BETHLEHEM STEEL CORP /DE/, 10-K, 1997-03-26

BETHLEHEM STEEL CORP /DE/
10-K, 1997-03-26
STEEL WORKS, BLAST FURNACES & ROLLING MILLS (COKE OVENS)

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1996
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

F O R M 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER 1-1941

B E T H L E H E M S T E E L C O R P O R A T I O N
(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) 694-2424

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

Name of each exchange on
Title of each class which registered
------------------- ------------------------
Common Stock--$1 par value per share New York Stock Exchange
Chicago Stock Exchange
Preference Stock Purchase Rights New York Stock Exchange
Chicago Stock Exchange
Preferred Stock -- $1 par value per share
$5.00 Cumulative Convertible New York Stock Exchange
(stated value $50.00 per share)
$2.50 Cumulative Convertible New York Stock Exchange
(stated value $25.00 per share)
6-7/8% Debentures. Due March 1, 1999 New York Stock Exchange
8-3/8% Debentures. Due March 1, 2001 New York Stock Exchange
8.45% Debentures. Due March 1, 2005 New York Stock Exchange

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
(Title of class)

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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/

Aggregate Market Value of Voting Stock held by Non-Affiliates: 919,398,299
The amount shown is based on the closing price of Bethlehem Common Stock on
the New York Stock Exchange Composite Tape on March 21, 1996. Voting stock
held by directors and executive officers of Bethlehem is not included in the
computation. However, Bethlehem has made no determination that such
individuals are "affiliates" within the meaning of Rule 405 under the
Securities Act of 1933.

Number of Shares of Common Stock outstanding as of March 21, 1997: 112,061,570

DOCUMENTS INCORPORATED BY REFERENCE:

Selected portions of the 1996 Annual Report to Stockholders of Bethlehem
Steel Corporation are incorporated by reference into Part II of this Report on
Form 10-K.

Selected portions of the 1997 Proxy Statement of Bethlehem Steel
Corporation are incorporated by reference into Part III of this Report on
Form 10-K.

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PART I
ITEM 1. BUSINESS.

Bethlehem(1) is the second largest steel producer in the United States and
primarily manufactures and sells a wide variety of steel mill products.
Bethlehem also produces and sells coke, coal and iron ore.

For financial reporting purposes, Bethlehem reports the results of its
operations and other financial information in two segments, Basic Steel
Operations and Steel Related Operations. Note B to the Consolidated Financial
Statements contains financial information relating to Bethlehem's industry
segments for 1996, 1995 and 1994. The table below shows the percentage
contribution to Bethlehem's net sales of each segment and of major classes of
products for each of the years 1994 through 1996:

1996 1995 1994
---- ---- ----
BASIC STEEL OPERATIONS
Steel mill products:
Hot rolled sheets . . . . . . . . . . 14.7% 15.9% 16.6%
Cold rolled sheets. . . . . . . . . . 16.0 14.4 17.0
Coated sheets . . . . . . . . . . . . 32.0 29.7 25.9
Tin mill products . . . . . . . . . . 7.0 6.1 6.6
Plates. . . . . . . . . . . . . . . . 15.3 15.1 14.0
Structural shapes and piling. . . . . 3.8 6.7 6.7
Rail products . . . . . . . . . . . . 3.5 3.2 2.8
Other steel mill products . . . . . . 1.6 2.7 2.5
Other products and services
(including raw materials). 3.6 4.2 5.5
------ ------ ------
97.5 98.0 97.6
STEEL RELATED OPERATIONS . . . . . . . . 2.5 2.0 2.4
------ ------ ------
100.0% 100.0% 100.0%
====== ====== ======

BASIC STEEL OPERATIONS

OPERATIONS

Bethlehem's Basic Steel Operations produces a wide variety of steel mill
products, including hot rolled, cold rolled and coated sheets and strip,
plates, tin mill products, specialty blooms, carbon and alloy bars, rail and
large-diameter pipe. Basic Steel Operations includes the following Business
Units: the Burns Harbor Division, the Sparrows Point Division and Pennsylvania
Steel Technologies, Inc. Basic Steel Operations also includes Bethlehem
Structural Products Corporation which produced structural shapes and special
sections. See "ITEM 1. BUSINESS--Restructuring Activities" of this Report for
a discussion of Bethlehem Structural Products Corporation. Also included in
Basic Steel Operations are iron ore and coal operations (which provide raw
materials to Bethlehem's steelmaking facilities or sell such materials to trade
customers), railroad and trucking operations (which primarily transport raw
materials and semifinished steel products within various Bethlehem operations)
and lake shipping operations (which primarily transport raw materials to the
Burns Harbor Division). See "ITEM 2. PROPERTIES" of this Report for a
description of the facilities of these business units and operations.

As reported by the American Iron and Steel Institute ("AISI"), the domestic
steel industry's raw steel production capability for 1996 was 116 million tons,
and the preliminary average rate of industry utilization of that capability was
90 percent, compared with 112 million tons and 93 percent for 1995 and 108
million tons and 93 percent for 1994. Bethlehem's raw steel production
capability was 10.5 million tons for 1996 compared with 11.5 million tons for
1995 and 1994. Its average rate of utilization of that capability was 90
percent for 1996, 91 percent for 1995 and 85 percent for 1994.

- ----------
(1) "Bethlehem" when used in this Report means Bethlehem Steel Corporation, a
Delaware corporation, and where applicable includes its consolidated
subsidiaries. Bethlehem was incorporated in Delaware in 1919.

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The following table shows, for each of the years indicated, the raw steel
production of Bethlehem and of the entire domestic steel industry:

Raw Steel Production
------------------------------------------
Domestic Bethlehem as a
Steel % of Domestic
Bethlehem Industry* Steel Industry
--------- --------- --------------
(millions of net tons)
1996. . . . . . . . . . . . . 9.4 104.4** 9.1**
1995. . . . . . . . . . . . . 10.4 104.9 10.0
1994. . . . . . . . . . . . . 9.8 100.6 9.7

- -----------------
* The figures are as reported by the AISI.
** Based on preliminary AISI figures.

Of Bethlehem's 1996 raw steel production, 92 percent was produced by basic
oxygen furnaces and 8 percent by electric furnaces. Bethlehem's three
continuous slab casters for light flat rolled products and plates produced
about 81 percent of the slabs needed for these products in 1996 compared with
84 percent in 1995 and 78 percent in 1994.

Bethlehem's operations are subject to planned and unplanned outages due to
required maintenance, equipment malfunctions, work stoppages, various hazards
(including explosions, fires and severe weather conditions) and the
availability of raw materials, supplies, utilities and other items needed for
the production of steel. These outages could result in reduced production and
increased costs.

MARKETS

The following table shows, for each of the years indicated, the percentage
of the total net tons of steel mill products shipped by Bethlehem's Basic Steel
Operations to each of its principal markets, including shipments to its own
manufacturing operations:

1996 1995 1994
---- ---- ----
Service Centers, Distributors, Processors
and Converters (including semifinished 45.2% 41.0% 45.9%
customers)
Transportation (including automotive) . 26.0 24.8 24.2
Construction. . . . . . . . . . . . . . 12.6 14.2 14.7
Containers. . . . . . . . . . . . . . . 5.2 5.2 5.7
Machinery . . . . . . . . . . . . . . . 5.1 5.2 4.9
Other . . . . . . . . . . . . . . . . . 5.9 9.6 4.6
------ ------ ------
100.0% 100.0% 100.0%
====== ====== ======

Many of the markets Bethlehem supplies, such as automotive, machinery and
construction, are highly cyclical and subject to downturns in the U.S.
economy. Also, many of Bethlehem's customers and suppliers are subject to
collective bargaining agreements and their ability to operate could be impacted
by a strike or work stoppage.

Bethlehem distributes steel products principally through its own sales
organization, which has sales offices at various locations in the United States
and Mexico, and through foreign sales agents. In addition to selling to
customers who consume steel products directly, Bethlehem sells steel products
to steel service centers, distributors, processors and converters. Export
sales for this segment were 3 percent of total sales in 1996, 5 percent in 1995
and 2 percent in 1994.

Trade orders on hand for Basic Steel Operations at December 31, 1996 and
1995 were about $1.2 billion and $1.3 billion, respectively. Substantially all
of the orders on hand at December 31, 1996, are expected to be filled in 1997.

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STEEL PRICE SENSITIVITY

Bethlehem's results are significantly affected by relatively small (on a
percentage basis) variations in the realized prices for its products.
Bethlehem shipped 8.8 million net tons of steel products and recorded sales of
$4.7 billion during 1996, implying an average realized price per ton of about
$530. A one percent increase or decrease in this implied average realized
price during 1996 could, on a pro forma basis, have resulted in an increase or
decrease in net sales and pre-tax income of about $47 million. Competitive
pressures in the steel industry are severe. These pressures could limit
Bethlehem's ability to obtain price increases or could lead to a decline in
prices, which could have a material adverse effect upon Bethlehem.

CYCLICALITY

The domestic steel industry is highly cyclical in nature. Domestic
integrated producers suffered substantial losses in the first half of the
1980s. During the second half of the 1980s, domestic steel producers benefited
from improved industry conditions and in 1988 domestic industry earnings
reached record levels. Steel demand and pricing declined between 1989 and 1992
and the domestic industry reported substantial losses. Since 1993, there has
been a recovery in steel markets and domestic steel producers have reported
improved results. Although Bethlehem believes that domestic steel markets will
be relatively good in 1997, there can be no assurance as to the extent of any
future improvement in domestic industry earnings.

COMPETITION

The domestic steel industry is highly competitive. This competition
affects the prices that Bethlehem can charge for its products, the utilization
of its production facilities, its ability to sell higher value products and
ultimately the profitability of Bethlehem.

CAPICITY. There is excess world capacity for many of the products produced
by Basic Steel Operations. Many foreign steel producers are owned, controlled
or subsidized by their governments. Decisions by these foreign producers to
continue marginal facilities may be influenced to a greater degree by political
and economic policy considerations than by prevailing market conditions.
Overcapacity has also been perpetuated by the continued operation,
modernization and upgrading of marginal domestic facilities through bankruptcy
reorganization proceedings and by the sale by integrated producers of marginal
domestic facilities to new owners, which operate such facilities with a lower
cost structure. Over the next several years, construction of additional flat
rolled production facilities could result in increased domestic capability of
up to 10 million tons over 1996 levels.

MINI-MILLS. Domestic integrated producers, such as Bethlehem, have lost
market share in recent years to domestic mini-mills. Mini-mills provide
significant competition in certain product lines, including hot rolled sheet
products. Mini-mills, which are less expensive to build than integrated
facilities, are relatively efficient, low-cost producers that produce steel
from scrap in electric furnaces, have low employment and environmental costs
and target regional markets. Through the use of iron substitutes and thin slab
casting technology, mini-mill competitors are increasingly able to compete
directly with producers of higher value products, including cold rolled and
coated sheets. Most of the previously mentioned new flat rolled facilities
that will be constructed over the next several years will be mini-mills.

IMPORTS. Domestic steel producers also face significant competition from
foreign producers and have been adversely affected by unfairly traded imports.
In many cases, foreign producers are pricing their products below their
production costs. Imports of finished steel products accounted for about 18
percent of the domestic market in 1996 and 1995 and 20 percent in 1994.

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The following table, which is based on data reported by the AISI, shows the
percentage of the domestic apparent consumption of steel mill products supplied
by imports for various classes of products.

1996* 1995 1994
----- ---- ----
Structural shapes and piling. . . . . . 16% 11% 13%
Bars, rods, tool steel and semifinished . . 36 31 35
Plates . . . . . . . . . . . . . 26 22 23
Sheets, strip and tin mill products . . . 16 16 19
Rail. . . . . . . . . . . . . . 26 28 30
All products** . . . . . . . . . . 23 21 25

- ----------
* Preliminary
** Excludes steel imported in the form of manufactured goods, such as
automobiles, but includes semifinished steel.

Excluding semifinished steel, imports of steel mill products were about
21.6 million tons in 1996, 19.2 million tons in 1995 and 22.1 million tons in
1994.

Antidumping and countervailing duty orders covering imports of corrosion
resistant sheet from 6 countries, cold rolled sheet from 3 countries and plates
from 11 countries, which resulted from unfair trade cases filed by Bethlehem
and 11 other companies in 1992, remain in place. Imports of flat rolled steel
from countries not subject to orders, including particularly the Commonwealth
of Independent States (formerly the USSR), eastern European countries and the
People's Republic of China, have increased significantly. New antidumping
investigations are currently pending with respect to imports of cut-to-length
plate from the People's Republic of China, Russia, the Ukraine and South
Africa.

The major restructuring of the domestic steel industry, which began in the
late 1970s and early 1980s, has removed the steelmaking capacity that once
existed to meet market demand during peak periods. During the last few years,
domestic producers have met a portion of the demand that exceeded steelmaking
capacity by importing semifinished slabs for rolling into finished products in
their own mills. Increased imports of finished products met the remaining
demand, which could not be met by domestic rolling mills.

SUBSTITUTE MATERIALS. For many steel products, there is substantial
competition from manufacturers of products other than steel, including
plastics, aluminum, ceramics, glass, wood and concrete. Changes to the
relative competitiveness of these substitute materials and the emergence of
additional substitute materials could adversely affect future prices and demand
for Bethlehem's products.

STEEL RELATED OPERATIONS

Bethlehem's Steel Related Operations includes BethForge, Inc. and CENTEC
Roll Corporation. BethForge manufactures and fabricates forged products,
including forged rolls for the metalworking industry. CENTEC produces
centrifugally cast rolls for the metalworking industry. The operations of
BethForge and CENTEC are located in Bethlehem, Pennsylvania.

Steel Related Operations also includes BethShip, Inc., which repairs and
services ships and fabricates industrial products. The facilities of BethShip
consist of a ship repair yard at Sparrows Point, Maryland.

Trade orders on hand for Bethlehem's Steel Related Operations at December
31, 1996 and 1995, were about $59 million and $43 million,
respectively. Substantially all the orders on hand at December 31, 1996, are
expected to be filled in 1997.

See "ITEM 1. BUSINESS--Restructuring Activities" of this Report for a
discussion of the status of Bethlehem's Steel Related Operations.

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GENERAL

CAPITAL EXPENDITURES

Capital expenditures were $259 million in 1996 compared with $267 million
in 1995 and $445 million in 1994. Capital expenditures for 1997 are currently
estimated to be about $280 million.

Major projects during 1996 included the upgrade of the 160-inch plate mill
and the modernization of the hot strip mill at the Burns Harbor Division.

About $280 million of additional capital expenditures were authorized in
1996. At December 31, 1996, the estimated cost of completing authorized
capital expenditures was about $386 million compared with $400 million at
December 31, 1995. Such authorized capital expenditures are expected to be
completed during the 1997-1999 period.

The domestic integrated steel industry is very capital intensive. As
discussed under "ITEM 2. PROPERTIES--General" of this Report, Bethlehem's
principal operations and facilities are of varying ages, technologies and
operating efficiencies. Bethlehem will need to continue to make significant
capital expenditures in the future to improve and maintain the competitiveness
of its operations and facilities.

ENVIRONMENTAL CONTROL AND REMEDIATION EXPENDITURES

Bethlehem is subject to various federal, state and local environmental laws
and regulations concerning, among other things, air emissions, waste water
discharges and solid and hazardous waste disposal. During the five years ended
December 31, 1996, Bethlehem spent about $160 million for environmental control
equipment. Expenditures for new environmental control equipment totaled about
$29 million in 1996, $36 million in 1995 and $44 million in 1994. The costs
incurred in 1996 to operate and maintain existing environmental control
equipment were about $115 million (excluding interest costs but including
depreciation charges of $19 million) compared with $120 million in 1995 and
$115 million in 1994. In addition, Bethlehem has been required to pay various
fines and penalties relating to violations or alleged violations of laws and
regulations in the environmental control area. Bethlehem paid about $160,000
in 1996, $5.9 million in 1995 and $3.9 million in 1994 for such fines and
penalties.

Under the Clean Air Act, as amended, coke-making facilities will have to
meet progressively more stringent standards over the next 25 years. Bethlehem
currently operates coke-making facilities in Bethlehem, Pennsylvania; Burns
Harbor, Indiana; and Lackawanna, New York. While Bethlehem continues to
evaluate the impact future emission control regulations will have on these
operations, it believes that these operations will be able to comply.

Bethlehem cannot predict future specific environmental control
requirements. Based on existing and anticipated regulations promulgated under
presently enacted legislation, Bethlehem estimates that capital expenditures
for new environmental control equipment will average about $30 million per year
over the next two years. However, estimates of future capital expenditures and
operating costs required for environmental compliance are subject to numerous
uncertainties, including the evolving nature of regulations, possible
imposition of more stringent requirements, availability of new technologies and
the timing of expenditures.

Under the Resource Conservation and Recovery Act, as amended ("RCRA"), the
owners of certain facilities that managed hazardous waste after 1980 are
required to investigate and, if appropriate, remediate

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certain historic environmental contamination found at the facility. All of
Bethlehem's major facilities may be subject to this "Corrective Action
Program", and Bethlehem has implemented or is currently implementing the
program at its facilities located in Steelton, Pennsylvania; Lackawanna, New
York; Burns Harbor, Indiana; and Sparrows Point, Maryland. At Steelton,
Bethlehem has completed a RCRA Facility Investigation ("RFI"), a Corrective
Measures Study ("CMS") and a remediation program, which program received formal
approval of the United States Environmental Protection Agency (the "EPA") and
was completed in 1994. At Lackawanna, Bethlehem is conducting an RFI which is
expected to be completed later this year. At Burns Harbor, Bethlehem has
recently received EPA approval of its proposed scope of work for an RFI which
will require several years to complete. At Sparrows Point, Bethlehem, the EPA
and the Maryland Department of the Environment have agreed to a phased RFI as
part of a comprehensive multimedia pollution prevention agreement which was
lodged in the U. S. District Court for Maryland as a proposed consent decree
on February 25, 1997. The potential costs for possible remediation activities,
if any, at Lackawanna, Burns Harbor and Sparrows Point and the timeframe for
implementation of these activities cannot be reasonably estimated until the
RFIs, and possibly the CMSs, have been completed and approved.

Under the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended ("CERCLA", also known as "Superfund"), the EPA has
authority to impose liability for site remediation on generators and
transporters of waste, as well as past and present owners and operators of the
sites where the waste was disposed of regardless of, fault or the legality of
the disposal activities. Bethlehem is actively involved at a total of 25 sites
where it has been advised that it may be considered a potentially responsible
party under CERCLA or the corresponding State Superfund legislation. Based on
its experience regarding site remediation and its knowledge of and extent of
involvement in such sites, Bethlehem expects that its share of the costs for
remediation of these sites will not be material.

Although it is possible that Bethlehem's future quarterly or annual results
of operations could be materially affected by the future costs of environmental
compliance, Bethlehem believes that the future costs of environmental
compliance will not have a material adverse effect on its consolidated
financial position or on its competitive position with respect to other
integrated domestic steelmakers that are subject to the same environmental
requirements. To the extent that competitors are not required to undertake
equivalent costs, Bethlehem's competitive position could be adversely affected.

Since 1946, Bethlehem has had a formal program of environmental control.
Bethlehem was one of the first industrial companies in the United States to
recognize its obligation to its communities, the citizens of its communities
and the environment. Bethlehem continues to expand its commitment to the
environment through the development and implementation of progressive
environmental programs consistent with the goals identified in its Corporate
Environmental Policy and the CERES Principles which Bethlehem first endorsed
last year. During 1996, Bethlehem published its first environmental progress
report and CERES report based upon its environmental accomplishments and
activities for the preceding year.

