United States Steel Corporation Reports Second Quarter 2002 Results
United States Steel Corporation (NYSE: X) today issued the following:
Earnings Highlights (Dollars in millions except per share data) 2Q 2002 1Q 2002 2Q 2001 Revenues and other income $1,807 $1,434 $1,737 Net income (loss) per share $0.28 $(0.93) $(0.34) Net income (loss) $27 $(83) $(30) Adjustments to remove special items (Pre-tax): Federal excise tax refund (33) Insurance recoveries related to USS-POSCO fire (6) (12) (2) Pension settlement loss 10 Asset impairments - receivables 14 Costs related to Fairless shutdown 1 Reversal of litigation accrual (9) Costs related to Separation 8 Adjustment to gain on Transtar reorganization 2 Tax effect of special items (at 35% statutory rate) 5 7 1 Net income (loss) adjusted for special items $17 $(96) $(21) Net income (loss) - adjusted, per share $0.18 $(1.07) $(0.24) NOTE: Special items are discussed in Selected Notes to Financial Statement
United States Steel Corporation (NYSE: X) reported second quarter 2002 adjusted net income of $17 million, or 18 cents per share, significantly improved from the adjusted net loss of $96 million, or $1.07 per share, reported in the first quarter 2002 and the adjusted net loss of $21 million, or 24 cents per share, reported in second quarter 2001.
In second quarter 2002, U. S. Steel reported net income of $27 million, or 28 cents per share, including the net favorable effects of special items, which on an after tax basis increased net income by $10 million, or 10 cents per share. The first quarter 2002 net loss of $83 million, or $0.93 per share, included special items, which in total decreased the net loss by $13 million, or 14 cents per share. The second quarter 2001 net loss of $30 million, or 34 cents per share, included special items, which in total increased the net loss by $9 million, or 10 cents per share.
Second quarter 2002 income from operations before special items improved to $32 million, compared with losses from operations before special items of $81 million in first quarter 2002 and $19 million in second quarter 2001.
U. S. Steel Chairman, CEO and President Thomas J. Usher said, "We capitalized on improved shipments, operating efficiencies and prices for both our domestic and Slovakian operations during the second quarter. Steel production facilities operated at high levels with domestic operations at 94 percent of capability and U. S. Steel Kosice (USSK) at 96 percent. Flat- rolled segment shipments increased 10 percent and USSK shipments increased 46 percent versus the first quarter. We also benefited from recovering sheet spot market prices in the United States and in Europe."
U. S. Steel's Flat-rolled segment recorded a second quarter 2002 loss from operations of $26 million, or $10 per ton. Second quarter results improved from the losses from operations of $74 million, or $32 per ton, and $143 million, or $62 per ton, recorded in the 2002 first and 2001 second quarters, respectively. Average realized prices in second quarter 2002 were $402 per ton, up $25 from the 2002 first quarter as realized prices on most products increased and the company shipped more value-added products. Flat- rolled shipments rose to 2.6 million net tons compared with 2.3 million net tons in both the 2002 first and 2001 second quarters.
The Tubular segment recorded income from operations of $6 million, or $28 per ton. This reflects an increase from income from operations of $3 million, or $16 per ton, recorded in the first quarter, but was down from second quarter 2001 income from operations of $35 million, or $111 per ton. Shipments of 217,000 net tons were up from 188,000 net tons in the 2002 first quarter, but well below the 315,000 net tons shipped in the second quarter of 2001. Average realized prices decreased to $636 per ton from $640 in the 2002 first quarter primarily due to product mix effects. Depressed North American oil and gas drilling activity and high levels of imports of these products, which are not covered by the Section 201 action, continued to adversely impact this segment in the second quarter.
The USSK segment recorded income from operations of $26 million, or $24 per ton, for the quarter, compared with a loss from operations of $1 million, or $1 per ton, in the 2002 first quarter and income from operations of $41 million, or $38 per ton, in second quarter 2001. USSK's average realized steel price increased by $12 per ton versus the 2002 first quarter.
Units comprising U. S. Steel's Other Businesses recorded income from operations of $26 million, compared with a loss from operations of $9 million in the 2002 first quarter and second quarter 2001 income from operations of $48 million. For the quarter, the coal, coke and iron ore units reported income from operations of $11 million, up from the loss from operations of $14 million reported in the first quarter 2002 and slightly less than the income from operations of $14 million in second quarter 2001. During the second quarter, the iron ore unit experienced a seasonal improvement and the coal unit benefited from improved mining operations. The transportation and real estate units also contributed to the improved earnings compared with first quarter 2002.
