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Bethlehem Steel Corporation Business Information, Profile, and History

1170 Eighth Avenue
Bethlehem, Pennsylvania 18016-7699

History of Bethlehem Steel Corporation

Bethlehem Steel Corporation is the second largest steel producer in the United States, with control of supply sources, production, and distribution, from raw materials to a wide variety of steel mill products. Also a long-time repairer of ships and offshore drilling platform businesses and manufacturer of forgings and castings, Bethlehem had curtailed many of these activities during the late 1990s. The company is the nation's number one supplier of steel to the domestic construction industry, as well as a major supplier for railroads and automobile companies. It manufactures almost ten million tons of steel annually, a tenth of the nation's supply.

Early Years of Rapid Growth

The company began operations in 1857 as the Saucona Iron Company in South Bethlehem, Pennsylvania. Its primary business was the rolling of iron railroad rails. In 1899, after broadening the product line to include heavy forging for electric generators, tool steels for metal cutting, and armor plate for U.S. Navy ships, the company's name was changed to the Bethlehem Steel Company.

Bethlehem Steel was incorporated in December 1904 by Charles M. Schwab, a former Andrew Carnegie disciple and first president of United States Steel Corporation (U.S. Steel). Schwab left U.S. Steel over difficulties that he felt inhibited his freedom to run that company properly. At its incorporation the company included Bethlehem Steel, a Cuban iron ore mine, and several shipbuilding concerns in California and Delaware. Schwab became president and chairman of the board.

Soon after the formation of the company, Schwab hired an electrical engineer, Eugene G. Grace, whose management skills allowed the more entrepreneurial Schwab the freedom he needed to plan the growth of the company. Together, the two men became the team that built Bethlehem from a small producer with an ingot capacity of less that one percent of the national total in 1905 to the world's second-largest producer in fewer than 35 years.

In 1908 the two men staked the company's future on a new type of mill invented by Henry Grey. It was capable of rolling a wide flange structural steel section that was stronger, lighter, and less expensive than the fabricated steel sections that were being used at the time. The gamble paid off for Bethlehem. The wide-flange section made it possible to build skyscrapers and modern cities.

In the years preceding World War I, the company acquired an interest in a Chilean iron ore mine with ore of a higher quality than available from the U.S. upper Great Lakes region. As a result of the acquisition, the company built a fleet of ore carriers and entered the ocean transportation business. With the outbreak of the war, Bethlehem became a business of international scope, building warships for Great Britain at the company's shipyards. Bethlehem also filled orders for guns and munitions, armor, and ordnance placed by the British, French, and Russian governments. In the process of contributing to the Allied cause in Europe, Bethlehem created a financial base that would help in expanding the company's steelmaking facilities.

Grace was named president of the company in 1916, with Schwab staying on as chairman of the board. In that same year, bolstered by wartime profits, Bethlehem acquired American Iron and Steel Manufacturing Company, Pennsylvania Steel Company, and Maryland Steel Company. In the years following World War I, the company continued its growth with the acquisition of Lackawanna Steel & Ordnance Company, Midvale Steel and Ordnance Company, and Cambria Steel Company. In the years preceding the Great Depression, the company boosted its steelmaking capacity to 8.5 million tons and employed more than 60,000 people.

Bethlehem's growth was tied to an incentive program from which its upper management profited handsomely. In 1929 Grace received a bonus in excess of $1.6 million, or about 3.3 percent of earnings. The policy of paying out such large awards to its executives eventually caused problems. In early 1931 a group of stockholders filed suit against Schwab and 12 other officers of the company, charging that the bonus program constituted a misuse of company funds. The suit asked that a total of $36 million in bonuses distributed since 1911 be returned to the company's coffers. The action resulted in the formation of the Protective Committee for Stockholders of Bethlehem Steel Corporation, a watchdog group that sought the elimination of the bonus program in its existing form. Though no funds were returned to the company, the suit was settled in July 1931, about six months after it was filed. The settlement resulted in a new policy that included the publication of executive bonuses in the company's annual reports and a revised executive salary and bonus package. In subsequent years labor unions used the bonus issue in their demands for higher compensation and benefits for the rank-and-file steelworkers.

Depression Struggles and Wartime Demand

The 1920s were years of growth for Bethlehem. In the early years of the Great Depression, the company weathered the economic storm and continued to improve its production plants and introduce new products. The Depression caught up with Bethlehem in September 1931 when the company posted a quarterly loss for the first time since 1909. In the face of a stagnant economy and an eroding demand for steel products, the company had overexpanded and was forced to shut down many of its facilities, including a newly constructed, jumbo-sized open hearth at the Sparrows Point, Maryland, plant. Bethlehem, along with other major steel producers, struggled through the Depression. Help arrived with President Franklin D. Roosevelt's New Deal and the National Industrial Recovery Act of 1933. The government suspended antitrust laws, and the steel industry established codes approved by the National Recovery Administration providing for labor reform, workers rights to organize, minimum wages, and maximum work hours. In December 1933 Bethlehem reported a modest net profit in excess of $600,000 after nine quarters totaling more than $30 million in losses.

