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United States Steel Corporation Reports 2005 Fourth Quarter and Full-Year ResultsPRNewswire-FirstCall Earnings Highlights
Adjusted * Adjusted
(Dollars in millions -----------------
except per share data) 4Q 2005 3Q 2005 4Q 2004 2005 2004 *
Net sales $3,470 $3,200 $3,890 $14,039 $13,975
Segment income from
operations
Flat-rolled Products $36 $41 $375 $602 $1,185
U. S. Steel Europe 112 21 128 502 439
Tubular Products 149 124 114 528 197
Other Businesses 16 21 27 43 58
Total segment income
from operations $313 $207 $644 $1,675 $1,879
Retiree benefit expenses (59) (55) (76) (267) (257)
Other items not allocated
to segments (32) (4) (25) 31 3
Income from operations $222 $148 $543 $1,439 $1,625
Interest and other
financial costs 15 17 23 47 151
Foreign currency losses
(gains) (1) 3 (36) 80 (36)
Net interest and other
financial costs 14 20 (13) 127 115
Income tax provision 90 27 91 365 356
Net income $109 $93 $451 $910 $1,135
-- Per basic share $0.94 $0.77 $3.92 $7.87 $10.00
-- Per diluted share $0.85 $0.71 $3.46 $7.00 $8.83
* See footnote (a) to Statement of Operations
United States Steel Corporation (NYSE: X) reported fourth quarter 2005 net income of $109 million, or $0.85 per diluted share, compared to third quarter 2005 adjusted net income of $93 million, or $0.71 per diluted share, and fourth quarter 2004 adjusted net income of $451 million, or $3.46 per diluted share. For full-year 2005, U. S. Steel reported net income of $910 million or $7.00 per diluted share, compared to 2004 adjusted net income of $1,135 million, or $8.83 per diluted share. Prior period results have been adjusted retrospectively for a change in the method of accounting for inventories at U. S. Steel Kosice (USSK) as discussed later. Commenting on results, U. S. Steel President and CEO John P. Surma said, "A strong fourth quarter operating performance contributed to making 2005 a very good year. Our annual earnings were the second highest on record and we had another year of solid return on capital employed. Importantly, our safety performance improved substantially, thanks to the outstanding efforts of our employees. Capital spending and repair and maintenance expenses were higher than anticipated primarily because we expanded the scope of work and experienced several delays related to the Gary No. 14 blast furnace project. We are proceeding through the start-up process and expect to be producing at full capacity of 9,200 tons of hot metal per day in a relatively short time." The company reported fourth quarter 2005 income from operations of $222 million, compared with adjusted income from operations of $148 million in the third quarter of 2005 and $543 million in the fourth quarter of 2004. For the year 2005, income from operations was $1,439 million versus adjusted income from operations of $1,625 million for the year 2004. Results in fourth quarter 2005 included an income tax charge of $16 million resulting from the repatriation of $300 million of foreign earnings pursuant to the American Jobs Creation Act of 2004, a pre-tax charge of $20 million for environmental remediation related to a former steel production site that was sold years ago, and a pre-tax charge of $11 million for special termination benefits under the voluntary early retirement program at USSK. These items and another small item not allocated to segments reduced fourth quarter 2005 net income by $39 million, or 30 cents per diluted share. Other items not allocated to segments reduced third quarter 2005 net income by $4 million, or 3 cents per diluted share. Net income in fourth quarter 2004 included tax benefits totaling $30 million related to prior year research and development credits and USSK debt repayment. These benefits and other items not allocated to segments increased fourth quarter 2004 net income by $14 million, or 11 cents per diluted share. Foreign currency gains in the fourth quarter of 2005 were $1 million, compared to losses of $3 million in the third quarter of 2005 and gains of $36 million in the fourth quarter of 2004. The losses for the full-year 2005 primarily reflect accounting remeasurement losses from the appreciation of the U.S. dollar functional currency versus the euro and other local currencies. Effective January 1, 2006, the functional currency for our European operations was changed to the euro, which should reduce future period remeasurement gains and losses. Reportable Segments and Other Businesses Management believes segment income from operations is a key measure