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United States Steel Corporation Reports 2005 Third Quarter Results

PRNewswire-FirstCall
PITTSBURGH
10.25.2005

United States Steel Corporation

                           Earnings Highlights

    (Dollars in millions
     except per share data)          3Q 2005         2Q 2005       3Q 2004

   Net sales                          $3,200          $3,582        $3,707

   Segment income from operations
     Flat-rolled Products                $41            $190          $362
     U. S. Steel Europe                   32             141           146
     Tubular Products                    124             133            55
     Other Businesses                     21              23             7

   Total segment income from
    operations                          $218            $487          $570
   Retiree benefit expenses              (55)            (70)          (72)
   Other items not allocated to
    segments                              (4)             (4)           (4)

   Income from operations               $159            $413          $494

      Interest and other financial
       costs                              17              20             8
      Foreign currency losses (gains)     (1)             43            (4)

   Net interest and other financial
    costs                                 16              63             4

   Income tax provision                   28              93           126

   Net income                           $107            $245          $354

       - Per basic share               $0.89           $2.11         $3.08
       - Per diluted share             $0.82           $1.88         $2.72

United States Steel Corporation (NYSE: X) reported third quarter 2005 net income of $107 million, or $0.82 per diluted share, compared to second quarter 2005 net income of $245 million, or $1.88 per diluted share, and third quarter 2004 net income of $354 million, or $2.72 per diluted share.

Commenting on third quarter results, U. S. Steel President and CEO John P. Surma said, "Our Flat-rolled and European segments remained profitable despite lower spot market prices and reduced operating rates. Our largest domestic blast furnace and our largest European blast furnace were both down for the entire quarter for major rebuilds. In addition, after standing idle for eighteen years, our No. 1 blast furnace in Serbia took time to ramp up to full production following a rebuild completed in June. In contrast, our Tubular segment had another outstanding quarter as demand and prices remained strong."

The company reported third quarter 2005 income from operations of $159 million, compared with income from operations of $413 million in the second quarter of 2005 and $494 million in the third quarter of 2004.

Other items not allocated to segments reduced third quarter 2005 net income by $4 million, or 3 cents per diluted share and second quarter 2005 net income by $3 million, or 2 cents per diluted share. Third quarter 2004 net income was increased by $21 million, or 16 cents per diluted share, primarily resulting from a $24 million favorable effect related to the settlements of prior years' income tax audits.

Foreign currency gains in the third quarter of 2005 were $1 million, compared to losses of $43 million in the second quarter of 2005 and gains of $4 million in the third quarter of 2004. The year-to-date losses in 2005 primarily reflect accounting remeasurement losses from the appreciation of the U.S. dollar functional currency versus the euro and other local currencies.

Reportable Segments and Other Businesses

Management uses segment income from operations to evaluate company performance because we believe it to be a key measure of ongoing operating results. U. S. Steel's reportable segments and Other Businesses reported segment income from operations of $218 million, or $47 per ton, in the third quarter of 2005, compared with $487 million, or $100 per ton, in the second quarter of 2005 and $570 million, or $108 per ton, in the third quarter of 2004.

The decrease in third quarter 2005 Flat-rolled income from operations compared to the second quarter primarily reflected lower spot prices and higher natural gas costs. The decline in European results was mainly due to lower spot market prices and shipments compared to the second quarter, partly resulting from a longer than anticipated outage at the No. 2 blast furnace in Slovakia.

Outlook

Commenting on U. S. Steel's outlook, Surma said, "With continuing reductions in service center inventory levels and firming spot prices, we expect fourth quarter market conditions to show improvement over the third, but results will remain well below those of the first two quarters of the year. Our order book remains strong across all industries, but we will continue to be affected by high natural gas prices and by reduced domestic raw steel capability for the duration of the Gary blast furnace rebuild."

For Flat-rolled, fourth quarter 2005 shipments and average realized prices are expected to improve compared to the third quarter; however, these effects may be more than offset by higher costs for natural gas. We expect the Gary No. 14 blast furnace to start up in December and to reach full production early next year.

For U. S. Steel Europe (USSE), fourth quarter shipments are expected to improve compared to the third quarter with all five blast furnaces operational after the October 12 restart of No. 2 blast furnace in Slovakia. Average realized prices should also improve, reflecting the recent increase in spot prices. Raw material costs are expected to decline compared to the third quarter.

Shipments for the Tubular segment in the fourth quarter of 2005 are expected to return to second quarter levels while average realized prices should increase due to continued strong energy markets. The transfer price of tube rounds supplied by Flat-rolled was increased by $46 per ton effective October 1, 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 the third quarter, 1,210,000 shares were repurchased under this program for a total cost of $52 million.

*****

This release contains forward-looking statements with respect to market conditions, operating costs, shipments and prices. 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; the timing and completion of the startup of the No. 14 blast furnace project at Gary Works and other facility projects; natural gas and electricity prices and usage; scrap and other raw materials availability and prices; the impact of fixed prices in energy and raw materials contracts (many of which have terms of one year or longer) as compared to short-term contract and spot prices of steel products; 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 and its agencies. 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. 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), Other Financial Data (Unaudited) and Preliminary Supplemental Statistics (Unaudited) for U. S. Steel are attached.