During the 1930s Bethlehem acquired steelmaking plants in Los Angeles and San Francisco, California, and Seattle, Washington. McClintic-Marshall, a large fabricator and builder of bridges, was also purchased, enabling Bethlehem to participate in the construction of San Francisco's Golden Gate Bridge. Through this subsidiary, Bethlehem was also involved in the construction of other large bridges and notable buildings, including Rockefeller Plaza and the Waldorf Astoria Hotel in New York City; the Chicago Merchandise Mart; and the U.S. Supreme Court Building in Washington, D.C.

During the mid-1930s Bethlehem went through an expensive retooling. With the largest capital expenditure since before the Depression, the company spent approximately $20 million on the construction of a continuous strip and tin-plate mill at Sparrows Point. A primary reason for the new project was beer. After six years of research and development, the American Can Company had produced a coated tin can suitable for packaging beer, and the tin-plate market exploded.

Schwab died in September 1939, leaving Bethlehem under the tight controls of Grace. With U.S. involvement in World War II imminent, Grace geared the company's entire capacity toward war production. Furnaces, shops, and mills worked around the clock producing armor plate for ships and structural steel for defense plants, munitions, and aircraft engines. Between 1941 and 1944 Grace pushed production at Bethlehem to 101 percent of usual capacity. During the war, the company's 15 shipyards produced more than 1,100 ships, including aircraft carriers, destroyers, heavy cruisers, and cargo ships. In 1943 alone the company built 380 vessels.

During World War II, from 1940 to 1945, Bethlehem produced more than 73 million tons of steel. This total represented almost one-third of the armor plate and gun forgings used by the United States in the war. Prior to the U.S. entrance into the war, the company's gross sales were $135 million. In 1945 sales topped $1.33 billion, with more than 300,000 employees. Bethlehem became a global giant in the steel industry. In December 1945, six years after the death of Schwab, Grace was elected the company's chairman. Arthur B. Homer, director of the Bethlehem's wartime ship building program, became president.

Expansion through Early 1970s

With the war's end, the global demand for steel was even greater than during the conflict. Consumer demands for new cars and household goods, along with the massive amounts of structural steel needed to rebuild war-torn economies, resulted in further expansion. Bethlehem built new furnaces and mills at many of its plants and by the late 1950s was capable of producing 23 million tons of steel annually. The nature of the company's shipbuilding business began to change as Bethlehem produced larger, longer cargo ships. Forerunners to supertankers, the new ships produced by Bethlehem cost less per unit, carried more tonnage, and were able to cruise at speeds 30 percent faster than their prewar predecessors. More iron ore was delivered in less time. In 1957, Bethlehem's peak postwar production year, the company made more than 19 million tons of steel and earned $190 million on sales of $2.6 billion. At the close of the decade, Bethlehem's full-time postwar employee roster stood at 165,000.

In 1960 the United States imported more steel than it exported for the first time in the U.S. steel industry's history. This situation was a harbinger of things to come. The deterioration of Bethlehem's enterprises, as well as those of other U.S. steel manufacturers, can be traced to several major factors. High wages, foreign competition, and the enormous costs of environmental clean-up of the lands and waters around the company's many production plants cut deeply into the company's profits and cash reserves. In addition, decades of unlimited growth, expansion, and profits had made Bethlehem's leadership complacent. Antitrust and price fixing suits against several U.S. steel giants including Bethlehem followed. Throughout the 1960s and 1970s, company leaders believed that procedures could continue as they had been for over a half century without change in processes or structure.

Bethlehem's leaders did not engage in product research, innovation, or reorganization. The company, like its competitors, relied on continual price increases to protect profits. These policies allowed opportunities for entrance into the U.S. market by Japanese and other foreign steelmakers, who rebuilt their steel industries after World War II and captured the competitive edge worldwide. This new competition, a shrinking domestic market, and the expansion of steel substitutes such as aluminum and plastics, created a still-existent threat to Bethlehem's future. Following Grace's death in 1960, Homer, the company's new chairman, committed the company to a $3 billion modernization and expansion program. The old mentality still prevailed as the company pushed to produce more tonnage. Bigger still seemed to be better.