PURCHASED MATERIALS AND SERVICES

Bethlehem purchases about $3 billion per year of raw materials, energy,
equipment, goods and services from commercial sources. Difficulties in
obtaining these items and the prices paid by Bethlehem could affect Bethlehem's
profitability. Bethlehem has made significant progress in 1996 through its
Strategic Sourcing initiatives and expects further progress in 1997. The
objectives of Strategic Sourcing are to forge a strong, competitive base of
supply partners who share Bethlehem's commitment to deliver superior value to
customers; to realize significant, immediate and sustainable improvements in
the total cost, quality and value of purchased goods and services; and to
establish mutual commitments to continuous improvement. See "ITEM 2.
PROPERTIES--Properties Relating to the Basic Steel Operations Segment--Raw
Material Properties and Interests" of this Report for a further description of
the sources of iron ore, coal, limestone and other raw materials essential to
Bethlehem's steelmaking business.

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RESEARCH AND DEVELOPMENT

Bethlehem engages in its own research activities for the improvement of
existing products and the development of new products and more efficient
operating processes. During 1996, 1995 and 1994, Bethlehem spent about $25
million, $25 million and $24 million, respectively, in its research and
development activities. Bethlehem owns a number of United States and
corresponding foreign patents that relate to a wide variety of products and
processes, has pending various patent applications and is licensed under a
number of patents. Bethlehem also licenses its patents to others, producing
royalties. During 1996, six United States patents covering a variety of new
developments were awarded to Bethlehem. However, Bethlehem believes that no
single patent or license, which expires from time to time, or any group of
patents or licenses relating to a particular product or process is of material
importance in its overall business. Bethlehem also owns registered trademarks
for certain of its products and service marks for certain of its services
which, unlike patents and licenses, are renewable so long as they are continued
in use and properly protected.

In 1994, Bethlehem and U. S. Steel Group, a unit of USX Corporation,
entered into a Cooperative Research and Development Agreement. During 1996,
Bethlehem and U. S. Steel Group continued to conduct joint research and
development activities under the Agreement in the field of basic ironmaking and
steelmaking technologies and processes, such as primary iron and steel process
development, finishing process development and process instrumentation
development. Bethlehem believes that the joint research and development
activities are helping to meet the Agreement's goals, including expediting
technological developments and improvements, enhancing Bethlehem's domestic and
worldwide competitiveness and reducing research and development costs and time
periods. Bethlehem, therefore, intends to continue the joint research and
development activities in 1997. Notices in connection with the Agreement have
been filed in accordance with the National Cooperative Research and Development
Act of 1993.

EMPLOYEES AND EMPLOYMENT COSTS

At the end of 1996, Bethlehem had about 17,500 employees compared with
about 18,300 employees at the end of 1995 and 19,900 employees at the end of
1994. About 13,000 Bethlehem employees are covered by collective bargaining
agreements with the United Steelworkers of America ("USWA"). The agreement
applicable to a majority of Bethlehem's USWA represented employees includes a
guarantee of minimum hours of work which limits Bethlehem's ability to reduce
costs during economic downturns.

Under the terms of Bethlehem's 1993 labor agreements with the USWA, most
employees at its steel operations received a bonus in 1996 of $.50 per hour
worked (maximum payment of $1,000) based on Bethlehem having achieved the
required level of 1995 adjusted consolidated pre-tax income. Also, profit
sharing of 8 percent of adjusted consolidated annual income before taxes,
unusual items and expenses applicable to the plan plus 2 percent of adjusted
profits of certain operations is paid to USWA represented employees in the
following year. Profit sharing is also paid to non-represented employees based
on specific Corporate and Business Unit plans and performance. Bethlehem paid
about $75 million in 1996 and expects to pay about $45 million for income
related bonus, profit-sharing and shortfall amounts in early 1997.

The 1993 labor agreements provided for Reopener Negotiations in March 1996
for certain wage and benefit provisions (excluding pensions and health care
benefits) with changes effective August 1, 1996, and continuing through the
expiration of the labor agreement on August 1, 1999. Bethlehem did not reach a
settlement with the USWA and the parties submitted unresolved issues to
arbitration. The Arbitrator selected Bethlehem's final offer which included
three wage increases totaling $1.00 per hour, lump sums totaling up to $2,000
per employee (one-half depends on achieving certain levels of profits in 1997
and 1998) and continuing one floating holiday each year for the next three
years. As a result of the Arbitrator's decision, most employees at steel
operations received a $.50 per hour wage increase on August 1, 1996, and will
receive a $.25 per hour wage increase on August 1, 1997 and 1998. The
Arbitrator's decision will not have a material adverse effect on Bethlehem's
future profitability.

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Under other provisions of the labor agreements, Bethlehem is required to
pay "shortfall amounts" each year up to 10 percent of the first $100 million
and 20 percent in excess of $100 million of consolidated income before taxes,
unusual items and expenses applicable to the shortfall plan. Shortfall amounts
arise when employees terminate employment and ESOP Preference Stock, held in
trust for employees in reimbursement for wage and benefit reductions in prior
years, is converted into Common Stock and sold for amounts less than the stated
value of the Preference Stock ($32 for Series A and $40 for Series B).
Bethlehem issued about 61,000 shares of Series B Preference Stock in 1996 and
about 40,800 shares in 1995 to a trustee for the benefit of employees for 1995
and 1994, respectively, and expects to issue about 35,000 shares in early 1997
for the 1996 plan year.

Bethlehem's ability to operate could be impacted by a strike or work
stoppage if it is unable to negotiate a new agreement with its represented
employees when the existing agreement expires in 1999. Also, Bethlehem's
profitability could be adversely affected if increased costs associated with
any future contract are not recoverable through productivity improvements or
price increases.

For further information with regard to Bethlehem's employment costs, see
"Employment Cost Summary--All Employees" under "Financial Review and Operating
Analysis" in Bethlehem's 1996 Annual Report to Stockholders. As set forth on
page 16 of this Report, such discussion is incorporated herein by reference.

EMPLOYEE POSTRETIREMENT OBLIGATIONS

Bethlehem has substantial financial obligations related to its employee
postretirement plans for pensions and health care. Also, due to the excess of
projected benefit obligations over pension fund assets, Bethlehem's annual
pension expense is substantially higher on a per ton basis than that of most
other domestic steel producers. This pension expense, combined with
postretirement health care expense, puts Bethlehem at a competitive
disadvantage with respect to such costs compared to most other domestic steel
producers. As of December 31, 1996, Bethlehem's consolidated balance sheet
reflects liabilities of $870 million and $1,595 million for the actuarial
present value of unfunded accumulated benefit obligations ("ABO") for pensions
and postretirement benefits other than pensions, respectively. The calculation
of the actuarial present value of the ABOs for active employees assumes
continued employment with projections for retirements, deaths, resignations and
discharges. If the actual retirement of active employees is significantly
earlier than projected (for plant closings or other reasons), the ABOs would
increase substantially. The charges for employees terminated as a result of
plant shutdowns or restructurings vary depending upon the demographics of the
work force, but could be $100,000 per employee. The recording of these charges
could result in a material adverse impact on Bethlehem's financial condition
because of the increase in recorded liabilities, decrease in stockholders'
equity and increases in required contributions to the pension fund and retiree
health care payments.

During 1996, long-term interest rates increased. As a result, Bethlehem
increased the discount rate used to calculate the actuarial present value of
its ABO for pensions from the 7.25 percent used at December 31, 1995, to 7.75
percent at November 30, 1996. This increase in the discount rate reduced
Bethlehem's ABO for pensions and restored $67 million to additional paid-in
capital as required by generally accepted accounting principles. For each 25
basis point change in the future discount rate, Bethlehem's ABO for pensions
changes by about $100 million. A decrease in interest rates at November 30,
1997, from November 30, 1996, would require Bethlehem to increase the actuarial
present value of its ABO for pensions and might again require Bethlehem to
reduce additional paid-in capital depending on the market value of Bethlehem's
pension trust fund assets (which at November 30, 1996, was $4.2 billion). For
postretirement benefits other than pensions, principally health care and life
insurance, the same increase in the discount rate as of November 30, 1996, and
potential future changes also apply to the actuarial present value of
Bethlehem's ABO. However, because different accounting principles apply, there
is no immediate change in the recorded liability or potential charge to equity.

Bethlehem has contributed amounts to its pension fund substantially in
excess of amounts required under current law and regulations. As a result,
Bethlehem currently has a funding standard credit balance which would allow it
under current law and regulations to defer all pension funding for about two
years, although it presently has no plans to do so.

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RESTRUCTURING ACTIVITIES

As part of Bethlehem's efforts to make its business and operations more
competitive, Bethlehem has implemented, and will continue to consider, a wide
range of restructuring alternatives.

JOINT VENTURES, PARTNERSHIPS, FACILITY SHARING ARRANGEMENTS AND MERGERS.
Bethlehem has considered, and discussed with others, various opportunities for
joint ventures, partnerships, facility sharing arrangements and mergers of all
or part of Bethlehem. Bethlehem will continue to explore such opportunities.
See "ITEM 2. PROPERTIES." of this Report for a description of joint ventures
in which Bethlehem participates.

FACILITY SHUTDOWNS AND RESTRUCTURINGS. During the last five years,
Bethlehem has shut down or restructured facilities and operations and has
reduced its annual steelmaking capability from 16.0 million tons in 1992 to
10.5 million tons in 1996. Bethlehem has recorded charges of $815 million in
connection with these actions, including a $465 million restructuring charge
($382 million after-tax) in 1996. See Note C to the Consolidated Financial
Statements. On October 30, 1996, Bethlehem announced a restructuring plan to
improve its financial performance and stockholder value. Planned actions
include the sale or shutdown of Bethlehem Structural Products Corporation,
BethForge, CENTEC and BethShip. It also included the write-off of the assets
of its Coke Division located in Bethlehem, Pennsylvania, as an impaired asset
in accordance with generally accepted accounting principles, although Bethlehem
will continue to operate this facility. Bethlehem is currently negotiating
with qualified buyers for the sale of BethForge, CENTEC and BethShip. Efforts
to sell Bethlehem Structural as an ongoing business have been unsuccessful and
operations ceased during the first quarter of 1997. Although Bethlehem has
no current plans to do so, if it becomes necessary for Bethlehem to shut down
or restructure additional businesses and operations in the future, it could
incur substantial additional charges in the process. The recording of
these charges could have a material adverse impact on Bethlehem's financial
condition because of the increase in recorded liabilities and decrease in
stockholders' equity.

ASSET SALES. Since early 1986, Bethlehem has implemented an extensive
program of asset sales. About 35 businesses have been sold since the program
began. Upon the completion of Bethlehem's most recent restructuring plan
discussed above, Bethlehem believes that its remaining core steel businesses
(Burns Harbor, Sparrows Point and PST) will provide a solid base on which to
build the company and add value for its stockholders. Bethlehem does not
anticipate raising substantial cash in the future from asset sales.

CAPITAL STRUCTURE

As of December 31, 1996, Bethlehem's capital structure was highly leveraged
reflecting its significant recorded liability for pensions and other
post-retirement obligations. Although Bethlehem believes it has sufficient
access to funds for the operation of its business, its existing obligations and
below investment grade credit rating may limit its ability to raise capital in
the future.

FORWARD-LOOKING STATEMENTS

Bethlehem and its representatives may from time to time make
forward-looking statements in reports filed with the Securities and Exchange
Commission, reports to stockholders, press releases, other written documents
and oral presentations. These forward-looking statements may include, among
others, statements concerning projected levels of sales, shipments and income,
pricing trends, cost-reduction strategies, product mix, anticipated capital
expenditures and other future plans and strategies.

As permitted by the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, Bethlehem is identifying in this Report
important factors that could cause Bethlehem's actual results to differ
materially from those projected in these forward-looking statements. These
factors include, but are not necessarily limited to:

(bullet) the effect of planned and unplanned outages on Bethlehem's operations;

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(bullet) the highly cyclical nature of the domestic steel industry and many of
the markets supplied by Bethlehem and the effect of that cyclicality
on prices and volume;

(bullet) the potential impact of strikes or work stoppages at facilities of
Bethlehem's customers and suppliers;

(bullet) the sensitivity of Bethlehem's results to relatively small changes in
the prices obtained by Bethlehem for its products;

(bullet) intense competition due to world steel overcapacity, new domestic
capacity over the next several years, low-cost mini-mills, imports and
substitute materials;

(bullet) the high capital requirements associated with integrated steel
facilities;

(bullet) the significant costs associated with environmental controls and
remediation expenditures and the uncertainty of future environmental
control requirements;

(bullet) availability and prices associated with raw materials, supplies,
utilities and other services and items required by Bethlehem's
operations;

(bullet) employment matters, including costs and uncertainties associated with
Bethlehem's collective bargaining agreements, and employee
post-retirement obligations, including the impact of changes in the
interest rate assumptions applicable in determining employee
postretirement obligations and health care costs for retirees and
their families;

(bullet) the effect of possible future restructuring activities;

(bullet) Bethlehem's highly leveraged capital structure; and

(bullet) the effect of existing and possible future lawsuits filed against
Bethlehem.

The discussion of these factors is contained elsewhere in "ITEM 1. BUSINESS"
and in "ITEM 3. LEGAL PROCEEDINGS" of this Report and are incorporated by
reference into this section. Bethlehem does not undertake to update any
forward-looking statements that may be made from time to time by Bethlehem or
its representatives.

ITEM 2. PROPERTIES.

PROPERTIES RELATING TO THE BASIC STEEL OPERATIONS SEGMENT

BURNS HARBOR DIVISION

The principal operations of the Burns Harbor Division are located in
Indiana on Lake Michigan, about 50 miles southeast of Chicago, Illinois. Burns
Harbor produces hot rolled sheet, cold rolled sheet, corrosion-resistant coated
sheet and plates. It is a major supplier of sheet and plate products to the
automotive, service center, construction, machinery and appliance markets.
Principal facilities include a sintering plant, two coke oven batteries, two
blast furnaces, including new coal injection facilities, three basic oxygen
furnaces with a combined annual raw steel production capability of about 5.6
million tons, a vacuum degassing facility, two continuous slab casters with a
combined annual production capability of about 4.0 million tons, a 50 x 90-inch
slabbing mill, two sheared plate mills (110-inch and 160-inch), an 80-inch
hot-strip mill, two continuous pickling lines, an 80-inch five-stand cold
reducing mill, sheet finishing mills, a continuous heat treating line, batch
annealing facilities, a 48-inch continuous electrogalvanizing line and a
72-inch hot-dip galvanizing line. Burns Harbor operates a cold reducing mill,
a continuous pickling line, a galvanizing line and two coke oven batteries in
Lackawanna, New York. About 80 percent of the steel produced at Burns Harbor
is continuously cast; the remaining 20 percent is ingot cast. Ingot cast slabs
are used primarily to make steel plates.

Burns Harbor's utilization of raw steel production capability was 92
percent during 1996.

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SPARROWS POINT DIVISION

The operations of the Sparrows Point Division are located on the Chesapeake
Bay near Baltimore, Maryland. Sparrows Point produces hot rolled sheet, cold
rolled sheet, corrosion resistant coated sheet (e.g., galvanized sheet,
Galvalume sheet), tin mill products and steel plate. Its principal markets
include construction, containers and service centers. Principal facilities
include a sintering plant, a large blast furnace, two basic oxygen furnaces
with an annual raw steel production capability of about 3.6 million tons, a
two-strand continuous slab caster with an annual production capability of about
3.6 million tons, a 160-inch sheared plate mill, a 68-inch hot- strip mill,
three continuous pickling lines, three cold reducing mills (66-inch, 56-inch
and 48- inch), continuous and batch annealing facilities, two galvanizing
lines, a Galvalume line, a 48- inch hot-dip galvanizing/Galvalume line and tin
mill facilities that include tin and chrome plating lines. Sparrows Point
continuously casts essentially 100 percent of its total production volume.

Sparrows Point's utilization of raw steel production capability was 98
percent during 1996.

PENNSYLVANIA STEEL TECHNOLOGIES, INC. ("PST")

Located in Steelton, Pennsylvania, south of Harrisburg, Pennsylvania, PST
uses electric furnace steelmaking and a continuous caster in the production of
railroad rails, specialty blooms and flat bars. It is one of only two rail
producers in the United States. PST also produces large- diameter pipe for the
oil and gas industries. Principal facilities include a DC electric arc furnace
with an annual raw steel production capability of about 1.3 million tons, a
ladle furnace, a vacuum degassing facility, a continuous bloom caster, a
44-inch blooming mill, a 28-inch rail mill, in-line rail head-hardening
facilities, finishing and shipping facilities for long-length (80-foot) rails,
a 20-inch bar mill and an electric fusion welded pipe mill.

PST's utilization of raw steel production capability was 59 percent during
1996.

JOINT VENTURES

Bethlehem participates in a joint venture, known as Double G Coatings
Company, L.P., which operates a 270,000 ton per year sheet coating line near
Jackson, Mississippi. The line produces galvanized and Galvalume coated sheets
primarily for the construction market. The Sparrows Point Division provides
cold rolled coils for about half of Double G's annual capacity and is
responsible for marketing its share of the finished product.

Bethlehem also participates in a joint venture which owns and operates a
400,000 ton per year electrogalvanizing line at Walbridge, Ohio. This facility
produces corrosion-resistant sheet steel primarily for the automobile industry
and other consumer durables markets. The Burns Harbor Division provides cold
rolled coils for 75 percent of Walbridge's annual capacity and is responsible
for marketing its share of the finished product.

Bethlehem also participates in two joint ventures with facilities located
adjacent to the Burns Harbor operations: Indiana Pickling and Processing
Company that operates a pickling line and Chicago Cold Rolling, L.L.C. that
operates a reversing cold mill complex.

Bethlehem also has indirect equity interests in various iron ore
properties. See "Raw Material Properties and Interests" below.

RAW MATERIAL PROPERTIES AND INTERESTS

IRON ORE. Bethlehem has indirect equity interests in various iron ore
operating properties, which (excluding tonnages applicable to interests owned
by others) it estimates contained recoverable reserves at December 31, 1996,
sufficient to produce at least 9 million tons of direct shipping iron ore from
properties located in Brazil and 475 million tons of iron ore concentrates and
pellets, of which 206 million tons are from properties located in Minnesota and
269 million tons are from properties located in Canada. As previously
announced, Bethlehem has signed an agreement for the sale of its equity
interest in the Iron Ore Company of

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<PAGE> 13

Canada ("IOC"). Upon completion of the sale, which is subject to governmental
approvals and IOC shareholder consent, Bethlehem will continue its relationship
as a customer of IOC and will purchase iron ore at market prices. In addition
to the estimated reserves at operating properties, Bethlehem also has indirect
equity interests in undeveloped or nonoperating iron ore properties, which
(excluding tonnages applicable to interests owned by others) it estimates
contained recoverable reserves at December 31, 1996, sufficient to produce at
least 16 million tons of direct shipping iron ore from properties located in
Brazil and 126 million tons of iron ore pellets from properties located in
Minnesota.

The iron ore operating properties in which Bethlehem has interests have
mining and processing facilities capable of supplying the major portion of
Bethlehem's current annual iron ore requirements. However, because of the
location of Bethlehem's steel operations and the iron ore products best suited
to these facilities, Bethlehem engages in iron ore sales and exchanges with
other consumers and purchases a portion of its iron ore requirements. These
purchases have been from various sources, including sources in which it has
ownership interests, under a variety of contractual arrangements extending over
varying periods of time.