The company will conduct a conference call on third quarter earnings on Tuesday, October 25, at 2 p.m. EDT. 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          Nine Months Ended
                         -------------------------------  -----------------
                           Sept. 30   June 30   Sept. 30    September 30
  (Dollars in millions)      2005       2005      2004    2005       2004
  -------------------------------------------------------------------------
  NET SALES                  $3,200    $3,582   $3,707  $10,569   $10,085

  OPERATING EXPENSES (INCOME):
   Cost of sales (excludes
    items shown below)        2,808     2,925    2,967    8,632     8,341
   Selling, general and
    administrative expenses     161       176      172      506       521
   Depreciation, depletion and
    amortization                 88        88       96      274       287
   Income from investees         (2)      (13)     (18)     (28)      (37)
   Net gains on disposal
    of assets                    (7)       (6)      (2)     (17)      (46)
   Other income, net             (7)       (1)      (2)     (10)      (14)
                              -----     -----    -----    -----     -----
     Total operating expenses 3,041     3,169    3,213    9,357     9,052
                              -----     -----    -----    -----     -----
  INCOME FROM OPERATIONS        159       413      494    1,212     1,033
  Net interest and other
   financial costs               16        63        4      101       142
                              -----     -----    -----    -----     -----
  INCOME BEFORE INCOME TAXES,
   MINORITY INTERESTS AND
   CUMULATIVE EFFECT OF CHANGE
   IN ACCOUNTING PRINCIPLE      143       350      490    1,111       891
  Income tax provision           28        93      126      276       263
  Minority interests              8        12       10       28        19
                              -----     -----    -----    -----     -----
  INCOME BEFORE CUMULATIVE
   EFFECT OF CHANGE IN
   ACCOUNTING PRINCIPLE         107       245      354      807       609
  Cumulative effect of change
   in accounting principle,
   net of tax                    --        --       --       --        14
                              -----     -----    -----    -----     -----
  NET INCOME                    107       245      354      807       623
  Dividends on preferred
   stock                         (4)       (5)      (4)     (13)      (13)
                              -----     -----    -----    -----     -----
  NET INCOME APPLICABLE TO
   COMMON STOCK                $103      $240     $350     $794      $610
                              =====     =====    =====    =====     =====



                     UNITED STATES STEEL CORPORATION
                   STATEMENT OF OPERATIONS (Unaudited)
                               (Continued)
                   ------------------------------------

                                Quarter Ended           Nine Months Ended
                      -------------------------------   -----------------
                       Sept. 30   June 30   Sept. 30       September 30
  (Dollars in millions)  2005       2005      2004       2005       2004
  -------------------------------------------------------------------------
  Per share:
  Income before cumulative
   effect of change in
   accounting principle:
       - Basic          $.89      $2.11      $3.08      $6.96       $5.36
       - Diluted        $.82      $1.88      $2.72      $6.18       $4.76

  Cumulative effect of
   change in accounting
   principle, net of tax:
       - Basic           $--        $--        $--        $--        $.13
       - Diluted         $--        $--        $--        $--        $.11

  Net income:
       - Basic          $.89      $2.11      $3.08      $6.96       $5.49
       - Diluted        $.82      $1.88      $2.72      $6.18       $4.87

  Weighted average shares,
   in thousands:
       - Basic       113,980    114,222    113,523    114,054     111,170
       - Diluted     130,339    130,646    130,021    130,583     127,940

  Dividends paid per
   common share         $.10       $.10       $.05       $.28        $.15



                     UNITED STATES STEEL CORPORATION
                     OTHER FINANCIAL DATA (Unaudited)
                   ------------------------------------
                                                       Nine Months Ended
                                                       -----------------
                                                          September 30
  Cash Flow Data                (In millions)         2005           2004
  -----------------------------------------------------------------------
  Cash provided from operating activities:
   Net income                                         $807           $623
   Depreciation, depletion and amortization            274            287
   Pensions and other postretirement benefits          (77)           (19)
   Property tax settlement gain                        (95)            --
   Deferred income taxes                                86            264
   Net gains on disposal of assets                     (17)           (46)
   Changes in: Current receivables                     153           (431)
       Inventories                                    (144)            32
       Current accounts payable and accrued expenses  (104)           235
   Other operating activities                            1            (23)
                                                    ------         ------
     Total                                             884            922
                                                    ------         ------
  Cash used in investing activities:
   Capital expenditures                               (473)          (367)
   Disposal of assets                                   25             87
   Other investing activities                           11              5
                                                    ------         ------
     Total                                            (437)          (275)
                                                    ------         ------
  Cash (used in) provided from financing activities:
   Repayment of long-term debt                          (7)          (297)
   Common stock issued                                  27            348
   Common stock repurchased                            (52)            --
   Dividends paid                                      (45)           (29)
   Change in bank checks outstanding                    20             93
   Other financing activities                          (26)           (16)
                                                    ------         ------
     Total                                             (83)            99
                                                    ------         ------
  Effect of exchange rate changes on cash               (7)            --
                                                    ------         ------
  Total net cash flow                                  357            746
  Cash at beginning of the year                      1,037            316
                                                    ------         ------
  Cash at end of the period                         $1,394         $1,062
                                                    ======         ======



