

a a re ee

20

figure by making capital expenditures of $351 million as

part of an aggressive modernization program, and by trans-

ferring $372 million in cash to LTV Corp. Without these

expenditures and contributions, LTV Steel would have

accounted for a significant portion of LTV Corp.’s 1988 net

cash flow. See App. A-2. Moreover, because of bank credit

facilities in the form of $479 million in revolving credit

availability and $136 million in letters of credit availability

(1988 LTV Corp. Annual Report, p. 17), LTV Corp. achieved

an even better liquidity position, in excess of $1.6 billion at

the end of 1988.

Summarized, the liquidity of LTV Corp. at year-end 1988

was as follows:

LTV CORPORATION

($ Millions)

Cash Balance on 12/31/88 $1,009

Revolver Facilities 479

Letter of Credit Facility 136

Total Liquidity 12/31/88 $1,624

During the first nine months of 1989, LTV continued to

have a positive cash flow. During that period it had a net

cash flow of $20 million after $250 million in capital expen-

ditures, while its cash balance increased to $1.029 billion.

LTV Corp. Sept. 30, 1989 Form 10-Q, at 5. See App. A-1.

Although LTV Steel had a zero net cash flow in that period,

it again made significant capital expenditures ($214 million)

and made large cash transfers ($104 million) to LTV. See

App. A-2.

Accordingly, LTV has had and continues to have consider-

able financial flexibility to make a substantial cash settle-

ment with creditors under a reorganization plan, and will be

better able to absorb any cyclical downturn which may occur

in the steel industry. Thus, the 1988 and (to date) 1989

results further confirm the PBGC’s determination that LTV

can afford the terminated pension plans on a continuing

basis without jeopardizing the reorganization process.

21

LTV Steel’s ability to fund its plans is further illustrated

by the actual experience of LTV Steel’s competitors in

meeting their pension funding obligations. For example,

Bethlehem Steel Corporation (“‘Bethlehem’’) has business

and pension plan characteristics substantially similar to

LTV Steel and it also experienced improved financial results

in 1987 and 1988. The different manner in which LTV Steel

and Bethlehem have addressed their pension commitments

underscores the competitive implications and inequities that

result from failure to restore the LTV plans.

Public records show that, as of January 1, 1986, the begin-

ning of the plan year immediately prior to the termination

of the plans at issue in this case, the Bethlehem pension plan

and the LTV pension plans were underfunded by roughly

the same amount—about $1.7 to $2.0 billion. The minimum

ERISA required pension contributions (exclusive of waived

and unpaid amounts)"* for the 1986 plan year (payable by

September 15, 1987) for both LTV and Bethlehem would

have been about $150 to $200 million. Of course, even

though its cash flow was sufficient to fund the terminated

plans, LTV’s pension cofftribution in 1987 was zero because

of the plan terminations. By comparison, Bethlehem did not

terminate its pension plan in 1987, and made contributions

totaling $289 million for the 1987 plan year and still experi-

enced an increase in its cash liquidity of $89 million from the

end of 1986. (1987 Bethlehem Annual Report and 1988

Bethlehem Third Quarter Report.) Furthermore, while the

minimum ERISA funding requirements for the Bethlehem

pension plan for the 1987 and 1988 plan years (payable by

September 15 of the following year) were $174 million and

$34 million, respectively, Bethlehem actually contributed

$289 million to its pension plan for the 1987 plan year and

$691 for the 1988 plan year. Other Steel Companies have

'*Contributions to the LTV Steel plans for 1984, totalling $175 million,

were waived by the IRS in 1985. Waiver requests for $215 million in the

1985 plan year contributions were denied. LTV Steel made some contri-

butions in 1986 to amortize the 1984 waivers but no contributions were

made for the 1985 plan year.

22

also fulfilled their pension obligations despite pressure to

divert wash into modernization of facilities and other

projects to improve their competitive positions.

In summary, analysis of LTV’s financial situation and the

actions of other major steel producers with unfunded liabili-

ties similar to LTV Steel demonstrates that LTV can fully

fund its obligations under the terminated plans while contin-

uing to reorganize and modernize its facilities.

CONCLUSION

For the foregoing reasons, the Steel Companies respect-

fully support the position of the Pension Benefit Guaranty

Corporation, and urge this Court to reverse the Court of

Appeals for the Second Circuit, and order enforcement of

the Restoration Notice.

Respectfully submitted,

Benjamin R. Civiletti

Counsel of Record

G. Stewart Webb, Jr.

W. Warren Hamel

Venable, Baetjer and Howard

1800 Mercantile Bank & Trust Building

2 Hopkins Plaza

Baltimore, Maryland 21201

(301) 244-7400

Attorneys for Amici Curiae Armco,

Bethlehem Steel Corporation, Inland

Steel Industries, Inc., National Steel

Corporation and USX Corporation

A-l

APPENDIX .

CASH FLOW EXPERIENCE

($ Millions)

LTV Corporation

1989

1987 1988 (9 months)

Net Income $503 $(3,154) 192

Depreciation Expense 250 242 173

Working Capital Changes 128 67 (149)

Other (120) 3,592 (6)

Net Cash From Operations

Excl. Interest & Past

Service 761 747 210

Investing Activities

Capital Expenditures (344) (413) (250)

Proceeds From Sale of

Property 11 93 45

Other (4) 28 19

Financing Activities

Principal Pmts-Bank & L-T

Debt (450) (31) (4)

Principal Pmts-Pension &

L-T Debt _ =

Net Increase/(Decrease)

in Cash (26) 423 20

Cash balance (end of year) $585 $1,009 $1,029

A-2

CASH FLOW EXPERIENCE

($ Millions) ¢

LTV Steel Co.

1989

1987 1988 (9 months)

Net Income $323 $(2,502) 258

Depreciation Expense 214 200 136

Working Capital Changes 175 48 (128)

(Increase)/Decrease in A/R

from Aff. (300) 40 38

Other (42) 2,888 (37)

Net Cash From Operations 370 672 267

Investing Activities

Capital Expenditures (286) (351) (214)

Transfer (To/From LTV

Corp. 50 (372) (104)

Proceeds From Sale of

Property 9 53 40

Advances to Raw Material

Affil. (6) 0 11

Financing Activities

Principal Pmts-Bank & L-T

Debt (137) (2) ~

Principal Pmts-Pension &

L-T Debt - -- -

Net Increase/(Decrease) in

Cash 0 0 0

Cash balance (end of year) $ 0 $ 0 $ O