Bethlehem's share of the annual iron ore production by enterprises in which
it has ownership interests, for Bethlehem's use or sale to trade customers, was
13.9 million tons in 1996 and 14.7 million tons in 1995. In addition to these
sources, Bethlehem purchased 1.7 million tons of iron ore in each of 1996 and
1995 from sources in which it had no ownership interests. In 1996, Bethlehem
obtained about 86 percent of its iron ore requirements from operations in which
it had ownership interests compared with 85 percent in 1995.

Bethlehem had trade sales of iron ore in 1996 and 1995 of 1.2 million tons
and .6 million tons, respectively. Additional iron ore trade sales commitments
through December 31, 1997, presently aggregate .3 million tons. No iron ore
trade sales commitments exist beyond 1997.

The interests in foreign iron ore properties described above are subject to
the risks associated with investments in foreign countries, including the risk
of nationalization.

COAL AND COKE. Bethlehem owns and leases coal operating properties in West
Virginia, which it estimates contained recoverable reserves at December 31,
1996, sufficient to produce at least 23 million tons of steam coal.

In addition to the estimated reserves at operating properties, Bethlehem
also owns and leases undeveloped or nonoperating coal properties in
Pennsylvania and West Virginia, which it estimates contained recoverable
reserves at December 31, 1996, sufficient to produce at least 167 million tons
of coal, of which about 89 percent and 11 percent, respectively, are
metallurgical and steam coal.

Bethlehem's coal operations produced 1.9 million tons of coal in 1996 and
3.3 million tons in 1995. Trade shipments of coal were 1.2 million tons in
1996 compared with 2.2 million tons in 1995. During 1996, Bethlehem sold and
leased its Eagle Nest coal operations and sold other coal reserves located in
Boone County, West Virginia.

In 1996, Bethlehem obtained about 13 percent of its coal requirements from
its own mines, compared with 19 percent in 1995. The balance of Bethlehem's
requirements was purchased from commercial sources. Through December 31, 2005,
Bethlehem is committed to satisfy certain of its coal requirements from a
single supplier.

Bethlehem continues to operate coke-making facilities at Bethlehem,
Pennsylvania; Burns Harbor, Indiana; and Lackawanna, New York.

OTHER RAW MATERIALS. Bethlehem purchases its other raw material
requirements from commercial sources.

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<PAGE> 14

TRANSPORTATION

Bethlehem owns five subsidiary shortline railroads which transport raw
materials and semifinished steel products within various Bethlehem operations
and serve other customers on their lines. Bethlehem manages an owner-operated
interstate trucking company serving Bethlehem's operations and other
facilities.

The Burns Harbor Division operates two 1,000 foot ore vessels (one owned
and one under long-term charter), which are used for the transportation of iron
ore on the Great Lakes.

PROPERTIES RELATING TO THE STEEL RELATED OPERATIONS SEGMENT

As discussed under "ITEM 1. BUSINESS--Facility Shutdowns and
Restructurings", all of the properties of the Steel Related Operations Segment
will either be sold or shut down.

GENERAL

While Bethlehem's principal operations and facilities are adequately
maintained, they are of varying ages, technologies and operating efficiencies.
Bethlehem believes that most of its operations and facilities currently are
competitive with the operations and facilities of its principal competitors.
Bethlehem will continue to make capital expenditures to improve and maintain
the competitiveness of its operations and facilities. See "ITEM 1.
BUSINESS--General--Capital Expenditures" of this Report for a discussion of
Bethlehem's capital expenditures.

All principal operations and facilities are owned in fee by Bethlehem
except for two continuous casters at the Sparrows Point Division and the Burns
Harbor Division which are being leased. Bethlehem capitalized the expenditures
related to the leases for two continuous casters and financed the construction
of two new hot-dip galvanizing lines at its Burns Harbor and Sparrows Point
Divisions. These two facilities are pledged as collateral for the borrowings.

ITEM 3. LEGAL PROCEEDINGS.

Bethlehem is a party to numerous legal proceedings incurred in the ordinary
course of its business, including the matters specifically discussed below.

On October 4, 1990, the State of Maryland Department of Environment (the
"MDE") filed a civil action against Bethlehem in the Circuit Court of Baltimore
County, Maryland seeking civil penalties for alleged violations of the Maryland
air pollution regulations arising out of exceedances of the visible emissions
standards established for various sources at the Sparrows Point Division by an
October 1987 Consent Order, as amended in June 1989. On April 30, 1991, the
MDE filed a complaint in intervention in a civil action filed on April 25,
1991, by the Justice Department on behalf of the United States Environmental
Protection Agency (the "EPA") against Bethlehem, alleging violations of the
Clean Air Act resulting from alleged violations of Maryland air pollution
regulations at the Sparrows Point Division. The complaint in intervention,
which was approved by the Court on June 14, 1991, incorporated all of the
violations alleged in the MDE complaint. On May 1, 1992, a settlement between
the parties to the EPA action was memorialized in a Consent Decree, which was
entered by the Court on July 1, 1992. The Consent Decree resolved all of the
issues in both the federal and state actions except for a single count in the
MDE action dealing with alleged violations from the basic oxygen furnace. The
parties have agreed to resolve that count with a civil penalty payment of
$350,000 as part of a comprehensive multimedia pollution prevention agreement
which was lodged in the U. S. District Court for Maryland as a proposed
consent decree on February 25, 1997.

On June 9, 1994, the EPA issued an administrative Complaint and Notice of
Opportunity for Hearing alleging several violations of the polychlorinated
biphenyl (PCB) regulations under the Toxic Substance Control Act by Bethlehem
at the Sparrows Point Division. The Complaint sets forth a proposed civil
penalty of $145,500. On June 30, 1994, Bethlehem filed its Answer and Request
for Hearing. Settlement discussions have been

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<PAGE> 15
initiated between Bethlehem and the EPA. If such discussions do not succeed,
Bethlehem believes it has meritorious defenses and will vigorously defend the
action.

On December 6, 1995, the Pennsylvania Department of Environmental
Protection (the "DEP") issued a notice alleging violations by Bethlehem of the
Pennsylvania Air Pollution Control Act based on sulfur dioxide emissions
exceeding plan approval limits for new steelmaking facilities at Pennsylvania
Steel Technologies, Inc. The parties have negotiated a consent order which
required Bethlehem to pay a civil penalty of $95,000 by October 31, 1996, to
install additional control equipment by March 31, 1998, and to make additional
civil penalty payments of $5,400 for each month from July 1996 until the
earlier of March 1998 or the start-up of a proposed sulfur dioxide scrubber.
Bethlehem is in full compliance with the consent order.

On March 29, 1996, the U. S. Department of Justice, on behalf of the EPA,
brought a civil action against Bethlehem in the U. S. District Court for the
Northern District of Indiana for alleged violations of the Clean Water Act and
the Safe Drinking Water Act at the Burns Harbor Division. The Complaint
alleges that, from November 1992 to April 1994, the Division discharged
pollutants from its dock wall without a permit as required by the Clean Water
Act and failed to meet certain requirements of an underground injection well
permit. Settlement negotiations were initiated prior to the filing of the
Complaint and the government has suggested settlement for total civil penalties
of $441,300 and appropriate injunctive relief. If settlement negotiations are
unsuccessful, Bethlehem believes it has meritorious defenses and will
vigorously defend the action.

On July 31, 1996, the EPA issued an Administrative Complaint alleging that
Bethlehem violated the Comprehensive Environmental Response, Compensation and
Liability Act by failing to report until January 31, 1995, releases in excess
of the reportable quantity of sodium nitrite at the Burns Harbor Division on
each of 20 days in January 1995. The Complaint sets forth a proposed civil
penalty of $148,500. Bethlehem filed an answer and request for hearing on
August 19, 1996, and has requested a settlement conference. If settlement
discussions are unsuccessful, Bethlehem believes it has meritorious defenses
and will vigorously defend the action.

On February 14, 1997, the EPA issued a notice alleging violations by
Bethlehem Structural Products Corporation (BSPC) of the Clean Air Act, based on
emissions from Coke Oven Battery A at BSPC on various days in 1996 exceeding
those allowed under the Pennsylvania State Implementation Plan (the "SIP").
Settlement negotiations have been initiated among BSPC, the EPA and the DEP to
resolve Battery A compliance issues under the National Emissions Standards for
coke oven emissions as well as under the SIP. The EPA has initially proposed a
civil penalty of $322,500 as part of the consent decree. If settlement
discussions do not succeed, Bethlehem believes it has meritorious defenses and
will vigorously defend the action.

See "ITEM 1. BUSINESS--General--Environmental Control and Remediation
Expenditures" of this Report for a discussion of Bethlehem's potential
responsibilities for environmental cleanup at certain sites under RCRA and
CERCLA.

Bethlehem cannot predict with any certainty the outcome of any legal
proceedings to which it is a party. However, in the opinion of Bethlehem's
management, adequate reserves have been recorded for losses which are likely to
result from these proceedings. To the extent that such reserves prove to be
inadequate, Bethlehem would incur a charge to earnings which could be material
to its future results of operations in particular quarterly or annual periods.
The outcome of these proceedings, however, is not currently expected to have a
material adverse effect on Bethlehem's consolidated financial position.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

There were no matters submitted to a vote of security holders during the
fourth quarter of 1996.

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Executive Officers of the Registrant.

The executive officers of Bethlehem as of March 21, 1997, are as follows:

Name Age Position
---- --- --------
Curtis H. Barnette 62 Chairman (Chief Executive
Officer)

Roger P. Penny 60 President (Chief Operating
Officer)

Gary L. Millenbruch 59 Executive Vice President (Chief
Financial Officer) and Treasurer

John A. Jordan, Jr. 61 Senior Vice President
(Administration)

David P. Post 63 Senior Vice President (Commercial)

Lonnie A. Arnett 51 Vice President (Accounting) and
Controller

Dr. Walter N. Bargeron 54 President, Burns Harbor Division

Stephen G. Donches 51 Vice President (Public Affairs)

Duane R. Dunham 55 President, Sparrows Point Division

Andrew R. Futchko 54 President, Pennsylvania Steel
Technologies, Inc.

William H. Graham 51 Vice President (Law),
General Counsel and Secretary

John L. Kluttz 54 Vice President (Union Relations)

Dr. Carl F. Meitzner 57 Vice President (Planning)

Dr. Augustine E. Moffitt, Jr. 51 Vice President (Safety, Health
and Environment)

Gregory F. Paolini 64 President, Bethlehem Structural
Products Corporation, BethForge,
Inc., and CENTEC Roll Corporation

Dr. Malcolm J. Roberts 54 Vice President (Technology) and
Chief Technology Officer

Robert A. Rudzki 43 Vice President (Purchasing and
Transportation) and
Chief Procurement Officer

Dorothy L. Stephenson 47 Vice President (Human Resources)

All of the executive officers have held responsible management or
professional positions with Bethlehem or its subsidiaries for more than the
past five years.

The By-laws of Bethlehem provide that the officers shall be chosen annually
by the Board of Directors and that each officer shall hold office until his
successor shall have been elected and shall qualify or until his earlier death
or his earlier resignation or removal in the manner provided in the By-laws.

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PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS.

As of March 21, 1997, there were 112,061,570 shares of Bethlehem Common
Stock outstanding held by about 36,600 stockholders of record. The principal
market for Bethlehem Common Stock is the New York Stock Exchange. Bethlehem
Common Stock is also listed on the Chicago Stock Exchange. Dividends on
Bethlehem Common Stock are paid quarterly when declared by Bethlehem's Board of
Directors.

Under the provisions of Bethlehem's 10-3/8% Senior Notes due 2003,
Bethlehem's ability to pay dividends on its Common Stock is restricted. See
Note K to the Consolidated Financial Statements. At December 31, 1996, about
$450 million was available for the payment of Common Stock dividends under
these provisions.

Bethlehem has not paid a dividend on its Common Stock since the fourth
quarter of 1991. In accordance with Bethlehem's policy, future dividends will
be determined by the Board of Directors (subject to any applicable
restrictions) on the basis of attained results and the business outlook.

The following table sets forth, for the periods indicated, the high and low
sales prices of Bethlehem Common Stock as reported in the consolidated
transaction reporting system. The closing sale price of Bethlehem Common Stock
on March 21, 1997, as reported in the consolidated transaction reporting
system, was $8.250.

1996 1995
---- ----
Sales Prices Sales Prices
------------ ------------
Period High Low High Low
------ ---- --- ---- ---
First Quarter $15.875 $13.125 $19.125 $14.125
Second Quarter 14.500 11.500 16.375 13.625
Third Quarter 12.000 9.250 18.250 13.750
Fourth Quarter 10.313 7.625 14.750 12.625

ITEM 6. SELECTED FINANCIAL DATA.

The information required by this Item is incorporated by reference from
page 26 of Bethlehem's 1996 Annual Report to Stockholders. With the exception
of the information specifically incorporated by reference, the 1996 Annual
Report to Stockholders is not to be deemed filed as part of this Report for
purposes of this Item.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.

The information required by this Item is incorporated by reference from
pages 1 to 5 and 8 to 11, inclusive, of Bethlehem's 1996 Annual Report to
Stockholders. With the exception of the information specifically incorporated
by reference, the 1996 Annual Report to Stockholders is not to be deemed filed
as part of this Report for purposes of this Item.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The information required by this Item is incorporated by reference from
pages 12 to 23, inclusive, of Bethlehem's 1996 Annual Report to Stockholders.
With the exception of the information specifically incorporated by reference,
the 1996 Annual Report to Stockholders is not to be deemed filed as part of
this Report for purposes of this Item.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

In addition to the information set forth under the caption "Executive
Officers of the Registrant" in Part I of this Report, the information required
by this Item is incorporated by reference from pages 2 to 6, inclusive, of
Bethlehem's Proxy Statement for the 1997 Annual Meeting of Stockholders. With
the exception of the information specifically incorporated by reference,
Bethlehem's Proxy Statement is not to be deemed filed as part of this Report
for purposes of this Item.

ITEM 11. EXECUTIVE COMPENSATION.

The information required by this Item is incorporated by reference from
pages 9 to 14, inclusive, of Bethlehem's Proxy Statement for the 1997 Annual
Meeting of Stockholders. With the exception of the information specifically
incorporated by reference, Bethlehem's Proxy Statement is not to be deemed
filed as part of this Report for purposes of this Item.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.

The information required by this Item is incorporated by reference from
pages 7 and 15 of Bethlehem's Proxy Statement for the 1997 Annual Meeting of
Stockholders. With the exception of the information specifically incorporated
by reference, Bethlehem's Proxy Statement is not to be deemed filed as part of
this Report for purposes of this Item.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information required by this Item is incorporated by reference from the
material appearing under the heading "Certain Business Relationships" appearing
on page 8 and the heading "Indemnification Assurance Agreements" appearing on
page 15 of Bethlehem's Proxy Statement for the 1997 Annual Meeting of
Stockholders. With the exception of the information specifically incorporated
by reference, Bethlehem's Proxy Statement is not to be deemed filed as part of
this Report for purposes of this Item.

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PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.

(a) DOCUMENTS FILED AS PART OF THIS REPORT:

The following is an index of the financial statements, schedules and
exhibits included in this Report or incorporated herein by reference.

(1) Financial Statements.

BETHLEHEM STEEL CORPORATION AND CONSOLIDATED SUBSIDIARIES

Page
----
Consolidated Statements of Income for the years 1996, 1995 and 1994. *
Consolidated Balance Sheets as of December 31, 1996
and 1995. . . . . . . . . . . . . . . . . . . . . . . . . . . . *
Consolidated Statements of Cash Flows for the years 1996
1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . *
Notes to Consolidated Financial Statements
(Including Quarterly Financial Data). . . . . . . . . . . . . . *

(2) CONSOLIDATED FINANCIAL STATEMENT SCHEDULES.

Report of Independent Auditors On Consolidated Financial
Statement Schedules . . . . . . . . . . . . . . . . . . . . . . F-1

Schedules:

II -- Valuation and Qualifying Accounts and Reserves, years
ended December 31, 1996, 1995 and 1994. . . . . . . . F-3

- ---------------
* Incorporated in this Report by reference from pages 12 to 23, inclusive,
of Bethlehem's 1996 Annual Report to Stockholders referred to below.

The Consolidated Financial Statements, together with the report thereon of
Price Waterhouse LLP dated January 29, 1997, appearing on pages 12 to 24,
inclusive, of the 1996 Annual Report to Stockholders are incorporated by
reference in this Form 10-K Annual Report. With the exception of those pages,
the 1996 Annual Report to Stockholders is not to be deemed filed as part of
this Report for purposes of this Item. The Schedules listed above should be
read in conjunction with the consolidated financial statements in such 1996
Annual Report to Stockholders.

Schedules not included have been omitted because they are not applicable or
the required information is shown in the consolidated financial statements or
notes thereto.

Separate financial statements of subsidiaries not consolidated and 50
percent or less owned persons accounted for by the equity method have been
omitted because considered in the aggregate as a single subsidiary they do not
constitute a significant subsidiary.

(3) EXHIBITS.

The following is an index of the exhibits included in this Report or
incorporated herein by reference.

(3)(a) Second Restated Certificate of Incorporation (Incorporated by
reference from Exhibit 3 to Bethlehem's quarterly report on Form 10-Q
for the quarter ended March 31, 1994).

(b) Amendment to Second Restated Certificate of Incorporation
(Incorporated by reference from Exhibit 3(i) to Bethlehem's quarterly
report on Form 10-Q for the quarter ended June 30, 1995).

(c) By-laws of Bethlehem Steel Corporation, as amended October 1, 1988
(Incorporated by reference from Exhibit (3)(b) to Bethlehem's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993).

(4)(a) Rights Agreement, dated as of September 28, 1988, between Bethlehem
Steel Corporation and Morgan Shareholder Services Trust Company
(Incorporated by reference from Exhibit (4)(a) to Bethlehem's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993).

- 18 -

<PAGE>
<PAGE> 20

(b) Amendment to Rights Agreement, dated as of November 1, 1995, between
Bethlehem Steel Corporation and First Chicago Trust Company of New
York (formerly Morgan Shareholder Services Trust Company)
(Incorporated by reference from Exhibit 4(a) to Bethlehem's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995).

(c) Bethlehem is a party to certain long-term debt agreements where the
amount involved does not exceed 10% of Bethlehem's total consolidated
assets. Bethlehem agrees to furnish a copy of any such agreement to
the Commission upon request.

*(10)(a) Excess Benefit Plan of Bethlehem Steel Corporation and Subsidiary
Companies, as amended July 29, 1992 (Incorporated by reference from
Exhibit 10(a) to Bethlehem's quarterly report on Form 10-Q for the
quarter ended June 30, 1992).

*(b) 1988 Stock Incentive Plan of Bethlehem Steel Corporation (Incorporated
by reference from Exhibit 10(b) to Bethlehem's Annual Report on Form
10-K for the fiscal year ended December 31, 1992).

*(c) 1994 Stock Incentive Plan of Bethlehem Steel Corporation (Incorporated
by reference from Exhibit 1 to Bethlehem's Proxy Statement in
connection with its Annual Meeting of Shareholders held on April 26,
1994).

*(d) 1994 Non-Employee Directors Stock Plan of Bethlehem Steel Corporation
(Incorporated by reference from Exhibit 2 to Bethlehem's Proxy
Statement in connection with its Annual Meeting of Shareholders held
on April 26, 1994).