to evaluate ongoing operating results and performance. U. S. Steel's reportable segments and Other Businesses reported segment income from operations of $313 million, or $63 per ton, in the fourth quarter of 2005, compared with $207 million, or $44 per ton, in the third quarter of 2005 and $644 million, or $120 per ton, in the fourth quarter of 2004. Segment income from operations for full-year 2005 was $1,675 million, or $85 per ton, compared with $1,879 million, or $86 per ton for 2004. The increase in fourth quarter 2005 European income from operations compared to the third quarter primarily reflected lower raw material and outage costs and operating efficiencies due to higher operating levels. The improvement in fourth quarter versus third quarter Tubular results was largely due to higher prices and shipment volumes. Flat-rolled's fourth quarter results were in line with the third quarter as higher prices and shipment volumes were offset by increased costs for natural gas and electricity and higher project costs related to the Gary No. 14 blast furnace. Outlook Commenting on U. S. Steel's outlook, Surma said, "The first quarter of 2006 looks good for our domestic and European markets. Service center and end customer inventories are balanced and we expect continued strength in the energy markets served by our Tubular segment." For Flat-rolled, first quarter 2006 shipments are expected to improve compared to the fourth quarter of 2005 due to the restart of the Gary No. 14 blast furnace, and prices should remain at about the fourth quarter level. We expect higher raw material costs to be partially offset by reduced outage costs. For U. S. Steel Europe (USSE), first quarter shipments are expected to increase and average realized prices and costs should be consistent with fourth quarter levels; however, the effect of natural gas supply disruptions that have recently curtailed Serbian operations is uncertain. Shipments and average realized prices for the Tubular segment in the first quarter of 2006 are expected to be in line with the fourth quarter. First quarter 2006 results for Other Businesses should decline from the fourth quarter due primarily to normal seasonal variations at our iron ore operations in Minnesota. Capital expenditures for 2006 are expected to total approximately $700 million, reflecting domestic spending of approximately $440 million and European spending of approximately $260 million. Pensions and Benefits During 2005, U. S. Steel made a first quarter voluntary cash contribution of $130 million to its main defined benefit pension plan and a fourth quarter voluntary cash contribution of $50 million to a qualified trust for payment of future retiree medical expenses. At year-end 2005, U. S. Steel's main defined benefit pension plan was measured and it was again determined that an additional minimum liability is required for this plan. The reestablishment of this liability net of associated tax effects resulted in a net charge to equity of approximately $1.4 billion and had no effect on income or cash flow. Total costs for pension plans and other postretirement benefits are expected to be approximately $300 million in 2006, compared to $390 million in 2005. Common Stock Repurchase Program On July 26, 2005, U. S. Steel announced that its Board of Directors had approved the repurchase of up to eight million shares of its common stock. During 2005, 5.8 million shares were repurchased under this program for a total cost of $254 million, including 4.6 million shares repurchased in the fourth quarter for a total cost of $202 million. Change to FIFO Method for USSK During the fourth quarter of 2005, U. S. Steel changed its method of determining the cost of USSK inventories from the last-in, first-out (LIFO) method to the first-in, first-out (FIFO) method. Management considers the FIFO method to be preferable to the LIFO method for USSK because it creates consistency of the valuation method used for inventories within the USSE reportable segment and provides for comparability of the USSE segment with major international competitors. In accordance with Statement of Financial Accounting Standards No. 154, prior period results have been adjusted to apply the new method retrospectively. This change had an unfavorable effect on fourth quarter and full-year 2005 USSE segment operating results of $22 million and $17 million, respectively. After including effects of foreign currency remeasurement and tax provisions, the unfavorable net income effect of this change on U. S. Steel's