Two important factors permitted Bethlehem to sustain its business and expansion through the early 1970s. First, pressure was put on the U.S. government to limit the amount of foreign steel allowed into the country. Early in 1969 the State Department persuaded Japanese and European steel producers voluntarily to cut their imports to the United States by 25 percent. The second factor that helped sustain Bethlehem during the 1970s was the Vietnam War, which stimulated production in all sectors of the U.S. economy. Bethlehem again pushed for more production and higher steel prices. After the price of steel rose steeply in 1969, the administration of President Richard Nixon instituted price controls on steel in August 1971.

The company faced growing competition from mini-mills. These small operations challenged the premise that the steel business had to be huge and integrated to survive. Using scrap metal melted down in electric furnaces, the small operations were capable of producing simple iron and steel products at a much lower cost than the large steelmakers. In light of increased competition, the company chose to grow with the construction of a huge blast furnace at Sparrows Point. Named Big L, it was built at a cost of $275 million. The furnace began operations three years after the end of the early-1970s boom years and one year after the company had shown a net operating loss of over $448 million. Bethlehem Steel was in trouble.

Major Reorganization in the 1980s

As the 1970s ended, drastic action was needed to save the company. In 1980 Donald Trautlein, Bethlehem's controller, was named chairman, and he began to cut away at the company's cost of doing business. The company possessed outmoded production plants, steep labor costs, rising foreign and domestic competition, and eroding profits at a time when the steel industry was experiencing the worst downturn in more than 50 years. Trautlein had other problems as well. He knew little about the business of steelmaking; he felt that most of Bethlehem's problems were due to external forces beyond the company's control. Trautlein chose first to diversify, then to remain exclusively in the steel business, and then began a diversification that was not completed.

The company's new chairman began cutting costs at the top. Salaries were cut by 20 percent over a four-year period. Lump-sum retirement packages were offered to employees over the age of 55; vacations were cut back; and by the fall of 1982, 13 upper echelon executives had taken early retirement. These measures were accompanied by mass firings and layoffs. Further cutbacks eliminated such perquisites as company limousines and drivers, security forces for executives' homes, and a fleet of jet airplanes. By 1984, the number of Bethlehem employees had shrunk by almost 50 percent. Trautlein replaced some of the executive-level positions made vacant with professional managers who had little or no experience in the steel business; many positions were left unfilled.

The company also began the liquidation of some subsidiaries. During the 1980s, 11 of the company's operations were sold. In that same period, Bethlehem began to consolidate many of its steelmaking operations by closing marginal facilities and modernizing aging plants. The company closed its West Coast steel plants and scaled back shipbuilding operations, and in 1983 steelmaking was discontinued at the Lackawanna plant.

Between 1982 and 1985 the company posted losses of $1.9 billion. Under pressure and criticism, Trautlein resigned in 1986. He was replaced by the company's president, Walter F. Williams, who had more than 30 years of experience in the business. Williams was faced with a downward momentum that would be difficult to reverse. The company's stock hovered around an all-time low of $4 per share.

Williams instituted a campaign to improve and revitalize Bethlehem's basic steel business. He began by selling off the assets that were not related to steel. He smoothed relations with both customers and suppliers and persuaded bankers to stay with the company. Slowly, Williams's program began to make a difference. For the year ending December 31, 1987, the company reported more than $174 million in profits compared to a net loss of over $150 million the previous year. In 1988 the company increased its sales volume another 18 percent over 1987 sales figures and reported record earnings of more than $400 million. Two important problems were solved in 1989. First, a 50-month labor contract that included cost-of-living increases and profit sharing was signed with the United Steelworkers. Second, the U.S. government's steel-trade-liberalization program with other countries extended voluntary restraint arrangements previously negotiated with other countries by President Ronald Reagan's administration.

1990s: Recession and Foreign Competition

In 1990 and 1991 Bethlehem worked at increasing its market share in products that produced higher profit margins. Further, the company focused on modernization and the development of high-technology production methods, and increased research and development into new products and processes. The severe economic recession of the early 1990s, however, hit Bethlehem earlier than most U.S. industries, offsetting the benefits of management's determined modernization and streamlining efforts. Steel prices and domestic demand sank to all-time lows. With the capacity to produce 16 million tons of steel annually, Bethlehem produced only eight million tons in 1991. Unfortunately, the economic recession also exacerbated longstanding problems of the company, such as high employment costs and, in particular, skyrocketing health insurance costs, which were reportedly two to three times higher than those of foreign steel competitors. By the end of 1991 Bethlehem posted a $191 million loss.

Nevertheless, under the leadership of Chairman and CEO Williams, Bethlehem forged ahead with $564 million worth of capital expenses for the modernization of Sparrows Point, improvement of flat rolled operations at the Burns Harbor plant, and completion of a new galvanizing line for the production of coated sheet products. In 1991, the worst year of the recession, such leading automotive companies as Ford, Mazda, and Nissan presented the Burns Harbor plant with outstanding quality awards.