*(e) Special Incentive Compensation Plan of Bethlehem Steel Corporation,
which is contained in Article Seven of the Second Restated Certificate
of Incorporation referred to in Exhibit 3(a) to this Report.

*(f) Supplemental Benefits Plan of Bethlehem Steel Corporation and
Subsidiary Companies, as amended July 29, 1992 (Incorporated by
reference from Exhibit 10(b) to Bethlehem's quarterly report on Form
10-Q for the quarter ended June 30, 1992).

*(g) Post-Retirement Retainer Plan for Non-Officer Directors (Incorporated
by reference from Exhibit (10)(o) to Bethlehem's Annual Report on Form
10-K for the fiscal year ended December 31, 1992).

(h) Form of Indemnification Assurance Agreement between Bethlehem Steel
Corporation and each of its directors and executive officers listed on
Schedule A thereto.

(11) Statement regarding computation of earnings per share.

(13) Those portions of the 1996 Annual Report to Stockholders of Bethlehem
Steel Corporation which are incorporated by reference into this Form
10-K Annual Report.

(23) Consent of Independent Auditors (included on page F-2 of this Report).

(27) Financial Data Schedule.

- ------------------
* Compensatory plans in which Bethlehem's directors and executive officers
participate.

(b) REPORTS ON FORM 8-K.

During the quarter ended December 31, 1996, no reports on Form 8-K were
filed by Bethlehem.

- 19 -

<PAGE>
<PAGE> 21

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, Bethlehem Steel Corporation has duly caused
this Report to be signed on its behalf by the undersigned, thereunto duly
authorized, on the 26th day of March, 1997.

BETHLEHEM STEEL CORPORATION,
by /s/ Lonnie A. Arnett
--------------------------
Lonnie A. Arnett
Vice President and Controller

Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, this Report has been signed below by the following persons on
behalf of Bethlehem Steel Corporation and in the capacities indicated on the
26th day of March, 1997.
<TABLE>
<CAPTION>

<S> <C>

/s/ Curtis H. Barnette /s/ Thomas L. Holton
------------------------------ ------------------------------
Curtis H. Barnette Thomas L. Holton
Chairman and Director Director
(principal executive officer)

/s/ Gary L. Millenbruch /s/ Lewis B. Kaden
------------------------------ ------------------------------
Gary L. Millenbruch Lewis B. Kaden
Executive Vice President, Treasurer Director
and Director
(principal financial officer)

/s/ Lonnie A. Arnett /s/ Harry P. Kamen
------------------------------ ------------------------------
Lonnie A. Arnett Harry P. Kamen
Vice President and Controller Director
(principal accounting officer)

/s/ Benjamin R. Civiletti /s/ Winthrop Knowlton
------------------------------ ------------------------------
Benjamin R. Civiletti Winthrop Knowlton
Director Director

/s/ Worley H. Clark /s/ Robert McClements, Jr.
------------------------------ ------------------------------
Worley H. Clark Robert McClements, Jr.
Director Director

/s/ John B. Curcio /s/ Roger P. Penny
------------------------------ ------------------------------
John B. Curcio Roger P. Penny
Director Director

/s/ Shirley D. Peterson /s/ William A. Pogue
------------------------------ ------------------------------
Shirley D. Peterson William A. Pogue
Director Director

/s/ Dean P. Phypers /s/ John F. Ruffle
------------------------------ ------------------------------
Dean P. Phypers John F. Ruffle
Director Director

</TABLE>

- 20 -

<PAGE> 22
REPORT OF INDEPENDENT AUDITORS
ON FINANCIAL STATEMENT SCHEDULES

To the Board of Directors
of Bethlehem Steel Corporation

Our audits of the consolidated financial statements referred to in our report
dated January 29, 1997 appearing on page 24 of the 1996 Annual Report to
Stockholders of Bethlehem Steel Corporation (which report and consolidated
financial statements are incorporated by reference in this Annual Report on
Form 10-K) also included an audit of the Financial Statement Schedules listed
in Item 14(a)(2) of this Form 10-K. In our opinion, these Financial Statement
Schedules present fairly, in all material respects, the informtion set forth
therein when read in conjunction with the related consolidated financial
statements.

/s/ Price Waterhouse LLP

1177 Avenue of the Americas
New York, NY 10036
January 29, 1997

F-1

<PAGE>
<PAGE> 23

CONSENT OF INDEPENDENT AUDITORS

We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 2-90795, No. 2-71699, No. 2-53880, No. 2-90796,
No. 2-67314, No. 33-23516, No. 33-23688, No. 33-52267, No. 33-58019, No.
33-58021 and No. 33-60507) of Bethlehem Steel Corporation of our report dated
January 29, 1997 appearing on page 24 of the 1996 Annual Report to Stockholders
which is incorporated in this Annual Report on Form 10-K. We also consent to
the incorporation by reference of our report on the Financial Statement
Schedules, which appears on page F-1 of this Form 10-K.

/s/ Price Waterhouse LLP

1177 Avenue of the Americas
New York, NY 10036
March 26, 1997

F-2

<PAGE>
<PAGE> 24

BETHLEHEM STEEL CORPORATION

10-K SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
($ in Millions)

<TABLE>
<CAPTION>
CHARGED
BALANCE AT (CREDITED) BALANCE AT
12/31/95 TO INCOME DEDUCTIONS OTHER 12/31/96
---------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
CLASSIFICATION
Doubtful Receivables & Returns $19.5 $0.1 $1.2 (a) - $20.8
Long-term Receivables 4.5 (0.1) - - 4.4
Deferred Income Tax Asset 360.2 67.0 - (17.2)(b) 410.0

CHARGED
BALANCE AT (CREDITED) BALANCE AT
12/31/94 TO INCOME DEDUCTIONS OTHER 12/31/95
---------- ---------- ---------- -------- ----------
CLASSIFICATION
Doubtful Receivables & Returns $18.6 $1.2 ($0.3)(a) - $19.5
Long-term Receivables 4.5 - - - 4.5
Deferred Income Tax Asset 383.2 (37.0) - 14.0 (c) 360.2

CHARGED
BALANCE AT (CREDITED) BALANCE AT
12/31/93 TO INCOME DEDUCTIONS OTHER 12/31/94
---------- ---------- ---------- -------- ----------
CLASSIFICATION
Doubtful Receivables & Returns $16.3 $2.4 ($0.1)(a) - $18.6
Long-term Receivables 4.5 - - - 4.5
Deferred Income Tax Asset 406.7 (13.0) - (10.5)(d) 383.2

</TABLE>
(a) Amounts written-off less collections and reinstatements.
(b) Represents eliminating the valuation allowance recorded for a $82 million
($67 million after-tax) adjustment to equity at December 31, 1995 required
to recognize the minimum pension liability. See Notes G and K to the
Consolidated Financial Statements.
(c) Represents the valuation allowance for a $82 million ($67 million
after-tax) charge to equity required to recognize the minimum pension
liability. See Notes G and K to the Consolidated Financial Statements.
(d) Represents eliminating the valuation allowance recorded for a $60 million
($50 million after-tax) adjustment to equity at December 31, 1993 required
to recognize the minimum pension liability. See Notes G and K to the
Consolidated Financial Statements.

F-3

<PAGE>
<PAGE> 25

EXHIBIT INDEX

EXHIBIT NO. DESCRIPTION

(3)(a) Second Restated Certificate of Incorporation (Incorporated by
reference from Exhibit 3 to Bethlehem's quarterly report on Form 10-Q
for the quarter ended March 31, 1994).

(b) Amendment to Second Restated Certificate of Incorporation
(Incorporated by reference from Exhibit 3(i) to Bethlehem's quarterly
report on Form 10-Q for the quarter ended June 30, 1995).

(b) Amendment to Rights Agreement, dated as of November 1, 1995, between
Bethlehem Steel Corporation and First Chicago Trust Company of New
York (formerly Morgan Shareholder Services Trust Company).
(Incorporated by reference from Exhibit 4(a) to Bethlehem's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995).

*(b) 1988 Stock Incentive Plan of Bethlehem Steel Corporation (Incorporated
by reference from Exhibit 10(b) to Bethlehem's Annual Report on Form
10-K for the fiscal year ended December 31, 1992).

- ------------
* Compensatory plans in which Bethlehem's directors and executive officers
participate.

<PAGE>
<PAGE> 26

*(g) Post-Retirement Retainer Plan for Non-Officer Directors (Incorporated
by reference from Exhibit (10)(o) to Bethlehem's Annual Report on Form
10-K for the fiscal year ended December 31, 1992).

(h) Form of Indemnification Assurance Agreement between Bethlehem Steel
Corporation and each of its directors and executive officers listed on
Schedule A thereto.

(11) Statement regarding computation of per share earnings.

(13) Those portions of the 1996 Annual Report to Stockholders of Bethlehem
Steel Corporation which are incorporated by reference into this Form
10- K Annual Report.

(23) Consent of Independent Auditors (included on page F-2 of this Report).

(27) Financial Data Schedule.

- ---------------
* Compensatory plans in which Bethlehem's directors and executive officers
participate.

<PAGE>
<PAGE> 27
Exhibit 10(h)

FORM OF INDEMNIFICATION ASSURANCE AGREEMENT

[Bethlehem Steel Corporation]

[Name and Address of
Director or Officer]

Dear :

This letter will confirm the agreement and understanding between
Bethlehem Steel Corporation (the "Company") and you regarding your service as a
[Director/Officer] of the Company.

It is and has been the policy of the Company to indemnify its officers
and directors against any costs, expenses and other liabilities to which they
may become subject by reason of their service to the Company, and to insure its
directors and officers against such liabilities, as and to the extent permitted
by applicable law and in accordance with the principles of good corporate
governance. In this regard, the Company's By-laws (Article IX) require that
the Company indemnify and advance costs and expenses to (collectively,
"indemnify") its directors and officers as permitted by Delaware law. A copy
of the relevant provisions of the Company's By-laws, as amended, is attached
hereto.

In consideration of your service as a [Director/Officer] of the
Company, the Company shall indemnify you, and hereby confirms its agreement to
indemnify you, to the full extent provided by applicable law and the By-laws of
the Company as currently in effect. In particular, as provided by the By-laws,
the Company shall make any necessary determination as to your entitlement to
indemnification in respect of any liability within 60 days of receiving a
written request from you for indemnification against such liability. You have
agreed to provide the Company with such information or documentation as the
Company may reasonably request to evidence the liabilities against which
indemnification is sought or as may be necessary to permit the Company to
submit a claim in respect thereof under any applicable directors and officers
liability insurance or other liability insurance policy. You have further
agreed to cooperate with the Company in the making of any determination
regarding your entitlement to indemnification. If the Company does not make a
determination within the required 60- day period, a favorable determination
will be deemed to be made, and you shall be entitled to payment, subject only
to your written agreement to refund such payment if a contrary determination is
later made and the delay was by reason of the inability of the Company to make
such determination within the 60-day period. In the event the

<PAGE>
<PAGE> 28

Company shall determine that you are not entitled to indemnification, the
Company shall give you written notice thereof specifying the reason therefor,
including any determinations of fact or conclusions of law relied upon in
reaching such determination. Notwithstanding any determination made by the
Company that you are not entitled to indemnification, you shall be entitled to
seek a de novo judicial determination of your right to indemnification under
the By-laws and this agreement by commencing an appropriate action therefor
within 180 days after the Company shall notify you of its determination. The
Company shall not oppose any such action by reason of any prior determination
made by it as to your right to indemnification or, except in good faith, raise
any objection not specifically relating to the merits of your indemnification
claim or not considered by the Company in making its own determination. In any
such proceeding, the Company shall bear the burden of proof in showing that
your conduct did not meet the applicable standard of conduct required by the
By-laws or applicable law for indemnification. It is understood that, as
provided in Section 4 of Article IX of the By- laws, any expenses incurred by
you in any investigation or proceeding by the Company or before any court
commenced for the purpose of making any such determination shall be reimbursed
by the Company. No future amendment of the By-laws shall diminish your rights
under this agreement, unless you shall have consented to such amendment.

Your right to indemnification as aforesaid shall be in addition to any
right to remuneration to which you may from time to time be entitled as a
[Director/Officer].

It is understood and agreed that your right to indemnification shall
not entitle you to continue in your present position with the Company or any
future position to which you may be appointed or elected and that you shall be
entitled to indemnification under the By-laws only in respect to liabilities
arising out of acts or omissions or alleged acts or omissions by you as a
[Director/Officer] or as otherwise provided by the By-laws, but you shall be
entitled to such indemnification with respect to any such liability, whether
incurred or arising during or after your service as a [Director/Officer] and
whether before or after the date of this letter, in respect of any claim,
cause, action, proceeding or investigation, whether commenced, accruing or
arising during or after your service as a [Director/Officer] and whether before
or after the date of this letter.

In further consideration of your service as a [Director/Officer] of
the Company, the Company in connection with its indemnification policy has
arranged for the issuance of, and you shall be entitled to the benefits of, an
"Irrevocable Straight Standby Letter of Credit" issued by Morgan Guaranty Trust
Company of New York. Said letter of credit has been arranged for the purpose
of assuring payment to you, certain other current and former directors and
officers of the Company and future directors, officers and employees of the
Company and its affiliates designated by the Board of Directors of the Company
("Indemnitees") of any amounts to which you and they may become entitled as

- 2 -

<PAGE>
<PAGE> 29

indemnification pursuant to the By-laws in the event that, for any reason, the
Company shall fail promptly to pay to you, upon written request therefor, any
such indemnification, said assurance for all Indemnitees being limited at any
time to $5,000,000 in aggregate amount. The Company understands that there has
been established an irrevocable trust, the Bethlehem Indemnification Trust, for
which First Valley Bank, Bethlehem, Pennsylvania, acts as trustee, for the
purpose, among other things, of administering the respective interests of the
Indemnitees in said letter of credit, and the Company has consented to the
issuance and delivery of said letter of credit to the Bethlehem Indemnification
Trust. Unless renewed or replaced by a comparable letter of credit in the
amount of $5,000,000, the full undrawn amount of said letter of credit may be
drawn upon prior to the expiration thereof. Drawings on said letter of credit
may be arranged through the Bethlehem Indemnification Trust, as provided by the
trust agreement therefor, by contacting the First Valley Bank, One Bethlehem
Plaza, Bethlehem, Pennsylvania 18018. You have agreed to repay to the
Bethlehem Indemnification Trust any amount paid to you by such trust (i) if it
shall ultimately be determined (by the Company and upon expiration of the
180-day period for commencement of a judicial proceeding for a de novo
determination or by a final judicial determination) that you are not entitled
under this agreement or otherwise to indemnification from Bethlehem in respect
of the liability for which you shall have received payment or (ii) if you shall
subsequently receive payment in respect of such liability from any liability
insurer or from Bethlehem or any successor thereto. It is agreed that, in
addition to the rights of any other person to do so, the Company shall have the
right to compel any repayment to the Bethlehem Indemnification Trust so
required.

This agreement shall terminate upon the later of (i) the tenth
anniversary of the date on which you shall cease to be a director or officer of
the Company or (ii) the final termination or resolution of all actions, suits,
proceedings or investigations commenced within such ten-year period and
relating to the Company or any of its affiliates or your services thereto to
which you may be or become a party and of all claims for indemnification by you
under this agreement or against the Bethlehem Indemnification Trust asserted
within such ten-year period.

This agreement supersedes any and all prior agreements between the
Company and you relating to the subject matter hereof. It is understood and
agreed that this agreement is binding upon the Company and its successors and
shall inure to your benefit and that of your heirs, distributees and legal
representatives. This agreement, and the interpretation and enforcement
hereof, shall be governed by the laws of the State of Delaware. In
confirmation of the provisions of the Company's By-laws, the Company hereby
agrees to pay, and you shall be held harmless from and indemnified against, any
costs and expenses (including attorneys' fees) which you may reasonably incur
in connection with any challenge to the validity of, or the performance and
enforcement of,

- 3 -

<PAGE>
<PAGE> 30

this agreement, in the same manner as provided by the Company's By-laws.

If the foregoing is in accordance with your understanding of our
agreement, kindly countersign the enclosed copies of this letter, whereupon
this letter shall become a binding agreement in accordance with the laws of the
State of Delaware.

Very truly yours,

BETHLEHEM STEEL CORPORATION

By: -----------------------------

- -------------------------------
[Signature of Director/Officer]

- 4 -

<PAGE>
<PAGE> 31
Schedule A

1. Indemnification Assurance Agreement dated August 22, 1986 between
Bethlehem Steel Corporation and Curtis H. Barnette.

2. Indemnification Assurance Agreement dated August 22, 1986 between
Bethlehem Steel Corporation and Silas S. Cathcart.

3. Indemnification Assurance Agreement dated August 22, 1986 between
Bethlehem Steel Corporation and George P. Jenkins.

4. Indemnification Assurance Agreement dated August 22, 1986 between
Bethlehem Steel Corporation and Reginald H. Jones.

5. Indemnification Assurance Agreement dated August 22, 1986 between
Bethlehem Steel Corporation and Winthrop Knowlton.

6. Indemnification Assurance Agreement dated August 22, 1986 between
Bethlehem Steel Corporation and Russell E. Palmer.

7. Indemnification Assurance Agreement dated August 22, 1986 between
Bethlehem Steel Corporation and Ellmore C. Patterson.

8. Indemnification Assurance Agreement dated August 22, 1986 between
Bethlehem Steel Corporation and Dean P. Phypers.

9. Indemnification Assurance Agreement dated August 22, 1986 between
Bethlehem Steel Corporation and William W. Scranton.

10. Indemnification Assurance Agreement dated August 22, 1986 between
Bethlehem Steel Corporation and Donald H. Trautlein.

11. Indemnification Assurance Agreement dated August 22, 1986 between
Bethlehem Steel Corporation and Walter F. Williams.

12. Indemnification Assurance Agreement dated August 22, 1986 between
Bethlehem Steel Corporation and Lonnie A. Arnett.

13. Indemnification Assurance Agreement dated August 22, 1986 between
Bethlehem Steel Corporation and D. Sheldon Arnot.

14. Indemnification Assurance Agreement dated August 22, 1986 between
Bethlehem Steel Corporation and Robert W. Cooney.

<PAGE>
<PAGE> 32

15. Indemnification Assurance Agreement dated August 22, 1986 between
Bethlehem Steel Corporation and Frank S. Dickerson, III.

16. Indemnification Assurance Agreement dated August 22, 1986 between
Bethlehem Steel Corporation and George T. Fugere.

17. Indemnification Assurance Agreement dated August 22, 1986 between
Bethlehem Steel Corporation and John A. Jordan, Jr.

18. Indemnification Assurance Agreement dated August 22, 1986 between
Bethlehem Steel Corporation and James F. Kegg.

19. Indemnification Assurance Agreement dated August 22, 1986 between
Bethlehem Steel Corporation and David H. Klinges.

20. Indemnification Assurance Agreement dated August 22, 1986 between
Bethlehem Steel Corporation and Edward H. Kottcamp, Jr.

21. Indemnification Assurance Agreement dated August 22, 1986 between
Bethlehem Steel Corporation and James H. Leonard.

22. Indemnification Assurance Agreement dated August 22, 1986 between
Bethlehem Steel Corporation and Gary L. Millenbruch.