fourth quarter and full-year 2005 results was $35 million and $41 million, respectively. See Appendix A. This release contains forward-looking statements with respect to market conditions, operating costs, shipments, prices, capital spending and employee benefit costs. Some factors, among others, that could affect market conditions, costs, shipments and prices for both domestic operations and USSE include global product demand, prices and mix; global and company steel production levels; plant operating performance, including the start up of the recently completed blast furnace projects; the timing and completion of facility projects; natural gas prices, usage and supply disruptions such as are occurring in Serbia; raw materials availability and prices; changes in environmental, tax and other laws; employee strikes; power outages; and U.S. and global economic performance and political developments. Domestic steel shipments and prices could be affected by import levels and actions taken by the U.S. Government. Economic conditions and political factors in Europe that may affect USSE's results include, but are not limited to, taxation, nationalization, inflation, currency fluctuations, increased regulation, export quotas, tariffs, and other protectionist measures. Factors that may affect the amount of net periodic benefit costs include, among others, changes to laws affecting benefits, pension fund investment performance, liability changes and interest rates. In accordance with "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, cautionary statements identifying important factors, but not necessarily all factors, that could cause actual results to differ materially from those set forth in the forward- looking statements have been included in the Form 10-K of U. S. Steel for the year ended December 31, 2004, and in subsequent filings for U. S. Steel. A Statement of Operations (Unaudited), Cash Flow Statement (Unaudited), Condensed Balance Sheet (Unaudited) and Preliminary Supplemental Statistics (Unaudited) for U. S. Steel are attached. We have also attached Appendix A detailing the income effects in 2005 and 2004 of the change in the method of determining the cost of USSK inventories. The company will conduct a conference call on fourth quarter earnings on Tuesday, January 31, at 2 p.m. EST. To listen to the webcast of the conference call, visit the U. S. Steel web site, www.ussteel.com, and click on the "Investors" button. For more information on U. S. Steel, visit its web site at www.ussteel.com. UNITED STATES STEEL CORPORATION
STATEMENT OF OPERATIONS (Unaudited)
------------------------------------
Quarter Ended
------------------------------- Year Ended
Adjusted(a) December 31
------------ ------------
Dec. 31 Sept. 30 Dec. 31 Adjusted(a)
(Dollars in 2005 2005 2004 2005 2004
millions)
--------------------------------------------------------------------------
NET SALES $3,470 $3,200 $3,890 $14,039 $13,975
OPERATING EXPENSES
(INCOME):
Cost of sales
(excludes
items shown
below) 2,974 2,819 3,076 11,601 11,368
Selling,
general and
administrative
expenses 192 161 218 698 739
Depreciation,
depletion and
amortization 92 88 95 366 382
Income from
investees (2) (2) (20) (30) (57)
Net gains on
disposal of
assets (4) (7) (11) (21) (57)
Other income,
net (4) (7) (11) (14) (25)
----- ----- ----- ----- -----
Total
operating
expenses 3,248 3,052 3,347 12,600 12,350
----- ----- ----- ----- -----
INCOME FROM
OPERATIONS 222 148 543 1,439 1,625
Net interest and
other financial
costs 14 20 (13) 127 115
----- ----- ----- ----- -----
INCOME BEFORE
INCOME TAXES,
MINORITY INTERESTS
AND CUMULATIVE
EFFECT OF CHANGE
IN ACCOUNTING
PRINCIPLE 208 128 556 1,312 1,510
Income tax
provision 90 27 91 365 356
Minority interests 9 8 14 37 33
----- ----- ----- ----- -----
INCOME BEFORE
CUMULATIVE EFFECT
OF CHANGE IN
ACCOUNTING
PRINCIPLE 109 93 451 910 1,121
Cumulative effect
of change in
accounting
principle, net
of tax -- -- -- -- 14
----- ----- ----- ----- -----
NET INCOME 109 93 451 910 1,135
Dividends on
preferred stock (5) (4) (5) (18) (18)
----- ----- ----- ----- -----
NET INCOME
APPLICABLE TO
COMMON STOCK $104 $89 $446 $892 $1,117
===== ===== ===== ===== =====
-------------------------------------------------------------------------
(a) During the fourth quarter of 2005, the method of determining the cost
of USSK inventories was changed from the last-in, first-out method to
the first-in, first-out method. Results have been adjusted from
those originally reported to apply this change retrospectively. See
Appendix A.