                                                  Sept. 30        Dec. 31
  Balance Sheet Data        (In millions)           2005            2004
  --------------------------------------------------------------------------
  Cash and cash equivalents                         $1,394         $1,037
  Other current assets                               3,233          3,206
  Property, plant and equipment - net                3,840          3,627
  Pension Asset                                      2,377          2,538
  Other assets                                         521            548
                                                    ------         ------
  Total assets                                     $11,365        $10,956
                                                    ======         ======
  Current liabilities                               $2,207         $2,531
  Long-term debt                                     1,366          1,363
  Employee benefits                                  2,024          2,125
  Other long-term liabilities                        1,038            939
  Minority interests                                    29             28
  Stockholders' equity                               4,701          3,970
                                                    ------         ------
  Total liabilities and stockholders' equity       $11,365        $10,956
                                                    ======         ======


                     UNITED STATES STEEL CORPORATION
             PRELIMINARY SUPPLEMENTAL STATISTICS (Unaudited)
             -----------------------------------------------

                                      Quarter Ended        Nine Months Ended
                               --------------------------  -----------------
                              Sept. 30   June 30  Sept. 30   September 30
  (Dollars in millions)         2005       2005     2004   2005       2004
  --------------------------------------------------------------------------
  INCOME (LOSS) FROM OPERATIONS
  Flat-rolled Products             $41     $190    $362     $566    $810
  U. S. Steel Europe                32      141     146      385     262
  Tubular Products                 124      133      55      379      83
  Other Businesses(a)               21       23       7       27      31
                                 -----    -----   -----    -----   -----
  Segment Income from Operations   218      487     570    1,357   1,186
  Retiree benefit expenses(b)      (55)     (70)    (72)    (208)   (181)
  Other items not allocated to
   segments:
     Property tax settlement
      gain(c)                       --       --      --       70      --
     Stock appreciation rights      (1)       2      (4)       2     (15)
     Workforce reduction
      charges(d)                    (3)      (6)     --       (9)     --
     Income from sale of real
      estate interests              --       --      --       --      43
                                 -----    -----   -----    -----   -----
        Total Income from
         Operations               $159     $413    $494   $1,212  $1,033

  CAPITAL EXPENDITURES
  Flat-rolled Products             $83      $78    $109     $220    $167
  U. S. Steel Europe                67       59      57      175     136
  Tubular Products                   1        -       3        4       8
  Other Businesses                  43       20      33       74      56
                                 -----    -----   -----    -----   -----
     Total                        $194     $157    $202     $473    $367

   -----------
   (a) Includes the results of the former Real Estate segment.

   (b) 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.

   (c) 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.

   (d) Reflects special termination benefits for a USSK voluntary early
       retirement program.



                     UNITED STATES STEEL CORPORATION
             PRELIMINARY SUPPLEMENTAL STATISTICS (Unaudited)
             -----------------------------------------------

                                   Quarter Ended          Nine Months Ended
                            -----------------------------  ----------------
                            Sept. 30   June 30  Sept. 30     September 30
  (Dollars in millions)       2005      2005       2004     2005      2004
  --------------------------------------------------------------------------
  OPERATING STATISTICS
    Average realized price:
     ($/net ton)
        Flat-rolled
         Products(a)           $586      $633      $627     $624     $561
        U. S. Steel
         Europe                 562       643       573      631      496
        Tubular Products      1,393     1,302       907    1,281      785
    Steel Shipments:(a)(b)
        Flat-rolled
         Products             3,191     3,224     3,745    9,950   11,888
        U. S. Steel
         Europe               1,230     1,332     1,257    3,852    3,693
        Tubular Products        264       297       266      864      807
    Raw Steel-Production:(b)
        Domestic
         Facilities           3,514     3,597     4,293   11,414   13,002
        U. S. Steel
         Europe               1,200     1,486     1,400    4,234    4,211
    Raw Steel-Capability
     Utilization:(c)
        Domestic
         Facilities            71.9%     74.4%     87.8%    78.7%    89.3%
        U. S. Steel
         Europe                64.1%     80.2%     75.0%    76.2%    75.8%
  Domestic iron ore
   production(b)              5,878     5,670     5,546   16,930   17,169
  Domestic iron ore
   shipments(b)(d)            6,066     6,232     6,930   15,687   17,688
  Domestic coke
   production(b)(e)           1,602     1,585     1,659    4,607    4,974
  Domestic coke
   shipments (b)(e)(f)          192       241       686      678    1,999

  -----------
  (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.

SOURCE: United States Steel Corporation

CONTACT: Media, John Armstrong, +1-412-433-6792, or Investors-Analysts,
Nick Harper, +1-412-433-1184, both of United States Steel Corporation

Web site: http://www.ussteel.com/

Company News On-Call: http://www.prnewswire.com/comp/929150.html

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