23. Indemnification Assurance Agreement dated August 22, 1986 between
Bethlehem Steel Corporation and C. Adams Moore.

24. Indemnification Assurance Agreement dated August 22, 1986 between
Bethlehem Steel Corporation and Reynold Nebel.

25. Indemnification Assurance Agreement dated August 22, 1986 between
Bethlehem Steel Corporation and James C. Van Vliet.

26. Indemnification Assurance Agreement dated August 22, 1986 between
Bethlehem Steel Corporation and Robert C. Wilkins.

27. Indemnification Assurance Agreement dated December 29, 1986 between
Bethlehem Steel Corporation and Larry L. Adams.

28. Indemnification Assurance Agreement dated December 29, 1986 between
Bethlehem Steel Corporation and Benjamin C. Boylston.

- 2 -
<PAGE>
<PAGE> 33

29. Indemnification Assurance Agreement dated January 28, 1987 between
Bethlehem Steel Corporation and Herman E. Collier.

30. Indemnification Assurance Agreement dated January 28, 1987 between
Bethlehem Steel Corporation and Edwin A. Gee.

31. Indemnification Assurance Agreement dated January 28, 1987 between
Bethlehem Steel Corporation and Thomas L. Holton.

32. Indemnification Assurance Agreement dated March 1, 1987 between Bethlehem
Steel Corporation and Roger P. Penny.

33. Indemnification Assurance Agreement dated May 27, 1987 between Bethlehem
Steel Corporation and Andrew M. Weller.

34. Indemnification Assurance Agreement dated January 27, 1988 between
Bethlehem Steel Corporation and John B. Curcio.

35. Indemnification Assurance Agreement dated January 27, 1988 between
Bethlehem Steel Corporation and William C. Hittinger.

36. Indemnification Assurance Agreement dated January 27, 1988 between
Bethlehem Steel Corporation and William A. Pogue.

37. Indemnification Assurance Agreement dated September 27, 1989 between
Bethlehem Steel Corporation and Robert McClements, Jr.

38. Indemnification Assurance Agreement dated September 27, 1989 between
Bethlehem Steel Corporation and John L. Kluttz.

39. Indemnification Assurance Agreement dated June 27, 1990 between Bethlehem
Steel Corporation and Duane R. Dunham.

40. Indemnification Assurance Agreement dated September 26, 1990 between
Bethlehem Steel Corporation and John F. Ruffle.

41. Indemnification Assurance Agreement dated May 1, 1991 between Bethlehem
Steel Corporation and Carl F. Meitzner.

42. Indemnification Assurance Agreement dated July 1, 1991 between Bethlehem
Steel Corporation and Walter N. Bargeron.

- 3 -
<PAGE>
<PAGE> 34

43. Indemnification Assurance Agreement dated March 1, 1992 between Bethlehem
Steel Corporation and David P. Post.

44. Indemnification Assurance Agreement dated November 1, 1992 between
Bethlehem Steel Corporation and Stephen G. Donches.

45. Indemnification Assurance Agreement dated November 1, 1992 between
Bethlehem Steel Corporation and William H. Graham.

46. Indemnification Assurance Agreement dated November 1, 1992 between
Bethlehem Steel Corporation and G. Penn Holsenbeck.

47. Indemnification Assurance Agreement dated March 1, 1993 between Bethlehem
Steel Corporation and Benjamin R. Civiletti.

48. Indemnification Assurance Agreement dated March 1, 1993 between Bethlehem
Steel Corporation and Worley H. Clark.

49. Indemnification Assurance Agreement dated March 1, 1993 between Bethlehem
Steel Corporation and Harry P. Kamen.

50. Indemnification Assurance Agreement dated April 28, 1993 between Bethlehem
Steel Corporation and Joseph F. Emig.

51. Indemnification Assurance Agreement dated April 28, 1993 between Bethlehem
Steel Corporation and Andrew R. Futchko.

52. Indemnification Assurance Agreement dated April 28, 1993 between Bethlehem
Steel Corporation and Timothy Lewis.

53. Indemnification Assurance Agreement dated April 28, 1993 between Bethlehem
Steel Corporation and William E. Wickert, Jr.

54. Indemnification Assurance Agreement dated March 1, 1994 between Bethlehem
Steel Corporation and Augustine E. Moffitt, Jr.

55. Indemnification Assurance Agreement dated March 16, 1994 between Bethlehem
Steel Corporation and Lewis B. Kaden.

56. Indemnification Assurance Agreement dated January 31, 1996 between
Bethlehem Steel Corporation and Shirley D. Peterson.

- 4 -
<PAGE>
<PAGE> 35

57. Indemnification Assurance Agreement dated May 1, 1996 between Bethlehem
Steel Corporation and Gregory F. Paolini.

58. Indemnification Assurance Agreement dated May 1, 1996 between Bethlehem
Steel Corporation and Malcolm J. Roberts.

59. Indemnification Assurance Agreement dated May 1, 1996 between Bethlehem
Steel Corporation and Robert A. Rudzki.

60. Indemnification Assurance Agreement dated May 1, 1996 between Bethlehem
Steel Corporation and Dorothy L. Stephenson.

- 5 -

<PAGE>
<PAGE> 36

EXHIBIT (11)
BETHLEHEM STEEL CORPORATION

STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
(dollars in millions and shares in thousands, except per share data)
<TABLE>
<CAPTION>

YEAR ENDED DECEMBER 31
------------------------------
PRIMARY EARNINGS PER SHARE 1996 1995 1994
-------------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
NET INCOME (LOSS) ($308.8) $179.6 $80.5
LESS DIVIDEND REQUIREMENTS:
$2.50 Preferred Dividend-Cash (10.0) (10.0) (10.0)
$5.00 Preferred Dividend-Cash (12.5) (12.5) (12.5)
$3.50 Preferred Dividend-Cash (17.9) (17.9) (17.9)
5% Preference Dividend-Stock (1.5) (2.0) (2.7)
-------- -------- --------
TOTAL PREFERRED AND PREFERENCE DIVIDENDS (41.9) (42.4) (43.1)
-------- -------- --------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK ($350.7) $137.2 $37.4
======== ======== ========

AVERAGE SHARES OF COMMON STOCK AND
EQUIVALENTS OUTSTANDING:
Common Stock 111,286 110,311 105,826
Stock Options 2 13 227
-------- -------- --------
TOTAL 111,288 110,324 106,053
======== ======== ========
PRIMARY EARNINGS PER SHARE ($3.15) $1.24 $0.35
======== ======== ========
FULLY DILUTED EARNINGS PER SHARE
NET INCOME (LOSS) ($308.8) $179.6 $80.5
LESS DIVIDEND REQUIREMENTS:
$2.50 Preferred Dividend (10.0) (10.0) (10.0)
$5.00 Preferred Dividend (12.5) (12.5) (12.5)
$3.50 Preferred Dividend (17.9) (17.9) (17.9)
5% Preference Dividend (1.5) - (2.7)
-------- -------- --------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK ($350.7) $139.2 $37.4
======== ======== ========

AVERAGE SHARES OF COMMON STOCK AND EQUIVALENTS AND
OTHER POTENTIALLY DILUTIVE SECURITIES OUTSTANDING:
Common Stock 111,286 110,311 105,826
Stock Options 2 13 227
$2.50 Preferred Stock * * *
$5.00 Preferred Stock * * *
$3.50 Preferred Stock * * *
5% Preference Stock * 2,588 *
-------- -------- --------
TOTAL 111,288 112,912 106,053
======== ======== ========
FULLY DILUTED EARNINGS PER SHARE ($3.15) $1.23 $0.35
======== ======== ========
</TABLE>

* Antidilutive

<PAGE>
<PAGE> 1
CHAIRMAN'S LETTER Bethlehem Steel

TO OUR STOCKHOLDERS

1996 was a very difficult year for Bethlehem Steel, and yet it was a year in
which significant actions were taken that will position Bethlehem for improved
profitability and the achievement of our Vision to be the Premier Steel
Company. Three actions were particularly important: we enhanced the
competitiveness of our three core steel Divisions, announced and began
implementing a Restructuring Plan, and made steady progress in dealing with our
pension and health care legacy costs.

As a result of the Restructuring Plan, we had a net loss for the year of $309
million, including $382 million in after-tax restructuring charges. Excluding
these charges, we had net income of $73 million, down from $180 million in
1995. 1996 was clearly a very difficult and, in some respects, a disappointing
year. We recognize that our financial results were not satisfactory, and we
will take the necessary and appropriate actions in 1997 and in the years ahead
to improve them.

RESTRUCTURING TO IMPROVE FUTURE PROFITABILITY AND STOCKHOLDER VALUE

In 1996, we announced a Restructuring Plan that will result in exiting five
businesses, which will contribute significantly to improving our performance in
the future. During the second half of 1996, we decided that the long-term
outlook for these unprofitable business units was such that we could no longer
keep them as part of Bethlehem. We decided to exit our BethEnergy Eagle Nest
coal business, Bethlehem Structural, BethForge, CENTEC roll business, and
BethShip Sparrows Point Shipyard. We also decided to write down our Bethlehem
Coke operation as an impaired asset, but we will continue to operate that
business as long as it has a satisfactory performance. In total, these
decisions resulted in recording $465 million of pre-tax restructuring charges
in 1996. These decisions are consistent with our basic requirement that all of
our business units must earn a competitive rate of return on the investment we
have in them.

As to the current status of these restructured businesses, we have already
sold and leased our Eagle Nest coal assets. Also, we have concluded that we
will not be able to sell Bethlehem Structural as an ongoing business and,
therefore, we will close it by the end of the first quarter of this year. We
are continuing to negotiate with qualified buyers for the sale of our
BethForge, CENTEC, and Sparrows Point Shipyard businesses. We hope to be able
to conclude satisfactory sales transactions for them during the first half of
this year. If not, we will close them and their assets will be sold.

Implementing the Restructuring Plan will eliminate the significant operating
losses caused by these businesses, will result in a stronger company better
positioned for the future, and will allow us to focus even greater attention on
our three core steel businesses.

- 1 -
<PAGE>
<PAGE> 2

CONCENTRATING ON OUR CORE STEEL BUSINESSES

Bethlehem's core steel businesses are the Burns Harbor Division, the Sparrows
Point Division, and Pennsylvania Steel Technologies. We believe they provide a
solid base on which we can build our company and add value for our
stockholders. We will grow our company by intensifying our concentration on
these businesses and by continuously improving their competitive positions in
their markets.

BURNS HARBOR

The Burns Harbor Division accounts for about one-half of our total revenues
and ships about 5 million tons of high quality steel products per year,
primarily to the automotive and machinery markets. Burns Harbor has
competitive costs and has won many quality awards from its customers. During
1996, we further enhanced Burns Harbor by making relatively modest capital
expenditures to increase steelmaking capability, by modernizing the plate mill
and hot strip mill, and by investing in Chicago Cold Rolling, L.L.C. This
investment will make it possible for Burns Harbor to process more hot rolled
sheet into higher value cold rolled sheet. We will continue to enhance Burns
Harbor's competitiveness, and we believe a competitive rate of return will be
earned on the investment we have in this Division.

SPARROWS POINT

The Sparrows Point Division accounts for about one-third of our total
revenues and ships about 3 million tons per year of high quality sheet, plate
and tin mill products, primarily to the construction and container markets.
Sparrows Point has also won many quality awards and other forms of recognition
from its customers. This past year, the Division established "reliability to
customers" as a primary objective and, taking full advantage of its coating
lines, further increased its percentage of higher value sheet product
shipments. While Sparrows Point is currently profitable, one of our greatest
challenges and highest priorities is to develop plans and implement actions for
Sparrows Point to earn a competitive rate of return on the capital invested.
We must continue to improve productivity and reduce costs, and we may also
consider some future modernization.

With facilities at Burns Harbor and Sparrows Point, Bethlehem continues to be
the nation's largest producer of plate, most of it in the higher value grades
required for the more demanding industrial uses. Also, higher value cold
rolled sheet, coated sheet and tin mill products accounted for more than 70
percent of sheet products shipped from these Divisions in 1996, up from 65
percent in 1995.

PENNSYLVANIA STEEL TECHNOLOGIES

Pennsylvania Steel Technologies is a leading supplier of railroad rails to
the rail transportation market, high quality specialty blooms to the forging
industry, and large-diameter pipe to the energy market. PST has a recently
modernized electric steelmaking facility, a continuous caster, and
state-of-the-art rail making technology. PST's operations were impaired by a
severe flood in January 1996. Extraordinary actions by our employees returned
the Division to operation quickly, and the utilization of its facilities has
continued to improve throughout the year. PST is now well positioned to serve
the growing market for premium railroad rail, specialty blooms, flat bars and
large diameter pipe. With continuing cost and productivity improvements, we
believe it will earn a competitive rate of return on the capital we have
invested in this business.

- 2 -
<PAGE>
<PAGE> 3

REBUILDING OUR FINANCIAL STRENGTH

We have been working diligently on rebuilding Bethlehem's financial strength.
We have a highly leveraged balance sheet due primarily to our legacy
obligations for pensions and health care. Our objective is to have a capital
structure that will earn us an investment grade credit rating. Our debt level
and maturities over the next few years are relatively modest. Our debt to
invested capital ratio was 36 percent in 1996, increasing by two percent over
1995 from the restructuring decision.

Over the past three years, we have reduced our unfunded pension liability by
about three-quarters of a billion dollars. At the end of 1996, our pension
fund had assets of more than $4.2 billion. Our unfunded liability was reduced
to $870 million from 1995's $1.1 billion. Eliminating our unfunded pension
liability is one of our highest priorities because it will significantly reduce
pension expense and strengthen our financial position.

We are also working vigorously on another major capital structure and legacy
cost issue -- health care costs for retirees and their families -- through a
number of initiatives. These include greater use of Health Maintenance
Organizations and other managed health care options, capping certain health
care costs for retirees, and innovations such as our Bethlehem, Pennsylvania
family health center.

IMPROVING CONTINUOUSLY

An important part of our strategy is to have continuous improvement in all of
our activities. During 1996, we made many improvements especially with regard
to our objectives related to customers, suppliers, employees and citizenship.

CUSTOMERS

Bethlehem has won many quality awards and other certifications from
automakers. Burns Harbor and, more recently, Burns Harbor's Lackawanna, New
York, Galvanized Products Division have received the QS-9000 automotive quality
certification. With both facilities now certified, we are well positioned to
supply our automotive customers. In 1996, through our Burns Harbor Division,
Bethlehem was named a "Supplier of the Year" by General Motors-the only steel
producer in the world to be so honored-and was also selected to supply all the
sheet steel for General Motors' popular Saturn line of cars.

Sparrows Point's plate mill received Q-Plus certification from the Carrier
Corporation on the basis of the quality systems at the Division. During the
course of the year, Pennsylvania Steel Technologies was qualified as a supplier
of head-hardened rail by all the Class One railroads in the United States and
doubled its shipments of this premium rail product compared to 1995.

SUPPLIERS

In 1996, we made significant progress through our Strategic Sourcing
initiative and expect further progress this year. We established new
relationships with suppliers covering a substantial portion of the $3 billion
in raw materials, energy, equipment, goods and services we purchase annually.
These relationships are achieving the key objectives of Strategic Sourcing: to
forge a strong, competitive base of supply partners who share our commitment to
deliver superior value to our customers; to realize significant, immediate and
sustainable improvements in the total cost, quality and value of our purchased
goods and services; and to establish mutual commitments to continuous
improvement.

- 3 -

<PAGE>
<PAGE> 4
EMPLOYEES

We are fortunate that we have capable and dedicated employees who will lead
us into the next century, and we are helping to provide them with the skills
they need. During 1996, we continued to develop partnership activities among
all employees. We initiated additional employee education and training
programs to help develop the skilled and knowledgeable work force required to
compete in an increasingly competitive, global business environment. In 1996,
various educational programs provided more than 550,000 employee training
hours, an average of over 30 hours per employee. For example, more than half
of our employees have already completed a custom financial management program
that includes financial concepts, measurements and business fundamentals. This
program is designed to help our employees focus their efforts on increasing our
return on net assets and stockholder value.

The 1996 contract reopener of 1993's six-year agreement with the United
Steelworkers of America was completed, and we now have a contract through
mid-1999.

We are committed to the safety and health of our employees and believe that
safety is a fundamental corporate value which must not be compromised. During
the past year we continued to improve our safety performance and expand safety
training. Our total injury incidence rate was 21 percent better than 1995.
Over the past two years, we reduced our disabling injuries by more than 40
percent. For the 16th time in the past 28 years, our Railroad subsidiary in
Bethlehem, Pennsylvania won a Harriman Institute Award for its safety
performance. In a joint effort with the USWA, we began implementing a new
"employee safety process" to provide greater involvement of all employees in
creating the best possible safety environment, both on and off the job.

We continued with activities to have profit sharing for our employees based
upon performance and to increase employee ownership of Bethlehem stock so that
our employees' interests are aligned with those of our stockholders. We have
initiated many other activities among our employees that are aimed at making
continuous improvement in all aspects of our business a way of life at
Bethlehem.

CITIZENSHIP

We believe that being a good citizen helps generate value for our
stockholders. Citizenship is expressed in many ways, including environmental
performance, community support and economic development.

During 1996, we issued our first annual Environmental Progress Report, which
is consistent with our endorsement of the CERES Principles, an environmental
code of conduct. To explore environmental and other issues of mutual interest
with our communities, Burns Harbor and Sparrows Point established Community
Awareness Panels in their local areas. We received the Pennsylvania Governor's
Award for Environmental Excellence for developing a process to treat the dust
captured from electric furnaces. We also received an award from the U.S.
Environmental Protection Agency for our comprehensive waste reduction program
to recycle office waste materials and increase the use of recycled products.
We provided leadership in United Way and other charitable organizations, with
Sparrows Point and Burns Harbor each contributing, largely through employee
giving, more than $1 million to their local United Way campaigns. We are
actively supporting efforts to revitalize the properties on the South Side of
Bethlehem and certain other communities that have been affected by the
restructuring of our businesses.

- 4 -
<PAGE>
<PAGE> 5

CHANGES TO THE BOARD

During this past year, Shirley D. Peterson, President of Hood College,
joined our Board. We look forward to continuing to work with Shirley and
having her advice and counsel. We also want to acknowledge and thank Thomas L.
Holton and Winthrop Knowlton, who will be retiring as Directors in April, for
their many years of outstanding and loyal service to Bethlehem.

OUR BUSINESS OUTLOOK IS POSITIVE

We believe that the domestic economy will continue on a course of moderate
and sustainable growth and low inflation. We also believe that the global
economy will show some additional strength this year compared to 1996. Based
on this economic environment, we believe that steel markets will continue to be
relatively good in the United States and that domestic industry steel shipments
in 1997 will be close to the estimated 100 million tons shipped in 1996.

We recognize, however, that competition will be intense as new capacity
enters the marketplace, and unfairly traded imports continue to be of concern.
We will continue to take actions to improve our competitiveness by enhancing
our customer service and reliability, increasing the utilization of our
facilities, aggressively reducing costs and improving our productivity.

While 1996 was certainly a challenging year for Bethlehem, it was also a year
in which many important decisions were made that have strengthened our company.
We enter 1997 with a skilled work force, excellent facilities and a company
better positioned to take advantage of the opportunities of the future and to
improve stockholder value.

Fair and open trade is important for Bethlehem and its customers. We fully
support international trade initiatives that will open foreign markets and help
cause fair trade in the global marketplace.

In 1997 and beyond, our Vision is to be the Premier Steel Company-our
Strategy to achieve that Vision is to concentrate on steel, rebuild our
financial strength and have continuous improvement in all our activities-our
Objectives are to serve our customers, partner with our employees, be good
citizens, and increase the value of our company for our stockholders.