UNITED STATES STEEL CORPORATION
STATEMENT OF OPERATIONS (Unaudited)
(Continued)
------------------------------------
Quarter Ended
-------------------------------- Year Ended
Adjusted(a) December 31
------------ ------------
Dec. 31 Sept. 30 Dec. 30 Adjusted(a)
COMMON STOCK 2005 2005 2004 2005 2004
DATA:
--------------------------------------------------------------------------
Per share:
Income before
cumulative
effect of
change in
accounting
principle:
-- Basic $.94 $.77 $3.92 $7.87 $9.87
-- Diluted $.85 $.71 $3.46 $7.00 $8.72
Cumulative
effect of
change in
accounting
principle,
net of tax:
-- Basic $-- $-- $-- $-- $.13
-- Diluted $-- $-- $-- $-- $.11
Net income:
-- Basic $.94 $.77 $3.92 $7.87 $10.00
-- Diluted $.85 $.71 $3.46 $7.00 $8.83
Weighted average
shares, in
thousands:
-- Basic 111,739 113,980 113,853 113,470 111,838
-- Diluted 128,151 130,339 130,322 129,970 128,643
Dividends paid
per common
share $.10 $.10 $.05 $.38 $.20
-------------------------------------------------------------------------
(a) During the fourth quarter of 2005, the method of determining the cost
of USSK's inventories was changed from the last-in, first-out method
to the first-in, first-out method. Results have been adjusted from
those originally reported to apply this change retrospectively. See
Appendix A.
UNITED STATES STEEL CORPORATION
CASH FLOW STATEMENT (Unaudited)
------------------------------------
Year Ended
December 31
---------------------
Adjusted(a)
(Dollars in millions) 2005 2004
--------------------------------------------------------------------------
Cash provided from operating activities:
Net income $910 $1,135
Depreciation, depletion and amortization 366 382
Pensions and other postretirement benefits (86) (215)
Property tax settlement gain (95) --
Deferred income taxes 43 360
Net gains on disposal of assets (21) (57)
Changes in: Current receivables 164 (550)
Inventories (161) 38
Current accounts payable and
accrued expenses 50 311
Other operating activities 50 (4)
------ ------
Total 1,220 1,400
------ ------
Cash used in investing activities:
Capital expenditures (741) (579)
Disposal of assets 31 95
Other investing activities 5 --
------ ------
Total (705) (484)
------ ------
Cash used in financing activities:
USSK credit facility, net 231 --
Borrowings and repayments of debt, net (10) (571)
Common stock issued 28 361
Common stock repurchased (254) --
Dividends paid (60) (39)
Change in bank checks outstanding 37 73
Other financing activities (33) (27)
------ ------
Total (61) (203)
------ ------
Effect of exchange rate changes on cash (7) 8
------ ------
Total net cash flow 447 721
Cash at beginning of the year 1,037 316
------ ------
Cash at end of the period $1,484 $1,037
====== ======
-------------------------------------------------------------------------
(a) During the fourth quarter of 2005, the method of determining the cost
of USSK's inventories was changed from the last-in, first-out method
to the first-in, first-out method. Results have been adjusted from
those originally reported to apply this change retrospectively.