Net interest and other financial costs include foreign currency translation adjustments, primarily the effect of remeasuring USSK balances into the U.S. dollar, the functional currency. Net gains of approximately $13 million were recorded in the second quarter and first six months of 2002 versus net losses of $3 million and $7 million for the second quarter and first six months of 2001, respectively.
In April, U. S. Steel announced that it had signed a letter of intent to sell coal and related assets associated with U. S. Steel Mining Company's West Virginia and Alabama mines. A definitive agreement on the sale is expected in the third quarter.
Available sources of liquidity at the end of the quarter increased to $715 million consisting of cash and amounts available under the Receivables Purchase Agreement, the Inventory Facility and the USSK credit facilities. This increase of $219 million from the prior quarter was primarily the result of increased availability under the Receivables Purchase Agreement due to higher receivables balances, and the repurchase of receivables previously sold with the $192 million of net proceeds from the company's May equity offering of 10,925,000 shares of common stock.
Looking ahead, shipments for Flat-rolled products are expected to increase slightly in the third quarter. Further improvement in average realized prices is also anticipated. For full-year 2002, Flat-rolled shipments are now expected to approximate 10.1 million net tons.
For Tubular, some improvement is expected in the second half with third quarter shipments up from the depressed levels in the first half of 2002 and average realized prices up slightly versus the second quarter. Shipments for full-year 2002 are expected to be approximately 900,000 net tons.
USSK's average realized prices in third quarter 2002 are expected to increase, with shipments in line with the second quarter. Shipments in 2002 are now projected to be approximately 4.0 million net tons.
Commenting on U. S. Steel's outlook, Usher said, "For full-year 2002, we remain optimistic that U. S. Steel will be profitable. Our Flat-rolled business should continue to benefit from our domestic spot market exposure and the recent price restorations in the market. Internationally, our USSK operations are benefiting from improved steel market conditions in Europe and should continue to produce at the high, efficient levels experienced in the second quarter."
Because of a higher than expected number of normal salaried retirements, together with last year's Voluntary Early Retirement Program that was completed in June, an unfavorable pension settlement effect is expected to be recognized later this year for the qualified non-union plan. The amount of this recognition of deferred actuarial losses will depend on pension fund investment performance and liability changes up to the measurement date, but is broadly estimated to be approximately $100 million (pretax).
This release contains forward-looking statements with respect to market conditions, costs, shipments and prices, the potential coal mining asset sale and customer matters. Some factors, among others, that could affect full-year 2002 market conditions, costs, shipments and prices include import levels, future product demand, prices and mix, global and company steel production, plant operating performance, domestic natural gas prices and usage, the resumption of operation of steel facilities sold under the bankruptcy laws, and U.S. and European economic performance and political developments. Steel shipments and prices can be affected by imports and actions of the U.S. Government and its agencies. Factors that may affect USSK results are similar to domestic factors, including excess world supply, plus foreign currency fluctuations, matters peculiar to international marketing such as tariffs, and completion of facility projects at USSK. Factors that may impact the occurrence and timing of the coal mining asset sale include the availability of financing to the buyer and completion of definitive documentation. Factors that may affect the amount of the expected unfavorable pension settlement in the qualified non-union plan later this year include, among others, 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, 2001, and in subsequent filings for U. S. Steel.
A Statement of Operations and Preliminary Supplemental Statistics for U. S. Steel are attached.
The company will conduct a conference call on second quarter earnings on Tuesday, July 23, at 11 a.m. EDT. To listen to the web cast of the conference call, visit the U. S. Steel web site, http://www.ussteel.com/, and click on the "Investors" button. Replays of the web cast will be available through July 30.
For more information on U. S. Steel, visit our web site at http://www.ussteel.com/.