We have four principal goals for 1997: to successfully execute our business
plans at every Business Division, Service Unit, Department and for the
Corporation as a whole; to effectively implement our Restructuring Plan; to
continue progress with respect to our pension and health care legacy costs; and
to continue to advance plans for the improvement of Bethlehem's future
profitability.

We are determined to be the supplier of choice for our customers, the
employer of choice for our employees and the communities in which we operate,
and the investment of choice for our stockholders.

/s/ Hank Barnette

Curtis H. Barnette, Chairman
January 29, 1997

- 5 -

<PAGE>
<PAGE> 6
FINANCIAL REVIEW AND OPERATING ANALYSIS Bethlehem Steel

Our net loss of $309 million in 1996 included restructuring charges of $465
million ($382 million after tax) as a result of a Restructuring Plan that will
result in our exiting five businesses. We plan to exit Bethlehem Structural,
BethForge, CENTEC and BethShip Sparrows Point Shipyard. In the third quarter
of 1996, we sold and leased assets of our Eagle Nest coal mine. We also wrote
off impaired assets at Bethlehem Coke, which will continue to operate two coke
oven batteries in Bethlehem, Pennsylvania. See Note C to the Consolidated
Financial Statements.

Excluding the restructuring charges, we reported net income of $73 million
($.28 per share) in 1996, compared to net income of $180 million in 1995 and
$81 million in 1994. Results for 1996 declined from 1995 principally from
lower average realized steel prices and shipments, partially offset by a higher
valued product mix. The improvement in 1995 over 1994 was from higher realized
steel prices, partially offset by lower shipments and higher operating costs.

Sales in 1996 decreased to $4.68 billion from $4.87 billion in 1995 and $4.82
billion in 1994.

SEGMENT RESULTS

BASIC STEEL OPERATIONS. Our Basic Steel Operations segment had a loss from
operations of $87 million in 1996, including $255 million of restructuring
charges for exiting Bethlehem Structural, writing off impaired assets at
Bethlehem Coke, and the sale and lease of certain assets of our Eagle Nest coal
mine. Excluding restructuring charges, income from operations was $168 million
in 1996, compared to $311 million in 1995 and $166 million in 1994.

1996's results declined due to lower realized steel prices and lower
structural product shipments, partially offset by an improved product mix from
lower structural product shipments and a higher percentage of coated and cold
rolled sheet products shipped at the Sparrows Point and Burns Harbor Divisions.
Average realized prices were 3% lower in 1996 than they were in 1995.
Shipments were 8.8 million tons in 1996 compared to 9.0 million tons in 1995.

The improvement in 1995 from 1994 was from higher realized steel prices,
partially offset by lower shipments and higher operating costs. Shipments fell
to 9.0 million tons in 1995 from 9.3 million tons in 1994 principally from the
softening in automotive markets and higher customer inventories at the
beginning of 1995. Average realized prices were 5% higher than 1994.
Employment costs were higher principally from higher profit sharing. Scrap and
alloy market prices and depreciation expense were also higher.

The effects of changes in average realized steel prices, shipments (including
coal) and product mix on basic steel segment sales during the last two years
were as follows:

Increase (decrease) from prior year
-----------------------------------
1996 1995
---- ----
Realized prices (3)% 5%
Shipments (3) (4)
Product mix 2 1
---- ---
Total sales (4)% 2%
==== ===

Raw steel production decreased to 9.4 million tons in 1996 from 10.4 million
tons in 1995 as a result of closing Bethlehem Structural's steelmaking
facilities. Raw steel production was 9.8 million tons in 1994.

The Burns Harbor Division shipped 4.8 million tons of steel products in 1996,
compared to 4.6 million tons in 1995 and 5.1 million tons in 1994. Despite an
increase in shipments and lower purchased steel and raw material costs in 1996,
Burns Harbor's operating results declined principally from lower average
realized prices on all flat rolled products.

In 1996, Burns Harbor completed a capital expenditure project to increase
annual steelmaking capability by nearly 400,000 tons to reduce its reliance on
higher cost purchased steel. Burns Harbor is also realizing energy savings at
its blast furnaces from the coal injection technology installed in 1995. We
recently approved upgrading Burns Harbor's No. 1 caster to improve
productivity and costs. The work will be performed during a planned blast
furnace reline in 1998.

The Sparrows Point Division shipped 3.2 million tons of steel products to
trade customers in 1996, compared to 3.0 million tons in 1995 and 2.9 million
tons in 1994. Despite increased shipments, improvements in its tin mill and
hot strip mill operations and a better product, mix from shipping more coated
and cold rolled sheet products, Sparrows Point's 1996 results declined
principally from lower average realized prices on all light flat rolled
products.

Shipments declined slightly at Pennsylvania Steel Technologies (PST) due to
lower semifinished and large-diameter pipe shipments; however, shipments of
PST's premium head-hardened rail were double 1995's levels. Extreme cold
weather and a flood in early 1996 also affected PST's results. PST has been a
supplier of semifinished steel to Bethlehem Structural and BethForge. Although
total shipments at PST could be lower due to our exiting Bethlehem Structural
and BethForge, we believe there are market opportunities for higher margin
semifinished products that could offset the loss of this business.

- 8 -

<PAGE>
<PAGE> 7

In 1995, we discontinued iron and steelmaking operations, production of heavy
structural shapes and foundry operations in Bethlehem, Pennsylvania. In 1996,
we announced a restructuring plan to improve financial performance and
stockholder value, which included exiting the Bethlehem Structural business
entirely. Efforts to sell Bethlehem Structural have been unsuccessful;
therefore, Bethlehem Structural will cease production during the first quarter
of 1997.

PERCENTAGE OF BETHLEHEM'S NET SALES
BY SEGMENT AND MAJOR PRODUCT

1996 1995 1994
---- ---- ----
BASIC STEEL OPERATIONS
Steel mill products:
Hot rolled sheets 14.7% 15.9% 16.6%
Cold rolled sheets 16.0 14.4 17.0
Coated sheets 32.0 29.7 25.9
Tin mill products 7.0 6.1 6.6
Plates 15.3 15.1 14.0
Structural shapes and piling 3.8 6.7 6.7
Rail products 3.5 3.2 2.8
Other steel mill products 1.6 2.7 2.5
Other products and services
(including raw materials) 3.6 4.2 5.5
------ ------ ------
97.5 98.0 97.6
STEEL RELATED OPERATIONS 2.5 2.0 2.4
------ ------ ------
100.0% 100.0% 100.0%
====== ====== ======

PERCENTAGE OF STEEL MILL PRODUCT SHIPMENTS
BY PRINCIPAL MARKET

(Based on tons shipped) 1996 1995 1994
---- ---- ----
Service Centers, Processors
and Converters (including
semifinished customers) 45.2% 41.0% 45.9%
Transportation
(including automotive) 26.0 24.8 24.2
Construction 12.6 14.2 14.7
Containers 5.2 5.2 5.7
Machinery 5.1 5.2 4.9
Other 5.9 9.6 4.6
------ ------ ------
100.0% 100.0% 100.0%
====== ====== ======

STEEL RELATED OPERATIONS. Our Steel Related Operations segment (BethShip,
BethForge and CENTEC) reported a loss from operations of $241 million in 1996,
including $210 million of restructuring charges related to our decision to exit
all of the businesses in this segment. These businesses are continuing to
operate while we are trying to sell them. Excluding the restructuring charges,
the Steel Related segment had losses from operations of $31 million in 1996,
compared to losses of $42 million in 1995 and $32 million in 1994.

Losses in 1996, excluding restructuring charges, improved from 1995 because
of lower costs at BethForge and improved pricing and productivity at BethShip.
In late 1995, BethForge shut down its electric furnace shop, incurring higher
costs in the process, and began receiving ingots from PST. Losses in 1994 were
due to costs related to severe winter weather, high operating costs at
BethForge and a weak ship repair market.

LIQUIDITY AND CAPITAL STRUCTURE

At December 31, 1996, total liquidity, comprising cash, cash equivalents and
funds available under our bank credit arrangement, totaled $446 million
compared to $512 million at December 31, 1995.

Cash provided from operating activities in 1996 declined to $341 million from
$586 million in 1995 from lower earnings and changes in working capital. Cash
provided from operating activities was $384 million in 1994. Principal uses of
cash during 1996 included capital expenditures of $259 million, pension funding
of $170 million and debt repayments of $92 million.

During 1996, long-term interest rates increased and the equity markets
provided strong total returns for financial assets, including our pension fund
assets. Better than market performance on our pension fund assets, a decrease
in our pension obligation caused by the increase in interest rates, and our
$170 million contribution to our pension fund more than offset the increase in
our pension obligation from current year pension expense, actuarial losses and
our restructuring charges. The resulting reduction in our pension obligation
during 1996 from $1.1 billion to $870 million also eliminated 1995's charge to
our stockholders' equity of $67 million under required accounting rules.

We have contributed amounts to our pension fund substantially in excess of
amounts required under current law and regulations. As a result, we currently
have a funding standard credit balance that would allow us to defer pension
funding for about two years, although we presently have no plans to do so.

- 9 -
<PAGE>
<PAGE> 8

Major projected uses of funds for 1997 include an estimated $280 million of
capital expenditures, repayment of about $50 million of debt and capital lease
obligations, and pension funding. We expect to maintain an adequate level of
liquidity throughout 1997 from cash flow from operations, reductions in working
capital, proceeds from the sale of our interests in the Iron Ore Company of
Canada, and available funds under our credit arrangement.

COMMON STOCK MARKET AND DIVIDEND INFORMATION

1996 Prices* 1995 Prices*
------------------- -------------------
Period High Low High Low
---- --- ---- ---
First Quarter $15.875 $13.125 $19.125 $14.125
Second Quarter 14.500 11.500 16.375 13.625
Third Quarter 12.000 9.250 18.250 13.750
Fourth Quarter 10.313 7.625 14.750 12.625

*The principal market for Bethlehem Common Stock is the New York Stock
Exchange. Bethlehem Common Stock is also listed on the Chicago Stock Exchange.
The high and low sales prices of Bethlehem's Common Stock as reported in the
consolidated transaction system are shown. The trading symbol for Bethlehem
Common Stock is BS. Bethlehem has not paid a dividend on its Common Stock
since the fourth quarter of 1991.

CAPITAL EXPENDITURES

Capital expenditures were $259 million in 1996 compared to $267 million in 1995
and $445 million in 1994. Major strategic projects during 1996 included the
upgrade of the 160-inch plate mill and the modernization of the hot strip mill
at Burns Harbor. In 1996, Burns Harbor completed a project to increase the
heat size of its basic oxygen furnaces, reducing its need to purchase higher
cost semifinished steel. Construction of the Chicago Cold Rolling joint
venture has been completed and operations began during the first quarter of
1997.

At December 31, 1996, the estimated cost of completing authorized capital
expenditures was about $386 million compared to $400 million at December 31,
1995. Such authorized capital expenditures are expected to be completed during
the 1997-1999 period.

EMPLOYEES AND EMPLOYMENT COSTS

At year-end 1996, we had about 17,500 employees compared to about 18,300
employees at the end of 1995 and 19,900 employees at the end of 1994. About
three-quarters of our employees are covered by our labor agreements with the
United Steelworkers of America (USWA).

Under the terms of our 1993 labor agreements with the USWA, most employees at
our steel operations received a bonus in 1996 of $.50 per hour worked (maximum
payment of $1,000) based on our having achieved the required level of 1995
adjusted consolidated pre-tax income. Also, profit sharing of 8% of adjusted
consolidated annual income before taxes, unusual items and expenses applicable
to the plan plus 2% of adjusted profits of certain operations is paid to USWA
represented employees in the following year. Profit sharing is also paid to
non-represented employees based on specific Corporate and Business Unit plans
and performance. We paid about $75 million in 1996 and expect to pay about $45
million for income related bonus, profit-sharing and shortfall amounts in early
1997.

The 1993 labor agreements provided for Reopener Negotiations in March 1996
for certain wage and benefit provisions (excluding pensions and health care
benefits) with any changes to be effective August 1, 1996, and continuing
through the expiration of the labor agreement on August 1, 1999. We did not
reach a settlement with the USWA, and the parties submitted unresolved issues
to arbitration. The Arbitrator selected our final offer which includes three
wage increases totaling $1.00 per hour, lump sums totaling up to $2,000
(one-half depends on achieving certain annual profits in 1997 and 1998) and
continuing one floating holiday each year for the next three years. As a
result of the Arbitrator's decision, most employees at steel operations
received a $.50 per hour wage increase on August 1, 1996 and will receive a
$.25 per hour wage increase on August 1, 1997 and 1998.

Under other provisions of the labor agreements, we are required to pay
"shortfall amounts" each year up to 10% of the first $100 million and 20% in
excess of $100 million of consolidated income before taxes, unusual items and
expenses applicable to the shortfall plan. Shortfall amounts arise when

- 10 -
<PAGE>
<PAGE> 9

employees terminate employment and ESOP Preference Stock, held in trust for
employees in reimbursement for wage and benefit reductions in prior years, is
converted into Common Stock and sold for amounts less than the stated value of
the Preference Stock ($32 for Series A and $40 for Series B). We issued
approximately 61,000 shares of Series B Preference Stock in 1996 and
approximately 40,800 shares in 1995 to a trustee for the benefit of employees
for 1995 and 1994, respectively, and expect to issue about 35,000 shares in
early 1997 for the 1996 plan year.

Additional information concerning our employment costs is presented below.

EMPLOYMENT COST SUMMARY - ALL EMPLOYEES

(Dollars in millions) 1996 1995 1994
- --------------------- ---- ---- ----
Salaries and Wages $ 966 $1,058 $ 999
Employee Benefits
Pension Plans:
Actives 111 105 108
Retirees 81 105 95
Medical and Insurance:
Actives 148 151 152
Retirees 115 116 115
Payroll, Taxes 85 95 90
Workers' Compensation 28 33 47
Savings Plan and Other 21 21 27
------ ------ ------
Total Benefit Costs 589 626 634
------ ------ ------
Total Employment Costs $1,555 $1,684 $1,633
====== ====== ======
Employment Costs as a
Percent of Net Sales 33% 35% 34%
====== ====== ======

ENVIRONMENTAL MATTERS

We are subject to various federal, state and local environmental laws and
regulations concerning, among other things, air emissions, waste water
discharges, and solid and hazardous waste disposal. During the five years
ended December 31, 1996, we spent approximately $160 million for environmental
control equipment. Expenditures for new environmental control equipment
totaled approximately $29 million in 1996, $36 million in 1995 and $44 million
in 1994. The costs incurred in 1996 to operate and maintain existing
environmental control equipment were approximately $115 million (excluding
interest costs but including depreciation charges of $19 million) compared to
$120 million in 1995 and $115 million in 1994.

Negotiations between Bethlehem and federal and state regulatory agencies are
being conducted to resolve differences in interpretation of certain
environmental control requirements. In some instances, those negotiations are
being held in connection with the resolution of pending environmental
proceedings. We believe that there will not be any significant curtailment or
interruptions of any of our important operations as a result of these
proceedings and negotiations. Existing environmental laws could be amended,
new laws could be enacted by Congress and state legislatures, and new
environmental regulations could be issued by regulatory agencies. For these
reasons, we cannot predict the specific environmental control requirements that
we will face in the future. Based on existing and anticipated regulations
promulgated under presently enacted legislation, we currently estimate that
capital expenditures for installation of new environmental control equipment
will average about $30 million per year over the next two years. However,
estimates of future capital expenditures and operating costs required for
environmental compliance are subject to numerous uncertainties, including the
evolving nature of regulations, possible imposition of more stringent
requirements, availability of new technologies and the timing of expenditures.

Although it is possible that our future results of operations, in particular
quarterly or annual periods, could be materially affected by the future costs
of environmental compliance, we believe that the future costs of environmental
compliance will not have a material adverse effect on our consolidated
financial position or on our competitive position with respect to other
integrated domestic steelmakers that are subject to the same environmental
requirements.

Since 1946, Bethlehem has had a formal program of environmental control. We
were one of the first industrial companies in the United States to recognize
our obligation to our communities, their citizens and our environment. We
continue to expand our commitment to the environment through the development
and implementation of progressive environmental programs consistent with the
goals identified in our Corporate Environmental Policy and the CERES
Principles that we first endorsed last year.

- 11 -

<PAGE> 10

CONSOLIDATED STATEMENTS OF INCOME Bethlehem Steel

Year Ended December 31
- ------------------------------------------------------------------------------
(Dollars in millions, except per share data) 1996 1995 1994
- ------------------------------------------------------------------------------

NET SALES $4,679.0 $4,867.5 $4,819.4
--------- --------- ---------
COSTS AND EXPENSES:
Cost of sales 4,168.2 4,202.8 4,287.3
Depreciation (Note A) 268.7 284.0 261.1
Selling, administration and general expense 105.5 111.8 137.4
Estimated restructuring loss (Note C) 465.0 - -
--------- --------- ---------
TOTAL COSTS AND EXPENSES 5,007.4 4,598.6 4,685.8
--------- --------- ---------
INCOME (LOSS) FROM OPERATIONS (328.4) 268.9 133.6

FINANCING INCOME (EXPENSE):
Interest and other financing costs (Note A) (53.3) (60.0) (46.2)
Interest income 5.9 7.7 7.1
--------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES (375.8) 216.6 94.5

Benefit (Provision) for Income Taxes (Note D) 67.0 (37.0) (14.0)
--------- --------- ---------
NET INCOME (LOSS) (308.8) 179.6 80.5

Dividends on Preferred and Preference Stock 41.9 42.4 43.1
--------- --------- ---------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK -
($3.15), $1.24 AND $.35 PER SHARE $ (350.7) $ 137.2 $ 37.4
========= ========= ==========

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

- 12 -

<PAGE>
<PAGE> 11

CONSOLIDATED BALANCE SHEETS Bethlehem Steel

December 31
- --------------------------------------------------------------------------
(Dollars in millions, except per share data) 1996 1995
- --------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note A) $ 136.6 $ 180.0
Receivables (Note E) 311.6 374.6
Inventories (Notes A and E)
Raw materials and supplies 332.0 335.5
Finished and semifinished products 667.0 604.9
Contract work in progress less
billings of $.5 and $10.9 18.3 17.8
-------- ---------
Total Inventories 1,017.3 958.2
Other current assets 22.9 13.0
-------- ---------
TOTAL CURRENT ASSETS 1,488.4 1,525.8
INVESTMENTS AND MISCELLANEOUS ASSETS (Note A) 106.7 112.3
PROPERTY, PLANT AND EQUIPMENT less accumulated
depreciation of $3,924.2 and $4,329.5 (Note A) 2,419.8 2,714.2
DEFERRED INCOME TAX ASSET -- NET (Note D) 935.0 885.0
INTANGIBLE ASSET -- PENSIONS (Note G) 160.0 463.0
--------- ---------
TOTAL ASSETS $5,109.9 $5,700.3
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 410.4 $ 381.4
Accrued employment costs 163.3 208.0
Postretirement benefits other than pensions (Note H) 150.0 150.0
Accrued taxes (Note D) 67.9 72.4
Debt and capital lease obligations (Note E) 49.3 91.5
Other current liabilities 116.5 146.3
-------- ---------
TOTAL CURRENT LIABILITIES 957.4 1,049.6
PENSION LIABILITY (Notes C and G) 870.0 1,115.0
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
(Notes C and H) 1,445.0 1,415.0
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS (Note E) 497.4 546.8
OTHER LONG-TERM LIABILITIES 374.1 335.6
STOCKHOLDERS' EQUITY (Notes I, J,and K):
Preferred Stock -- at $1 per share par value
(aggregate liquidation preference of $481.2);
Authorized 20,000,000 shares 11.6 11.6
Preference Stock -- at $1 per share par value
(aggregate liquidation preference of $86.2);
Authorized 20,000,000 shares 2.5 2.6
Common Stock -- at $1 per share par value;
Authorized 250,000,000 shares;
Issued 113,851,199 and 112,699,869 shares 113.9 112.7
Common Stock -- Held in Treasury,
2,017,662 and 1,992,189 shares at cost (59.7) (59.4)
Additional Paid-in Capital 1,886.3 1,850.6
Accumulated Deficit (988.6) (679.8)
-------- ---------
TOTAL STOCKHOLDERS' EQUITY 966.0 1,238.3
-------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $5,109.9 $5,700.3
========= =========