UNITED STATES STEEL CORPORATION
CONDENSED BALANCE SHEET (Unaudited)
------------------------------------
Adjusted(a)
Dec. 31 Dec. 31
(Dollars in millions) 2005 2004
--------------------------------------------------------------------------
Cash and cash equivalents $1,484 $1,037
Inventory 1,466 1,305
Other current assets 1,886 2,009
Property, plant and equipment - net 4,021 3,627
Pension asset -- 2,538
Intangible pension asset 251 1
Other assets 714 547
------ ------
Total assets $9,822 $11,064
====== ======
Short-term debt and current maturities of
long-term debt $249 $8
Other current liabilities 2,516 2,527
Long-term debt 1,363 1,363
Employee benefits 1,992 2,125
Other long-term liabilities 346 939
Minority interests 32 28
Stockholders' equity 3,324 4,074
------ ------
Total liabilities and stockholders' equity $9,822 $11,064
====== ======
-------------------------------------------------------------------------
(a) During the fourth quarter of 2005, the method of determining the cost
of USSK's inventories was changed from the last-in, first-out method
to the first-in, first-out method. Results have been adjusted from
those originally reported to apply this change retrospectively.
UNITED STATES STEEL CORPORATION
PRELIMINARY SUPPLEMENTAL STATISTICS (Unaudited)
-----------------------------------------------
Quarter Ended
---------------------------- Year Ended
Adjusted(a) December 31
------------ ------------
Dec. 31 Sept. 30 Dec. 31 Adjusted(a)
(Dollars in 2005 2005 2004 2005 2004
millions)
--------------------------------------------------------------------------
INCOME (LOSS) FROM
OPERATIONS
Flat-rolled
Products $36 $41 $375 $602 $1,185
U. S. Steel Europe 112 21 128 502 439
Tubular Products 149 124 114 528 197
Other Businesses(b) 16 21 27 43 58
----- ----- ----- ----- -----
Segment Income
from Operations 313 207 644 1,675 1,879
Retiree benefit
expenses(c) (59) (55) (76) (267) (257)
Other items not
allocated to
segments:
Property tax
settlement
gain(d) -- -- -- 70 --
Stock appreciation
rights (1) (1) (8) 1 (23)
Workforce
reduction
charges(e) (11) (3) (17) (20) (17)
Environmental
remediation
charge (20) -- -- (20) --
Income from sale
of real estate
interests -- -- -- -- 43
----- ----- ----- ----- -----
Total Income
from
Operations $222 $148 $543 $1,439 $1,625
CAPITAL EXPENDITURES
Flat-rolled
Products $157 $83 $86 $377 $253
U. S. Steel Europe 74 67 87 249 223
Tubular Products 1 1 -- 5 8
Other Businesses 36 43 39 110 95
----- ----- ----- ----- -----
Total $268 $194 $212 $741 $579
-------------------------------------------------------------------------
(a) During the fourth quarter of 2005, the method of determining the cost
of USSK's inventories was changed from the last-in, first-out method
to the first-in, first-out method. Results have been adjusted from
those originally reported to apply this change retrospectively. See
Appendix A.
(b) Includes the results of the former Real Estate segment.
(c) Includes certain profit-based expenses for U. S. Steel retirees and
National retirees pursuant to provisions of the 2003 labor agreement
with the United Steelworkers of America.
(d) Reflects the portion of the Gary property tax settlement gain that is
included in cost of sales, and excludes $25 million that is included
in net interest and other financial costs.
(e) Reflects special termination benefits for a USSK voluntary early
retirement program.