Restructuring continued as Bethlehem sold its Freight Car Division and most of its coal properties. The company discontinued the manufacture of trackwork at its Steelton, Pennsylvania, plant as well as its coke production operations at its Sparrows Point, Maryland, plant. These capital outlays and structural changes were all part of management's comprehensive plan (which was approved by the board of directors in January 1992) to revitalize Bethlehem during the recession.

The plan also called for the elimination of the quarterly stock dividend and a reduction in the work force by 6,500 employees. The leaner, more streamlined company weathered the storm, just as it had in previous and even more severe economic downturns. By 1993, Bethlehem had recovered its 12 percent domestic market share and had become a world producer of coated sheet products for both the construction industry and domestic and U.S.-based foreign automobile companies.

Demand for steel increased steadily in the mid-1990s, especially in view of the federal government's plan to invest billions of dollars in upgrading the nation's infrastructure of bridges (40 percent of 576,000 bridges were found to be in need of serious repairs), highways (60 percent of 1.1 million miles of highway in need of repairs), and public transportation systems. With a return to profitability, Bethlehem became the biggest low-cost steel producer in the United States. The company also boasted thoroughly modern, world-class facilities for producing steel--especially high quality flat rolled sheets, a product that held great future promise and accounted for 80 percent of the company's sales.

Getting Bethlehem back on track was the major accomplishment of Chairman Williams, who retired in the mid-1990s. The challenge for incoming CEO and Chairman Curtis H. Barnette, former top counsel in Bethlehem's legal department, would be not only to maintain this record but to try to make Bethlehem the number one steelmaker on the domestic scene as the 1990s closed.

Outlook in the Late 1990s

Under the new leadership of Barnette, Bethlehem went through drastic restructuring. The company had accumulated substantial debt, as well as a huge unfunded pension liability ($1.6 billion in 1993) that had to be corrected. In 1996 the company adopted a comprehensive restructuring plan which resulted in the planned sale of several poorly performing businesses, among them the Iron Ore Company in Canada and Sparrows Point Shipyard, and the sale or discontinuation of operations at the Bethlehem Coke Division. 1997 saw a slight drop in sales but a return to profitability with $280 million in net income. By the end of that year the pension liability also had been reduced to only $440 million.

Bethlehem focused on its core businesses and entered into several agreements with other companies in an attempt to strengthen its financial footing. Its chief ongoing businesses were the Burns Harbor Division, Pennsylvania Steel Technologies, and Sparrows Point Division. Burns Harbor accounted for more than half of the company's revenues, shipping five million tons of products annually. Bethlehem planned major improvements to this division's facilities in order to keep the division profitable. It also earmarked $300 million for a new cold rolling mill complex at Sparrows Point, which brought in more than one-third of the company's revenues. Pennsylvania Steel Technologies maintained its position as the largest domestic rail producer.

Bethlehem also expanded its operations in several directions in the late 1990s, funding three new sheet coating lines and entering into several joint ventures and acquisitions. Chief among these transactions was Bethlehem's 1998 purchase of Lukens, Inc., a major manufacturer of steel plate and sheet used in industrial equipment. After acquiring Lukens, Bethlehem merged it into its own plate operations and created the new Bethlehem Lukens Plate Division, which began to concentrate on alloy steel and carbon products. In turn Bethlehem sold its existing stainless steel production facilities to Allegheny Teledyne, which would continue to operate some of these facilities and sell a portion of the completed products to Bethlehem.

Even with all of these organizational changes improving Bethlehem's infrastructure, its financial outlook in the near future remained somewhat challenged due to events in the international market. The end of the 1990s saw a major threat to the domestic steel industry; foreign markets, especially in Asia, were in crisis and foreign demand was down.

The drop in sales to foreign markets was not a significant problem for Bethlehem, since most of its products were sold within the United States, with export sales totalling only two percent in 1997 (a drop from three percent in 1996 and five percent in 1995). However, at the same time, foreign steel producers who could not sell their products in their own countries began to sell them at reduced prices within the United States. As a result, domestic producers were facing a drop in both prices and demand for their products. In 1998 a group of leading domestic steel companies, including Bethlehem, filed federal trade complaints against several countries, among them Brazil, Japan, and Russia. The companies hoped for federal protection from foreign-made steel being "dumped" in the United States, in the form of increased import duties on foreign steel products.

Principal Subsidiaries: Pennsylvania Steel Technologies, Inc.

Principal Divisions: Bethlehem Lukens Plate Division; Burns Harbor Division; Sparrows Point Division.

Principal Operating Units: Basic Steel Operations; Steel Related Operations.

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Company HistoryMetal Manufacturing & Fabricating

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