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

- 13 -
<PAGE>
<PAGE> 12

CONSOLIDATED STATEMENTS OF CASH FLOWS BETHLEHEM STEEL

Year Ended December 31
- -------------------------------------------------------------------------------
(Dollars in millions) 1996 1995 1994
- -------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net Income (Loss) $(308.8) $ 179.6 $ 80.5
Adjustments for items not affecting cash
from operating activities:
Estimated restructuring loss (Note C) 465.0 - -
Depreciation 268.7 284.0 261.1
Deferred income taxes (67.0) 35.0 13.0
Other - net 9.1 2.1 15.8
Working capital (excluding investing and
financing activities):
Receivables - operating 9.1 114.9 (22.7)
Receivables - sold (Note E) 54.0 30.0 -
Inventories (58.8) (79.0) (28.1)
Accounts payable 28.9 (5.6) 20.6
Employment costs and other (60.6) 35.8 45.8
Other - net 1.2 (10.5) (2.3)
-------- -------- ---------
CASH PROVIDED FROM OPERATING ACTIVITIES 340.8 586.3 383.7
-------- -------- ---------
INVESTING ACTIVITIES:
Capital expenditures (259.0) (266.8) (444.6)
Cash proceeds from asset sales and other 7.7 17.6 31.0
-------- -------- ---------
CASH USED FOR INVESTING ACTIVITIES (251.3) (249.2) (413.6)
-------- -------- ---------
FINANCING ACTIVITIES:
Pension financing (funding) (Note G):
Pension expense 192.0 210.0 203.1
Pension funding (170.0) (330.0) (472.3)
Long-term debt borrowings (Note E) 3.1 3.6 31.1
Long-term debt and capital lease payments (Note E) (91.8) (120.7) (99.9)
Cash dividends paid (Note K) (40.4) (40.4) (40.4)
Common Stock issued (Note K) - - 355.3
Other payments (25.8) (39.1) (16.4)
-------- -------- ---------
CASH USED FOR FINANCING ACTIVITIES (132.9) (316.6) (39.5)
-------- -------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (43.4) 20.5 (69.4)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 180.0 159.5 228.9
-------- -------- ---------
- END OF PERIOD $ 136.6 $ 180.0 $ 159.5
======== ======== =========
SUPPLEMENTAL CASH PAYMENT INFORMATION:
Interest, net of amount capitalized $ 52.8 $ 61.1 $ 41.6
Income taxes (Note D) $ 3.7 $ - $ .2
======== ======== =========

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

- 14 -

<PAGE>
<PAGE> 13

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Bethlehem Steel

A. ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of Bethlehem Steel Corporation and all majority-owned subsidiaries and
joint ventures.

CASH AND CASH EQUIVALENTS - Cash equivalents consist primarily of overnight
investments, certificates of deposit and other short-term, highly liquid
instruments generally with original maturities at the time of acquisition of
three months or less. Cash equivalents are stated at cost plus accrued
interest, which approximates market.

INVENTORIES - Inventories are valued at the lower of cost (principally FIFO)
or market. Contract work in progress is valued at cost less billings.
Estimated losses are recognized when first apparent and partial profits are
based on percentage of completion.

INVESTMENTS - Investments in associated enterprises accounted for by the
equity method were $50 million and $49 million at December 31, 1996 and 1995.
Associated enterprises are primarily 50% or less interests in steel sheet
coating and mining operations.

PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment is stated at
cost. Maintenance, repairs and renewals that neither materially add to the
value of the property nor appreciably prolong its life are charged to expense.
Gains or losses on dispositions of property, plant and equipment are recognized
in income. Interest is capitalized on significant construction projects and
totaled $7 million, $5 million and $31 million in 1996, 1995 and 1994.

Our property, plant and equipment by major classification is:

- ------------------------------------------------------------------------------
December 31
------------------------
(Dollars in millions) 1996 1995
- --------------------- ---- ----
Land (net of depletion) $ 26.9 $ 35.8
Buildings 633.1 689.3
Machinery and equipment:
Steel manufacturing 5,095.1 5,572.2
Other 407.4 610.4
--------- ---------
6,162.5 6,907.7
Accumulated depreciation (3,924.2) (4,329.5)
--------- ---------
2,238.3 2,578.2
Construction-in-progress 181.5 136.0
--------- ---------
Total $2,419.8 $2,714.2
========= =========

DEPRECIATION - Depreciation, which includes amortization of assets under
capital leases, is based upon the estimated useful lives of each asset group.
The estimated useful life is 18 years for most steel producing assets. Steel
assets, other than blast furnace linings, and most raw material producing
assets are depreciated on a straight-line basis adjusted by an activity factor.
This factor is based on the ratio of production and shipments for the current
year to the average production and shipments for the current and preceding four
years at each operating location. Annual depreciation after adjustment for
this activity factor is not less than 75% nor more than 125% of straight-line
depreciation. Depreciation after adjustment for this activity factor was $13
million, $16 million and $10 million more than straight-line in 1996, 1995 and
1994. Through December 31, 1996, $6 million more accumulated depreciation has
been recorded under this method than would have been recorded under
straight-line depreciation. The cost of blast furnace linings is depreciated
on a unit-of-production basis.

FOREIGN CURRENCY, INTEREST RATE AND COMMODITY PRICE RISK MANAGEMENT -
Periodically, we enter into financial contracts to manage risks. We use
foreign currency exchange contracts to manage the cost of firm purchase
commitments for capital equipment or other purchased goods and services
denominated in a foreign currency. We use interest rate swap agreements to fix
the interest rate on certain floating rate debt. We use commodity contracts to
fix the cost of a portion of our annual requirements for natural gas, zinc and
other metals. Generally, foreign currency and commodity contracts are for
periods of less than a year. The gains or losses on these contracts are
reflected in the cost of goods or services purchased. Net payments or receipts
on interest rate swaps are reflected in interest expense. Gains or losses on
swaps settled or terminated are deferred and amortized to interest expense over
the life of the related debt. Currency and commodity contracts outstanding
during the years and at year end were not material. Also, see Note E,
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS.

USE OF ESTIMATES - In preparing these financial statements, Bethlehem's
management makes estimates and uses assumptions that affect some of the
reported amounts and disclosures. See, for example, Note D, TAXES; Note F,
COMMITMENTS AND CONTINGENT LIABILITIES; Note G, POSTRETIREMENT PENSION
BENEFITS; and Note H, POSTRETIREMENT BENEFITS OTHER THAN PENSIONS. In the
future, actual amounts received or paid could differ from these estimates.

- 15 -
<PAGE>
<PAGE> 14

B. INDUSTRY SEGMENT INFORMATION

- ------------------------------------------------------------------------------
(Dollars in millions) 1996 1995 1994
- --------------------- ---- ---- ----
SALES:
Trade:
Basic Steel Operations $4,561.9 $4,768.6 $4,702.4
Steel Related Operations 117.1 98.9 117.0
Intersegment:
Basic Steel Operations 18.9 8.2 3.8
Steel Related Operations 23.3 19.4 19.4
Eliminations (42.2) (27.6) (23.2)
--------- --------- ---------
Total $4,679.0 $4,867.5 $4,819.4
========= ========= =========
ESTIMATED RESTRUCTURING LOSS:
Basic Steel Operations $ 255.0 - -
Steel Related Operations 210.0 - -
--------- --------- ---------
Total $ 465.0 $ - $ -
========= ========= =========
INCOME (LOSS) FROM OPERATIONS:
Basic Steel Operations $ (87.3) $ 310.7 $ 166.0
Steel Related Operations (241.1) (41.8) (32.4)
--------- --------- ---------
Total $ (328.4) $ 268.9 $ 133.6
========= ========= =========
SHIPMENTS (TONS IN THOUSANDS):
Basic Steel Operations 8,764 8,970 9,251
========= ========= =========
IDENTIFIABLE ASSETS:
Basic Steel Operations $3,862.3 $4,048.3 $4,106.0
Steel Related Operations 57.8 115.5 102.7
Corporate 1,189.8 1,536.5 1,573.7
--------- --------- ---------
Total $5,109.9 $5,700.3 $5,782.4
========= ========= =========
DEPRECIATION:
Basic Steel Operations $ 263.2 $ 277.3 $ 252.6
Steel Related Operations 5.5 6.7 8.5
--------- --------- ---------
Total $ 268.7 $ 284.0 $ 261.1
========= ========= =========
CAPITAL EXPENDITURES:
Basic Steel Operations $ 251.7 $ 253.4 $ 432.1
Steel Related Operations 7.3 13.4 12.5
--------- --------- ---------
Total $ 259.0 $ 266.8 $ 444.6
========= ========= =========

A general description of our segments and their products and services is
contained under the heading "Bethlehem's Segments" on page 7 of this Report.

Intersegment sales are generally at market prices. Corporate assets consist
primarily of cash and cash equivalents, investments, deferred income tax asset
and intangible asset-pensions.

C. ESTIMATED RESTRUCTURING LOSS
AND IMPAIRMENT OF LONG-LIVED ASSETS

During 1996, we announced a Restructuring Plan to improve financial
performance and stockholder value. We plan to exit our Bethlehem Structural,
BethForge, CENTEC, and BethShip Sparrows Point Shipyard businesses. We will
operate these units for a period of time while efforts are being made to sell
them, but we expect all units to be sold or shut down by the end of 1997. In
the third quarter of 1996, we sold and leased assets of our Eagle Nest coal
mine. Additionally, our Coke Division in Bethlehem, Pennsylvania was written
off as an impaired asset but will continue to operate. Accordingly, we
recorded restructuring losses in 1996 totaling $465 million ($382 million after
tax or $3.43 per share). These losses included $250 million for the net book
value of certain assets, $180 million for employee benefit related costs ($120
million for pensions, $30 million of postretirement benefits other than
pensions, and $30 million for severance and other benefits) and $35 million for
future contractual and other costs. We expect to reduce our work force by
2,250 employees as a result of our decision.

D. TAXES

Our benefit (provision) for income taxes consisted of:

(Dollars in millions) 1996 1995 1994
- --------------------- ---- ---- ----
Federal - deferred $ 67 $(35) $(13)
Federal, state and foreign - current - (2) (1)
---- ----- -----
Total benefit (provision) $ 67 $(37) $(14)
==== ===== =====

The benefit (provision) for income taxes differs from the amount computed by
applying the federal statutory rate to pre-tax income (loss). The computed
amounts and the items comprising the total differences follow:

(Dollars in millions) 1996 1995 1994
- --------------------- ---- ---- ----
PRE-TAX INCOME (LOSS):
United States $(392) $203 $87
Foreign 16 14 8
---- ----- -----
Total $(376) $217 $95
==== ===== =====

Computed amounts $132 $(76) $(33)
Valuation allowance (67) 37 13
Percentage depletion 5 5 8
Dividend received deduction 2 3 3
State and foreign taxes - - (1)
Other differences - net (5) (6) (4)
---- ----- -----
Total benefit (provision) $ 67 $(37) $(14)
==== ===== =====

- 16 -
<PAGE>
<PAGE> 15

The components of our net deferred income tax asset are as follows:

December 31
- ------------------------------------------------------------------
(Dollars in millions) 1996 1995
---- ----
TEMPORARY DIFFERENCES:
Employee benefits $ 835 $ 830
Depreciable assets (255) (300)
Other 115 115
------ ------
Total 695 645
Operating loss carryforward 650 600
------ ------
Deferred income tax asset 1,345 1,245
Valuation allowance (410) (360)
------ ------
Deferred income tax asset-net $ 935 $ 885
====== ======
Temporary differences represent the cumulative taxable or deductible amounts
recorded in our financial statements in different years than recognized in our
tax returns. Our employee benefits temporary difference includes amounts
expensed in our financial statements for pensions, health care, life insurance
and other postretirement benefits that become deductible in our tax return upon
payment or funding in qualified trusts. The depreciable assets temporary
difference represents principally tax depreciation in excess of financial
statement depreciation. Other temporary differences represent principally
various expenses accrued for financial reporting purposes that are not
deductible for tax reporting purposes until paid. At December 31, 1996, we had
regular tax net operating loss carryforwards of $1.8 billion and alternative
minimum tax loss carryforwards of $800 million. Regular federal tax net
operating loss carryforwards of $315 million expire in 1998, with the balance
expiring in varying amounts from 1999 through 2011.

FASB Statement No. 109, ACCOUNTING FOR INCOME TAXES, requires that we record a
valuation allowance when it is "more likely than not that some portion or all
of the deferred tax assets will not be realized." It further states, "forming a
conclusion that a valuation allowance is not needed is difficult when there is
negative evidence such as cumulative losses in recent years." The ultimate
realization of this deferred tax asset depends on our ability to generate
sufficient taxable income in the future. Bethlehem reported income before
restructuring charges and accounting changes in eight of the past ten years.
Bethlehem has undergone substantial restructuring and made substantial
strategic capital expenditures during the last several years. Also, we have
significant tax planning opportunities to manage taxable income including
selection of depreciation methods and timing of contributions to our pension
trust fund.

We believe that our deferred tax asset will be realized by future operating
results together with tax-planning opportunities. However, our significant net
operating loss carryforwards and future tax deductions from temporary
differences make it appropriate to record a valuation allowance. Accordingly,
we have provided a valuation allowance equal to 50% of the total deferred tax
asset related to our operating loss carryforward and our temporary differences
exclusive of postretirement benefits other than pensions. If we have a tax
loss in any year in which our tax deduction for postretirement benefits other
than pensions exceeds our financial statement expense, the tax law currently
provides for a 15-year carryforward of that loss against future taxable income.
We, therefore, have ample time to realize these future tax benefits. We
believe, therefore, a valuation allowance is not appropriate for the deferred
tax asset related to our temporary difference for postretirement benefits other
than pensions.

If we are unable to generate sufficient taxable income in the future through
operating results or tax-planning opportunities, we will be required to
increase our valuation allowance through a charge to expense (reducing our
stockholders' equity). On the other hand, if we achieve sufficient
profitability to use all of our deferred income tax asset, we will reduce the
valuation allowance through a decrease to expense (increasing our stockholders'
equity).

In addition to income taxes, we incurred costs for certain other taxes as
follows:

(Dollars in millions) 1996 1995 1994
- ---------------------------------------------------------------------------
Employment taxes $ 85.1 $ 95.2 $ 90.1
Property taxes 25.1 24.6 24.7
State and foreign taxes 11.0 11.2 9.1
Federal excise tax on coal 2.0 2.6 3.1
------ ------ ------
Total other taxes $123.2 $133.6 $127.0
====== ====== ======
- 17 -
<PAGE>
<PAGE> 16

E. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS

December 31
- ---------------------------------------------------------------
(Dollars in millions) 1996 1995
- --------------------- ---- ----
5.69%-5.99% Galvanizing lines financing $149.7 $187.1
NOTES AND LOANS:
10 3/8% Senior Notes, Due 2003 105.0 105.0
2%-9.64%, Due 1997-2009 14.6 25.5
DEBENTURES:
6 7/8%, Due 1999 11.8 15.7
8 3/8%, Due 2001 41.6 41.6
8.45%, Due 2005 90.7 90.7
POLLUTION CONTROL AND
INDUSTRIAL REVENUE BONDS:
7 1/2%-8%, Due 2015-2024 128.9 128.9
Capital lease obligations 5.6 45.2
Unamortized debt discount (1.2) (1.4)
------- -------
Total 546.7 638.3
Amounts due within one year (49.3) (91.5)
------- -------
Long-term $497.4 $546.8
======= =======

Maturities and sinking fund requirements for the next five years are $49
million in 1997, $46 million in 1998, $45 million in 1999, $48 million in 2000
and $50 million in 2001.

The galvanizing lines financing is collateralized by such equipment at our
Sparrows Point and Burns Harbor Divisions and will be repaid in equal
semiannual installments through 2000.

The 10 3/8% Senior Notes are senior in right of payment to all existing and
future subordinated indebtedness of Bethlehem. As unsecured senior
obligations, the Notes will effectively be subordinate to secured senior
indebtedness of Bethlehem. These Notes contain covenants that impose certain
limitations on Bethlehem's ability to incur or repay debt, to pay dividends
and make other distributions on or redeem capital stock, or to sell, merge,
transfer or encumber assets. See Note K, STOCKHOLDERS' EQUITY.

We have a credit arrangement, which expires on September 11, 2000, with a
group of 13 domestic and international banks for $500 million, $150 million of
which can be used for letters of credit. The arrangement consists of a $300
million receivables sale/purchase agreement through a wholly-owned special
purpose subsidiary and a $200 million secured credit agreement.

As of December 31, 1996, we had sold to the banks an ownership interest in
trade receivables of $190 million in exchange for $84 million in cash, $73
million in letters of credit and required reserves of $33 million. The
receivables were sold at a discount, based on defined short-term, investment
grade, interest rates and a fixed fee per annum for the letters of credit. The
banks are required to pay us cash for the face amount of the letters of credit
upon expiration. We pay a .1875% per annum fee on the daily available
commitment.

Receivables from banks are for cash and required reserves that will be
returned to us upon expiration of the letters of credit and liquidation of
receivable ownership. Supplemental information on the receivable balances at
December 31, 1996 and 1995 follows:

December 31
-----------
(Dollars in millions) 1996 1995
- --------------------- ---- ----
Trade $219.2 $286.5
Banks 105.6 105.9
Other 7.6 1.7
Allowances (20.8) (19.5)
------- -------
Total receivables - net $311.6 $374.6
======= =======

Under the secured credit agreement, inventories are pledged as collateral for
any borrowings and letters of credit. Borrowings under the agreement are
subject to collateral coverage requirements and incur interest based on defined
short-term interest rates. No borrowings were outstanding under this agreement
at December 31, 1996. We pay a .5% per annum fee on the daily available
commitment.

Our secured credit agreement and galvanizing lines financing agreements
contain restrictive covenants that require Bethlehem to maintain a minimum
adjusted consolidated tangible net worth. At December 31, 1996, our adjusted
tangible net worth as defined by these agreements exceeded the more restrictive
of these requirements by about $700 million.

At December 31, 1996, outstanding interest rate swap agreements with notional
amounts totaling $74 million effectively fix the interest rate on our floating
rate financings at 5.75% to 8.70%. These interest rate swap agreements expire
in 2000 and 2001. At December 31, 1996 and 1995, the estimated fair value of
our debt and interest rate swap agreements was not materially different from
the recorded amounts.

Future minimum payments under noncancellable operating leases at December 31,
1996 were $18 million in 1997, $14 million in 1998, $10 million in 1999, $8
million in 2000, $5 million in 2001 and $19 million thereafter. Total rental
expense under operating leases was $40 million, $42 million and $38 million in
1996, 1995 and 1994.