UNITED STATES STEEL CORPORATION STATEMENT OF OPERATIONS (Unaudited) ----------------------------------- Second Quarter Six Months (Dollars in millions, Ended Ended except per share June 30 June 30 amounts) 2002 2001 2002 2001 ----------------------------------------------------------------------- REVENUES AND OTHER INCOME: Revenues $1,761 $1,733 $3,192 $3,243 Income (loss) from investees 7 (7) 9 40 Net gains on disposal of assets 4 10 5 16 Other income 35 1 35 2 ------ ------ ------ ------ Total revenues and other income 1,807 1,737 3,241 3,301 ------ ------ ------ ------ COSTS AND EXPENSES: Cost of revenues 1,571 1,617 2,907 3,174 Selling, general and administrative expenses 100 68 171 103 Depreciation, depletion and amortization 89 79 177 152 ------ ------ ------ ------ Total costs and expenses 1,760 1,764 3,255 3,429 ------ ------ ------ ------ INCOME (LOSS) FROM OPERATIONS 47 (27) (14) (128) Net interest and other financial costs 19 48 53 36 ------ ------ ------ ------ INCOME (LOSS) BEFORE INCOME TAXES 28 (75) (67) (164) Provision (credit) for income taxes 1 (45) (11) (143) ------ ------ ------ ------ NET INCOME (LOSS) $27 $(30) $(56) $(21) ====== ====== ====== ====== COMMON STOCK DATA: Net income (loss), per share - Basic and diluted $.28 $ (.34) $(.60) $ (.24) Weighted average shares, in thousands - Basic 95,670 89,223 92,636 89,223 - Diluted 95,675 89,223 92,636 89,223 Dividends paid per share: United States Steel Corporation Common Stock $.05 - $.10 - USX - U. S. Steel Common Stock - $.10 - $.35 Note: Net income (loss) per common share for the periods of 2002 are based on the weighted average number of common shares outstanding during the periods. Net loss per common share for the periods of 2001 are based on outstanding common shares at December 31, 2001, the date of the Separation. The following notes are an integral part of this financial statement. UNITED STATES STEEL CORPORATION SELECTED NOTES TO FINANCIAL STATEMENT ------------------------------------- 1. United States Steel Corporation (U. S. Steel) is engaged domestically in the production, sale and transportation of steel mill products, coke, taconite pellets and coal; the management and development of mineral resources and real estate; and engineering and consulting services and, through U. S. Steel Kosice in the Slovak Republic, in the production and sale of steel mill products and coke primarily for the Central European market. Prior to December 31, 2001, the businesses of U. S. Steel comprised an operating unit of USX Corporation, now named Marathon Oil Corporation (Marathon). Marathon had two outstanding classes of common stock: USX-Marathon Group common stock, which was intended to reflect the performance of Marathon's energy business, and USX-U. S. Steel Group common stock (Steel Stock), which was intended to reflect the performance of Marathon's steel business. On December 31, 2001, U. S. Steel was capitalized through the issuance of 89.2 million shares of common stock to the holders of Steel Stock in exchange for all outstanding shares of Steel Stock on a one-for- one basis (the Separation). The accompanying Statement of Operations includes the second quarter and six months of 2002 results of operations of U. S. Steel on a stand-alone basis, while the second quarter and six months of 2001 results of operations represent a carve-out presentation of the businesses comprising U. S. Steel and are not intended to be a complete presentation of the results of operations of U. S. Steel on a stand-alone basis. The results of operations for the 2001 periods contain certain transactions related to interest and other financial costs that were attributed to U. S. Steel by Marathon based on U. S. Steel's cash flows and its capital structure. Corporate general and administrative costs were allocated to U. S. Steel during the periods of 2001 based upon utilization or other methods that management believed to be reasonable and which considered certain measures of business activities, such as employment, investments and revenues. Income taxes were allocated to U. S. Steel during the periods of 2001 in accordance with Marathon's tax allocation policy. In general, such policy provided that the consolidated provision and related tax payments or refunds be allocated based principally upon the financial income, taxable income, credits, preferences and other amounts directly related to U. S. Steel. Effective January 1, 2002, net pension and other postretirement costs associated with active employees at our operating locations are reflected in cost of revenues. Net costs and credits associated with corporate headquarters personnel and all retirees are reflected in selling, general and administrative expenses. Prior year data has been reclassified to conform to the current year presentation, which resulted in a decrease in cost of revenues and an increase in selling, general and administrative expenses of $38 million and $80 million for the second quarter and six months of 2001, respectively. 2. In the second quarter of 2002, U. S. Steel recognized a pretax gain of $33 million associated with the recovery of black lung excise taxes that were paid on coal export sales during the period 1993 through 1999. This gain is included in other income in the Statement of Operations and resulted from a 1998 federal district court decision that found such taxes to be unconstitutional. Of the $33 million recognized, $10 million represents the interest component of the claim. 