UNITED STATES STEEL CORPORATION
PRELIMINARY SUPPLEMENTAL STATISTICS (Unaudited)
-----------------------------------------------
Quarter Ended Year Ended
---------------------------- ------------
Dec. 31 Sept. 30 Dec. 31 December 31
(Dollars in 2005 2005 2004 2005 2004
millions)
-------------------------------------------------------------------------
OPERATING STATISTICS
Average realized
price: ($/net ton)
Flat-rolled
Products(a) $597 $586 $623 $617 $574
U. S. Steel
Europe 550 562 619 610 529
Tubular
Products 1,456 1,393 1,083 1,326 863
Steel
Shipments:(a)(b)
Flat-rolled
Products 3,346 3,191 3,747 13,296 15,635
U. S. Steel
Europe 1,359 1,230 1,347 5,211 5,040
Tubular
Products 292 264 285 1,156 1,092
Raw Steel-
Production:(b)
Domestic
Facilities 3,929 3,514 4,264 15,343 17,266
U. S. Steel
Europe 1,649 1,200 1,474 5,883 5,685
Raw Steel-
Capability
Utilization:(c)
Domestic
Facilities 80.3% 71.9% 87.2% 79.1% 89.0%
U. S. Steel
Europe 88.2% 64.1% 79.0% 79.2% 76.8%
Domestic iron
ore production
(b) 5,352 5,878 5,714 22,282 22,884
Domestic iron
ore shipments
(b)(d) 6,100 6,066 6,600 21,787 24,289
Domestic coke
production
(b)(e) 1,485 1,602 1,670 6,092 6,644
Domestic coke
shipments
(b)(e)(f) 177 192 700 855 2,699
-------------------------------------------------------------------------
(a) Excludes intersegment transfers.
(b) Thousands of net tons.
(c) Based on annual raw steel production capability of 19.4 million net
tons for domestic facilities and 7.4 million net tons for U. S. Steel
Europe.
(d) Includes trade shipments and intersegment transfers.
(e) Includes the Clairton 1314B Partnership.
(f) Includes trade shipments only.
Appendix A
UNITED STATES STEEL CORPORATION
Effects of USSK change in inventory method
($ Millions)
As Originally As As Originally As
Reported Adjust- Adjusted Reported Adjust- Adjusted
ment ment
Quarter Ended March 31, 2005 Quarter Ended March 31, 2004
USSE Income
from Opers. $212 $8 $220 $40 $13 $53
Total Income
from Opers. 640 8 648 151 13 164
Net Int. and
Fin. Costs * 22 3 25 52 -- 52
Tax provision 155 1 156 51 1 52
Net income $455 $4 $459 $58 $12 $70
Quarter Ended June 30, 2005 Quarter Ended June 30, 2004
USSE Income
from Opers. $141 $8 $149 $76 $29 $105
Total Income
from Opers. 413 8 421 388 29 417
Net Int. and
Fin. Costs * 63 5 68 86 (15) 71
Tax provision 93 (1) 92 86 -- 86
Net income $245 $4 $249 $211 $44 $255
Quarter Ended Sept. 30, 2005 Quarter Ended Sept. 30, 2004
USSE Income
from Opers. $32 $(11) $21 $146 $7 $153
Total Income
from Opers. 159 (11) 148 494 7 501
Net Int. and
Fin. Costs * 16 4 20 4 1 5
Tax provision 28 (1) 27 126 1 127
Net income $107 $(14) $93 $354 $5 $359
On As As Originally As
LIFO Basis Adjust- Reported Reported Adjust- Adjusted
ment ment
Quarter Ended Dec. 31, 2005 Quarter Ended Dec. 31, 2004
USSE Income
from Opers. $134 $(22) $112 $132 $(4) $128
Total Income
from Opers. 244 (22) 222 547 (4) 543
Net Int. and
Fin. Costs * 1 13 14 (23) 10 (13)
Tax provision 90 -- 90 88 3 91
Net income $144 $(35) $109 $468 $(17) $451
Year Ended December 31, 2005 Year Ended December 31, 2004
USSE Income
from Opers. $519 $(17) $502 $394 $45 $439
Total Income
from Opers. 1,456 (17) 1,439 1,580 45 1,625
Net Int. and
Fin. Costs * 102 25 127 119 (4) 115
Tax provision 366 (1) 365 351 5 356
Net income $951 $(41) $910 $1,091 $44 $1,135
* Reflects the adjustment for foreign currency remeasurement effects
SOURCE: United States Steel Corporation CONTACT: Media, John Armstrong, +1-412-433-6792, or Investors-Analysts, Web site: http://www.ussteel.com/ Company News On-Call: http://www.prnewswire.com/comp/929150.html |
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