•  Q3, 1998
Consolidated Statements of Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements

BETHLEHEM, Pa., Wednesday, October 28, 1998 -- Bethlehem Steel Corporation today reported net income of $37 million, on sales of $1.14 billion, for the third quarter of 1998 compared with net income of $41 million, on sales of $1.11 billion, for the third quarter of 1997. After deducting preferred dividends, net income per common share was $.21 for the third quarter of 1998 compared with $.27 per common share for the third quarter of 1997.

For the first nine months of 1998, net income was $143 million, or $.93 per common share, including an after-tax restructuring charge of $29 million related to the planned closing of our Sparrows Point plate mill. Net income for the first nine months of 1997 was $239 million, or $1.85 per common share, including an after-tax gain of $113 million related to the sale of our equity interest in Iron Ore Company of Canada (IOC). If the 1998 restructuring charge and the 1997 IOC gain are excluded, net income for the first nine months of 1998 would have been $172 million ($1.17 per share), on sales of $3.47 billion, compared with $126 million ($.84 per share), on sales of $3.51 billion, for the first nine months of 1997.

Operating Results

For the third quarter of 1998, income from operations was $59 million, which was about the same as income from operations for the third quarter of 1997. Lower costs due to our exit from underperforming businesses and lower pension expense offset the effects of lower realized prices. Steel shipments of 2,172,000 net tons were slightly lower than the 2,184,000 net tons shipped in the third quarter of 1997. Shipments decreased at Burns Harbor and Sparrows Point but we had additional shipments resulting from our acquisition of Lukens and higher shipments at PST. Third quarter 1998 shipments at Burns Harbor and Sparrows Point were negatively impacted by the unprecedented levels of unfairly traded steel imports. The effects of the General Motors work stoppages also decreased shipments primarily at Burns Harbor.

Excluding the restructuring charge and the IOC gain, income from operations for the first nine months of 1998 was $238 million compared with $182 million for the first nine months of 1997. Despite lower realized prices, income from operations for the first nine months of 1998 improved over the first nine months of 1997 due to lower costs and increased shipments. Costs improved principally from exiting underperforming businesses, reduced pension expense and improved operating performance at Burns Harbor, Sparrows Point and PST. Shipments increased primarily from our acquisition of Lukens.

Third quarter 1998 operating income declined from the second quarter of 1998 (excluding the restructuring charge) principally due to lower shipments at Burns Harbor and Sparrows Point and lower realized prices. These effects were partially offset by increased shipments resulting from our acquisition of Lukens and a more favorable product mix.

Liquidity and Capital Structure

At September 30, 1998, total liquidity, comprising cash, cash equivalents and funds available under our bank credit arrangements, totaled $430 million compared with $612 million at December 31, 1997, and $513 million at September 30, 1997. At September 30, 1998, funds available under our credit arrangements totaled $334 million.

On July 29, 1998, we sold the No. 1 Coke Oven Battery at Burns Harbor to an affiliate of DTE Energy Services, Inc. We will continue to operate the facility for the new owner and purchase its output. Proceeds from the transaction were about $190 million and were used in repaying the $200 million short-term borrowing used to complete the Lukens acquisition. The gain on the sale was about $160 million and is being deferred and recognized over the nine-year life of the operating and purchase agreement.

For the first nine months of 1998, cash provided from operations before pension activities was $381 million compared with $440 million for the first nine months of 1997. Principal uses of cash during the first nine months of 1998 included the Lukens acquisition, capital expenditures, pension funding and debt repayments. We acquired all of the outstanding stock of Lukens for an aggregate purchase price of about $565 million which included cash and transaction costs of about $380 million and the issuance of 15.1 million shares of Bethlehem Common Stock valued at about $185 million. Capital expenditures were $216 million compared with $189 million during the year-earlier period. Capital expenditures (excluding the acquisition of Lukens) are currently expected to be $325 million in 1998, compared with $228 million in 1997. Pension funding for the first nine months of 1998 totaled $130 million and we repaid $290 million of debt including the $200 million short-term borrowing used to complete the Lukens acquisition.

During the fourth quarter, we expect to complete our previously announced sale of certain stainless assets to Allegheny Teledyne Incorporated. We are also continuing with plans for the sale of the other remaining Lukens stainless and distribution businesses.

International Steel Trade

The present volume of unfairly traded and injurious steel imports is unprecedented and has caused total imports to surge to record levels in each of the last five months. Total imports of finished steel mill products in August were approximately 80% greater than the average monthly level for 1997, and the August rate for hot rolled sheet was approximately 160% greater than the 1997 average. At these rates, on an annual basis, imports would be the equivalent of nearly 50% of total anticipated industry shipments. These unfairly traded imports have caused serious injury by reducing shipments, production, prices, employment levels and profitability.

Our overall international trade position is clear. We have supported international trade liberalization efforts, including the World Trade Organization (WTO). We believe that all markets should be open; that trade should be fair in all markets; that trade should be rule based; and that the rules should be enforced when trade is unfair and injurious.

Under the present circumstances, we are taking three actions:

1. Legal - We have filed and will continue to file all appropriate legal actions.
2. Public Affairs - We have joined with the United Steelworkers, leading steel companies and others in an educational campaign - "Stand Up for Steel - Stand up for America".
3. Governmental - We are working with the Congress and the Administration to help cause appropriate actions to be taken.

On September 30, 1998, we joined eleven other steel companies and the United Steelworkers in filing cases covering certain hot rolled carbon steel flat products against Japan, Russia and Brazil. Hot rolled sheet imports from these three countries during the period January through August 1998 were about 90% above hot rolled sheet imports for the same period in 1997. The August rate was about 230% greater than the 1997 monthly average. Additional cases will be filed as appropriate and the filing of such well-founded cases is part of the internationally recognized procedure to deal with injurious dumping and subsidies, which are condemned by the WTO.

We believe that the actions that we are taking, along with those to be taken by the Congress and the Administration, will help to resolve this very serious issue that threatens our company, stockholders, employees, customers, and the communities in which we operate.

Outlook

The Asian situation is having a much greater impact on world economies and, along with other factors, has increased the likelihood of slower future growth in the U.S. economy as compared with the past several years.

Our competition is intense and we are deeply concerned about the serious injury being caused by unfairly traded imports.

While current business conditions are very difficult, we are continuing to focus on our strategy of concentrating on steel and rebuilding our financial strength, and in taking all necessary actions to deal with the current challenges and opportunities.

Dividends

The Board of Directors today declared dividends of $1.25 per share on Bethlehem's $5.00 Cumulative Convertible Preferred Stock, $0.625 per share on Bethlehem's $2.50 Cumulative Convertible Preferred Stock and $0.875 per share on Bethlehem's $3.50 Cumulative Convertible Preferred Stock, each payable December 10, 1998, to holders of record on November 10, 1998. No dividend was declared on Bethlehem's Common Stock.

•  Q3, 1998
Consolidated Statements of Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements

Financial Quarterly Financial Statements