Bethlehem Steel: Financial Reports

1. The Consolidated Financial Statements as of and for the three month periods ended December 31, 1998 and 1997 and the year ended December 31, 1998 were not audited. However, in Management's opinion, the information reflects all adjustments necessary for a fair statement of the results for the periods presented. Management believes all adjustments were of a normal and recurring nature.

2. These Consolidated Financial Statements should be read together with the 1997 audited financial statements set forth in Bethlehem's Annual Report on Form 10-K filed with the Securities and Exchange Commission. Presentation of certain amounts in the prior year have been revised to be consistent with the current year.

3. On May 29, 1998, Bethlehem acquired all of the outstanding capital stock of Lukens Inc. The aggregate purchase price of $560.6 million comprised cash of $327.8 million, the issuance of 15.1 million shares of Bethlehem common stock valued at $184.8 million, and transaction related costs of $48.0 million. The acquisition was accounted for as a purchase. Accordingly, Lukens' results are included in the Consolidated Financial Statements from the date of acquisition.

Current assets	$ 184.7
Property, plant & equipment	277.3
Net assets of discontinued stainless operations	310.0
Deferred tax asset, other	70.5
Goodwill	360.0
Current liabilities	(113.5)
Pension and other postretirement benefit liabilities	(220.0)
Debt	(268.5)
Other long-term liabilities	(39.9)

Purchase price, net of cash acquired	$ 560.6

Bethlehem has sold or intends to sell Lukens' stainless and distribution businesses. Accordingly, Bethlehem is accounting for the stainless and distribution businesses as discontinued operations. Income or losses from these operations are not included in Bethlehem's operating results. Since the date of acquisition, these operations have incurred operating losses of about $26 million. The net assets of the remaining operations are shown separately on the balance sheet and consist primarily of property, plant and equipment and working capital.

During the fourth quarter of 1998, Bethlehem completed the sale of certain stainless assets to Allegheny Teledyne Inc. Bethlehem received $105 million in cash and a non-interest bearing note for the remaining $70 million. Upon completion of the sale, a 20-year agreement to provide Allegheny with conversion services to produce stainless steel plate and coiled plate also became effective. The note will become payable upon the completion of certain agreed upon improvements to the facilities used to provide conversion services to Allegheny. Bethlehem and Allegheny will share in the cost of these improvements which are expected to be about $25 million.

In early January 1999, Bethlehem signed a stock purchase and sale agreement with Ryerson Tull, Inc. for the sale of Washington Specialty Metals Corporation. At the same time, Bethlehem announced the planned permanent closing of the remaining stainless manufacturing facilities acquired in the Lukens transaction. Operations at the remaining manufacturing facilities will cease during the first quarter of 1999 but Bethlehem will continue efforts to sell the assets.

Bethlehem expects to finalize all purchase accounting adjustments, e.g., ultimate net proceeds on disposal of the stainless operations, within one year of the acquisition. Any difference between the amounts reflected above and the final amounts could result in an adjustment to goodwill. Goodwill is being amortized over 30 years or $12 million per year.

Bethlehem recorded a charge of $35 million ($29 million after-tax) during the second quarter of 1998 in connection with the closure of the Sparrows Point 160" plate mill.

The unaudited pro forma combined historical results (excluding Stainless) as if Lukens had been acquired at the beginning of 1997 are estimated to be:

	Year Ended Dec. 31

(Dollars in millions, except per share data)	1998	1997
Net Sales
Income from Operations	$4,717.5	$5,147.7
Net Income	$ 200.1	$ 404.3
	$ 121.4	$ 286.2
Net Income per Share:
Basic	$ 0.62	$ 1.92
Diluted	$ 0.62	$ 1.86

The pro forma results presented above are not necessarily indicative of what actually would have occurred if the acquisition had been completed as of the beginning of 1997, nor are they necessarily indicative of future results.

4. On July 29, 1998, Bethlehem received about $190 million from the sale of the No. 1 Coke Oven Battery at Burns Harbor to an affiliate of DTE Energy Services, Inc. Bethlehem will operate the facility for the new owner and purchase the output. 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 agreements.

On June 19, 1998, Bethlehem's wholly owned special purpose subsidiary amended its existing non-reducing credit facility. The amendment extends the term of the agreement to July 19, 2003, increases the facilities receivable purchase agreement from $300 million to $340 million, and increases the credit facility for inventory from $225 million to $260 million, for a total of $600 million.

The accompanying Notes are an integral part of the Consolidated Financial Statements.