- 18 -
<PAGE>
<PAGE> 17

F. COMMITMENTS AND CONTINGENT LIABILITIES

We own a portion of an iron ore enterprise and are committed to purchase
certain ore produced. We received 1.7 million net tons of such iron ore in
1996, 2.2 million tons in 1995, and 2.7 million tons in 1994 at a net cost of
$39 million, $58 million and $82 million.

At December 31, 1996, we had outstanding approximately $41 million of
purchase orders for additions and improvements to our properties.

We, as well as other steel companies, are subject to various environmental
laws and regulations imposed by federal, state and local governments. Because
of the continuing evolution of the specific regulatory requirements and
available technology to comply with the requirements, we cannot reasonably
estimate the future capital expenditures and operating costs required to comply
with these laws and regulations. Although it is possible that our future
operating results in a particular quarterly or annual period could be
materially affected by the future costs of environmental compliance, we believe
that such costs will not have a material adverse effect on our consolidated
financial position or on our competitive position with respect to other
integrated domestic steelmakers subject to the same environmental requirements.

In the ordinary course of our business, we are involved in various pending or
threatened legal actions. In our opinion, adequate reserves have been recorded
for losses that are likely to result from these proceedings. If such reserves
prove to be inadequate, however, we would incur a charge to earnings that could
be material to the results of operations in a particular future quarterly or
annual period. We believe that any ultimate liability arising from these
actions will not have a material adverse effect on our consolidated financial
position.

G. POSTRETIREMENT PENSION BENEFITS

We have noncontributory defined benefit pension plans that provide benefits
for substantially all our employees. Defined benefits are based on years of
service and the five highest consecutive years of pensionable earnings during
the last ten years prior to retirement or a minimum amount based on years of
service. We fund annually the amount required under ERISA minimum funding
standards plus additional amounts as appropriate.

In 1996, we changed the measurement date for our pension obligation to
November 30 to facilitate timely preparation and analysis of plans and results.
The following sets forth the plans' actuarial assumptions used and funded status
at year end together with amounts recognized in our consolidated balance
sheets:

Nov. 30 Dec. 31
------- -------
(Dollars in millions) 1996 1995
- --------------------- ---- ----
ASSUMPTIONS:
Discount rate 7.75% 7.25%
Average rate of compensation increase 3.10% 3.10%
ACTUARIAL PRESENT VALUE
OF BENEFIT OBLIGATIONS:
Vested benefit obligation $4,910 $4,895
Accumulated benefit obligation 5,075 5,065
Projected benefit obligation 5,325 5,365
PLAN ASSETS AT FAIR VALUE:
Fixed income securities 1,656 1,814
Equity securities 2,381 1,943
Cash and marketable securities 178 193
------ ------
Total plan assets $4,215 $3,950
====== ======
Projected benefit obligation
in excess of plan assets 1,110 1,415
Unrecognized net loss (36) (382)
Remaining unrecognized
net obligation resulting from
adoption of Statement No. 87 (173) (219)
Unrecognized prior service cost
from plan amendments (201) (244)
Adjustment required to
recognize minimum liability
- Intangible asset 160 463
- Additional paid-in capital
(pre-tax) (Note K) - 82
December accruals/contributions - net 10 -
------ ------
Pension liability at December 31 $ 870 $1,115
====== ======
- 19 -
<PAGE> 18

The assumptions used in each year and the components of our annual pension
cost follow:

(Dollars in millions) 1996 1995 1994
- --------------------- ---- ---- ----
ASSUMPTIONS:
Return on plan assets 8.75% 10.00% 8.75%
Discount rate 7.25% 9.00% 7.50%
PENSION COST:
Service cost - benefits
earned during the period $ 59 $ 45 $ 52
Interest on projected
benefit obligation 372 402 375
Return on plan assets
- actual (616) (849) 60
- deferred 287 532 (365)
Amortization of
initial net obligation 36 36 37
Amortization of unrecognized
prior service cost
from plan amendments 32 32 33
----- ----- -----
Total 170 198 192
PBGC premiums,
administration fees, etc. 22 12 11
----- ----- -----
Total cost $ 192 $ 210 $ 203
===== ===== =====

H. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

In addition to providing pension benefits, we currently provide health care
and life insurance benefits for most retirees, and their dependents.

In 1996, we changed the measurement date for our other postretirement
obligation to November 30 to facilitate timely preparation and analysis of
plans and results. Information regarding our plans' actuarial assumptions,
funded status and liability follows:

Nov. 30 Dec. 31
------- -------
(Dollars in millions) 1996 1995
- --------------------- ---- ----
ASSUMPTIONS:
Discount rate 7.75% 7.25%
Trend rate
- beginning next year 7.00% 8.00%
- ending year 2000 4.60% 4.60%
ACCUMULATED POSTRETIREMENT
BENEFIT OBLIGATION:
Retirees $1,705 $1,605
Fully eligible active plan participants 145 170
Other active plan participants 150 230
------- -------
Total 2,000 2,005
PLAN ASSETS AT FAIR VALUE:
Fixed income securities 130 140
------- -------
Accumulated postretirement benefit
obligation in excess of plan assets 1,870 1,865
Unrecognized net loss, etc. (275) (300)
------- -------
Total obligation at December 31 1,595 1,565
Current portion (150) (150)
------- -------
Long-term obligation $1,445 $1,415
======= =======

- 20 -

<PAGE>
<PAGE> 19

The assumptions used in each year and the components of our postretirement
benefit cost follow:

(Dollars in millions) 1996 1995 1994
- --------------------- ---- ---- ----
ASSUMPTIONS:
Return on plan assets 8.75% 10.00% 8.75%
Discount rate 7.25% 9.00% 7.50%
Trend rate
- beginning current year 8.00% 9.00% 9.00%
- ending year 2000 4.60% 4.60% 4.60%
POSTRETIREMENT BENEFIT COST:
Service cost $ 10 $ 7 $ 11
Interest on accumulated
postretirement benefit obligation 140 148 139
Amortization of
unrecognized net loss 8 - -
Return on plan assets
- actual (7) (24) 5
- deferred (5) 12 (18)
----- ----- -----
Total cost $146 $143 $137
===== ===== =====

A one percentage point increase or decrease in the assumed health care trend
rate would increase or decrease the accumulated postretirement benefit
obligation by about $145 million and 1996 expense by about $10 million.

I. STOCKHOLDER RIGHTS PLAN

We have a Stockholder Rights Plan under which holders of Common Stock have
rights to purchase a new series of Preference Stock. When exercisable, each
right entitles the holder to purchase one one-hundredth of a share of Series A
Junior Participating Preference Stock at an exercise price of $80 per unit.
The rights will become exercisable only if a person or group acquires 15% or
more of Common Stock or begins a tender offer or exchange offer that would
result in that person or group beneficially owning 20% or more of Common Stock.
Subsequently, upon the occurrence of certain events, holders of rights will be
entitled to purchase Common Stock of Bethlehem or a third-party acquiror worth
twice the right's exercise price. Until the rights become exercisable, we will
be able to redeem them at one cent per right. The rights expire on October 18,
1998.

J. STOCK OPTIONS

At December 31, 1996, we had options outstanding under Plans approved by our
stockholders in 1988 and 1994. New options can be granted only under the 1994
Plan, which reserved 4,000,000 shares of Common Stock for such use. At
December 31, 1996, options on 1,605,500 shares of Common Stock were available
for granting. The option price is the fair market value of our Common Stock on
the date the option is granted. Options issued under the 1994 Plan become
exercisable one to four years after the date granted and expire ten years from
the date granted. Exercisable options may be surrendered for the difference
between the option price and the quoted market price of the Common Stock on the
date of surrender. Depending on the circumstances, option holders receive
either Common Stock, cash or a combination of Common Stock and cash. Because
of the surrender component in our options, related expense is recognized
periodically based on the difference between the option price and current
quoted market prices. Compensation expense recognized and weighted average
fair value for the options granted in 1996, 1995 and 1994 were not material.

Changes in options outstanding during 1996, 1995 and 1994 under the Plans
were as follows:

Weighted
Number of Average
Options Price
--------- --------
Balance December 31, 1993 2,879,915 $18
Granted 561,900 20
Terminated or cancelled (256,264) 25
Surrendered or exercised (685,303) 17
----------
Balance December 31, 1994 2,500,248 19
Granted 635,100 15
Terminated or cancelled (111,373) 18
Surrendered or exercised (6,900) 14
----------
Balance December 31, 1995 3,017,075 18
Granted 620,600 14
Terminated or cancelled (144,025) 19
Surrendered or exercised (2,000) 8
----------
BALANCE DECEMBER 31, 1996 3,491,650 17
========== ===

Options exercisable at the end of 1996, 1995 and 1994 were 1,976,300,
1,848,375 and 1,689,298.
- 21 -

<PAGE>
<PAGE> 20

Information on our stock options at December 31, 1996 follows:

Range of Number of Average Average Number of Average
Exercise Options Exercise Contractual Options Exercise
Prices Outstanding Price Life Exercisable Price
- --------- ----------- -------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
$13-14 1/2 1,779,400 $14 7 Years 531,200 $14
17 5/8-19 675,150 19 5 Years 675,150 19
20 3/8-21 3/4 1,037,100 21 4 Years 769,950 21
--------- ---------
Total 3,491,650 17 6 Years 1,976,300 18
========= =========

K. STOCKHOLDERS' EQUITY

</TABLE>
<TABLE>
<CAPTION>
(Shares in thousands Preferred Stock Preference Stock Common Stock Common Stock Additional
and dollars in millions, $1.00 Par Value $1.00 Par Value $1.00 Par Value Held in Treasury Paid-in Accumulated
except per share data) Shares Amount Shares Amount Shares Amount Shares Amount Capital Deficit
------ ------ ------ ------ ------ ------ ------ ------ -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1993 11,623 $11.6 2,811 $2.8 93,413 $ 93.4 2,004 $59.7 $1,588.4 $(939.9)
Net income for year 80.5
Minimum pension liability
adjustment (Note G) 50.0
Dividends on Preferred Stock (40.4)
Preference Stock:
Stock dividend 135 .1 (.1)
Issued 134 .1 2.6
Converted (461) (.4) 461 .4
Common Stock Issued 18,008 18.1 (7) (.2) 348.1
------ ---- ------ ----- ------- ------ ------ ------ -------- --------
BALANCE DECEMBER 31, 1994 11,623 11.6 2,619 2.6 111,882 111.9 1,997 59.5 1,948.6 (859.4)
Net income for year 179.6
Minimum pension liability
adjustment (Note G) (67.0)
Dividends on Preferred Stock (40.4)
Preference Stock:
Stock dividend 133 .1 (.1)
Issued 41 .1 .7
Converted (205) (.2) 205 .2
Common Stock Issued 613 .6 (5) (.1) 8.8
------ ---- ------ ----- ------- ------ ------ ------ -------- --------
BALANCE DECEMBER 31, 1995 11,623 11.6 2,588 2.6 112,700 112.7 1,992 59.4 1,850.6 (679.8)
Net loss for year (308.8)
Minimum pension liability
adjustment (Note G) 67.0
Dividends on Preferred Stock (40.4)
Preference Stock:
Stock dividend 129 .1 (.1)
Issued 62 .1 .8
Converted (261) (.3) 261 .3
Common Stock Issued 890 .9 26 .3 8.4
------ ---- ------ ----- ------- ------ ------ ------ -------- --------
BALANCE DECEMBER 31, 1996 11,623 $11.6 2,518 $2.5 113,851 $113.9 2,018 $59.7 $1,886.3 $(988.6)
====== ===== ====== ==== ======= ====== ===== ====== ======== ========

- 22 -
</TABLE>
<PAGE>
<PAGE> 21

Preferred and Preference Stock issued and outstanding:

December 31
--------------------
(Shares in thousands) 1996 1995
- --------------------- ---- ----
PREFERRED STOCK - AUTHORIZED 20,000 SHARES
$5.00 Cumulative Convertible Preferred Stock 2,500 2,500
$2.50 Cumulative Convertible Preferred Stock 4,000 4,000
$3.50 Cumulative Convertible Preferred Stock 5,123 5,123

PREFERENCE STOCK - AUTHORIZED 20,000 SHARES
Series "A" 5% Cumulative Convertible
Preference Stock 1,818 1,920
Series "B" 5% Cumulative Convertible
Preference Stock 700 668

Each share of $3.50 Cumulative Convertible Preferred Stock issued in 1993 is
convertible into 2.39 shares of Common Stock, subject to certain events. Each
share of the $5.00 Cumulative Convertible Preferred Stock and the $2.50
Cumulative Convertible Preferred Stock issued in 1983 is convertible into 1.77
and .84 shares of Common Stock, subject to certain events.

In accordance with our labor agreements, we issue Preference Stock to a
trustee under the Employee Investment Program. Series "A" and Series "B" of
Preference Stock have a cumulative dividend of 5% per annum payable at our
option in cash, Common Stock or additional shares of Preference Stock. Each
share of Preference Stock is entitled to vote with Common Stock on all matters
and is convertible into one share of Common Stock.

Under the covenants of our 10-3/8% Senior Notes, we can pay future dividends
on our common stock, among certain other restrictions, only if such cumulative
dividends do not exceed the aggregate net cash proceeds from the sale of
capital stock plus 50% of our consolidated net income and minus 100% of our
consolidated net loss since the second quarter of 1993, excluding certain
restructuring charges and other adjustments. The amount available at December
31, 1996 under this covenant was about $450 million.

L. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
(Dollars in millions,
except per share data) 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $1,118.5 $1,236.9 $1,174.6 $1,149.0 $1,240.7 $1,250.2 $1,224.7 $1,151.9
Cost of sales 1,009.9 1,092.9 1,043.3 1,022.1 1,068.9 1,061.6 1,069.6 1,002.7
Net income (loss) 0.1 26.6 11.0 (346.5) 52.5 60.3 34.4 32.4
Net income (loss) per Common share $ (0.09) $ 0.14 $ - $ (3.19) $ .38 $ .45 $ .22 $ .20
- ------------------------------------------------------------------------------------------------------------------------

</TABLE>

- 23 -

<PAGE>
<PAGE> 22

REPORT OF INDEPENDENT AUDITORS

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
BETHLEHEM STEEL CORPORATION

We have audited the accompanying consolidated balance sheets of Bethlehem Steel
Corporation and its subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income and of cash flows for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements audited by us present
fairly, in all material respects, the financial position of Bethlehem Steel
Corporation and its subsidiaries at December 31, 1996 and 1995, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted
accounting principles.

/s/ Price Waterhouse LLP

1177 Avenue of the Americas
New York, NY 10036
January 29, 1997

- 24 -

FIVE-YEAR FINANCIAL AND OPERATING SUMMARIES BETHLEHEM STEEL

- ------------------------------------------------------------------------------------------------------------------
(Dollars in millions, except per share data) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EARNINGS STATISTICS
Net sales $ 4,679.0 $ 4,867.5 $ 4,819.4 $ 4,323.4 $ 4,007.9
------------ ------------ ------------ ------------ ------------
Costs and expenses:
Employment costs 1,555.0 1,683.5 1,633.0 1,547.1 1,664.0
Materials and services 2,680.6 2,592.7 2,754.8 2,404.2 2,242.0
Depreciation 268.7 284.0 261.1 277.5 261.7
Taxes (other than employment and income taxes) 38.1 38.4 36.9 39.8 43.2
Estimated restructuring loss 465.0 - - 350.0 -
------------ ------------ ------------ ------------ ------------
Total costs and expenses 5,007.4 4,598.6 4,685.8 4,618.6 4,210.9
------------ ------------ ------------ ------------ ------------
Income (loss) from operations (328.4) 268.9 133.6 (295.2) (203.0)
Financing income (expense):
Interest and other financing costs (53.3) (60.0) (46.2) (63.2) (57.2)
Interest income 5.9 7.7 7.1 7.1 4.9
Benefit (provision) for income taxes 67.0 (37.0) (14.0) 85.0 45.0
Cumulative effect of changes in accounting - - - - (340.0)
------------ ------------ ------------ ------------ ------------
Net income (loss) (308.8) 179.6 80.5 (266.3) (550.3)
Dividends on Preferred and Preference Stock 41.9 42.4 43.1 39.8 24.3
------------ ------------ ------------ ------------ ------------
Net income (loss) applicable to Common Stock $ (350.7) $ 137.2 $ 37.4 $ (306.1) $ (574.6)
------------ ------------ ------------ ------------ ------------
Net income (loss) per Common share $ (3.15) $ 1.24 $ .35 $ (3.37) $ (7.01)
------------ ------------ ------------ ------------ ------------
BALANCE SHEET STATISTICS
Cash and cash equivalents $ 136.6 $ 180.0 $ 159.5 $ 228.9 $ 208.2
Receivables, inventories and other current assets 1,351.8 1,345.8 1,409.6 1,362.2 1,261.3
Current liabilities (957.4) (1,049.6) (1,011.2) (914.2) (893.2)
------------ ------------ ------------ ------------ ------------

Working capital $ 531.0 $ 476.2 $ 557.9 $ 676.9 $ 576.3
Current ratio 1.6 1.5 1.6 1.7 1.6
Property, plant and equipment - net $ 2,419.8 $ 2,714.2 $ 2,759.3 $ 2,634.3 $ 2,804.5
Total assets 5,109.9 5,700.3 5,782.4 5,876.7 5,493.0
Total debt and capital lease obligations 546.7 638.3 757.3 813.8 796.0
Stockholders' equity 966.0 1,238.3 1,155.8 696.6 789.4
Total debt as a percent of invested capital 36% 34% 40% 54% 50%
------------ ------------ ------------ ------------ ------------
OTHER STATISTICS
Capital expenditures $ 259.0 $ 266.8 $ 444.6 $ 327.1 $ 328.7
Raw steel production capability
(net tons in thousands) 10,500 11,500 11,500 11,500 16,000
Raw steel production (net tons in thousands) 9,447 10,449 9,817 10,303 10,544
Steel products shipped (net tons in thousands) 8,782 8,986 9,262 9,016 9,062
Pensioners receiving benefits at year end 70,100 71,000 71,700 70,900 70,500
Average number of employees receiving pay 17,800 19,500 19,900 20,700 24,900
Common Stock outstanding at year end
(shares in thousands) 111,834 110,708 109,886 91,409 90,509
Common stockholders at year end 37,000 39,000 41,000 43,000 46,000

- ------------------------------------------------------------------------------------------------------------------
</TABLE>

- 26 -
<PAGE>

<ARTICLE> 5
<MULTIPLIER> 1,000,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 137
<SECURITIES> 0
<RECEIVABLES> 333
<ALLOWANCES> 21
<INVENTORY> 1017
<CURRENT-ASSETS> 23
<PP&E> 6344
<DEPRECIATION> 3924
<TOTAL-ASSETS> 5110
<CURRENT-LIABILITIES> 957
<BONDS> 497
0
14
<COMMON> 114
<OTHER-SE> 838
<TOTAL-LIABILITY-AND-EQUITY> 5110
<SALES> 4679
<TOTAL-REVENUES> 4679
<CGS> 4168
<TOTAL-COSTS> 5007
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 53
<INCOME-PRETAX> (376)
<INCOME-TAX> (67)
<INCOME-CONTINUING> (309)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (351)
<EPS-PRIMARY> (3.15)
<EPS-DILUTED> (3.15)

</TABLE>