3. On March 1, 2001, U. S. Steel completed the purchase of the tin mill products business of LTV Corporation (LTV), which is now operated as East Chicago Tin. In this noncash transaction, U. S. Steel assumed approximately $66 million of certain employee-related obligations from LTV. The acquisition was accounted for using the purchase method of accounting. Results of operations for 2001 included the operations of East Chicago Tin from the date of acquisition. On March 23, 2001, Transtar, Inc. (Transtar) completed a reorganization with its two voting shareholders, U. S. Steel and Transtar Holdings, L.P. (Holdings), an affiliate of Blackstone Capital Partners L.P., which resulted in U. S. Steel becoming the sole owner of Transtar and certain of its subsidiaries while Holdings became the owner of the other subsidiaries. U. S. Steel recorded $70 million and ($2) million in income (loss) from investees in the first and second quarters of 2001, respectively, to reflect its share of the gain and subsequent downward adjustment of the gain recognized by Transtar as a result of the reorganization. Also, in connection with this transaction, U. S. Steel recognized a favorable deferred tax adjustment of $33 million in the first quarter of 2001 related to its investment in the stock of Transtar which is included in the provision (credit) for income taxes. U. S. Steel previously accounted for its investment in Transtar under the equity method of accounting. 4. U. S. Steel has a 16% investment in Republic Technologies International Holdings, LLC. (Republic) which was accounted for under the equity method of accounting until the first quarter of 2001 when investments in and advances to Republic were reduced to zero. On April 2, 2001, Republic filed a voluntary petition with the U.S. Bankruptcy Court to reorganize its operations under Chapter 11 of the U.S. Bankruptcy Code. In the first quarter of 2001 as a result of Republic's petition, U. S. Steel recorded a pretax charge reflected as a reduction in revenues of $74 million for potentially uncollectible trade receivables and recognized certain debt obligations of $14 million which had been previously assumed by Republic. As a result of further deterioration of Republic's financial condition during the balance of 2001, an additional charge of $68 million was recorded in the fourth quarter of 2001 to reserve the remaining balance of pre-petition trade receivables and to reserve a portion of other receivables established for retiree medical claim payments made by U.S. Steel that were to be subsequently reimbursed by Republic. These retiree medical cost reimbursements are the subject of a pending request for treatment as administrative expenses in the bankruptcy proceedings. On July 11, 2002, after a protracted auction proceeding, the Bankruptcy Court issued an order approving the sale of substantially all of Republic's assets which sale appears to have not produced sufficient cash proceeds to satisfy all administrative claims. As a result of this and other recent developments, U. S. Steel has reassessed the likelihood of collecting the retiree medical cost reimbursements from Republic, even if U. S. Steel prevails in its claim for treatment as administrative expenses and has recorded a pretax charge of $14 million to reserve the remaining balance of these receivables. This charge is included in selling, general and administrative expenses. 5. The credit for income taxes in the six months of 2002 reflected a tax benefit for pretax losses at the estimated annual effective tax rate for 2002 of approximately 24%. As a result of Slovak Republic laws regarding tax credits and certain tax planning strategies to reinvest earnings in foreign operations, virtually no income tax provision is recorded for USSK income. The tax credit also included a $4 million charge related to a newly enacted state tax law. In the six months of 2001, effective tax rates were applied to U. S. Steel's domestic and foreign operations separately. As a result, the credit for income taxes reflected an estimated annual effective tax rate of approximately 34% for U. S. Steel's domestic operations, and virtually no tax provision for USSK's income. The tax credit also included a $33 million benefit related to the Transtar reorganization. In addition, net interest and other financial costs in the six months of 2001 included a favorable adjustment of $67 million and the credit for income taxes included an unfavorable adjustment of $15 million, both of which were related to prior years' taxes. 6. Selling, general and administrative expenses for the second quarter and six months of 2002 included a pretax settlement charge of $10 million related to retirements of personnel covered under the non tax-qualified pension plan and the executive management supplemental pension program. Selling, general and administrative expenses for the second quarter and six months of 2001 included $8 million and $9 million, respectively for costs, primarily professional fees, incurred related to the Separation. 7. Income (loss) from investees included pretax gains of $6 million and $2 million for the second quarter of 2002 and 2001, respectively, and $18 million and $2 million for the six months of 2002 and 2001, respectively, for U. S. Steel's share of insurance recoveries related to the May 31, 2001 fire at the USS-POSCO joint venture. UNITED STATES STEEL CORPORATION PRELIMINARY SUPPLEMENTAL STATISTICS (Unaudited) ------------------------------------------------ Quarter Ended June 30 March 31 June 30 (Dollars in millions) 2002 2002 2001 ------------------------------------------------------------------- INCOME (LOSS) FROM OPERATIONS Flat-rolled Products $(26) $(74) $(143) Tubular Products 6 3 35 U. S. Steel Kosice 26 (1) 41 Other Businesses: Coal, Coke and Iron Ore 11 (14) 14 Straightline (10) (7) - All Other 25 12 34 ----- ----- ----- Income (Loss) from Operations before Special Items 32 (81) (19) Special Items: Federal excise tax refund 33 - - Insurance recoveries related to USS-POSCO fire 6 12 2 Pension settlement loss (10) - - Asset impairments - receivables (14) - - Costs related to Fairless shutdown - (1) - Reversal of litigation accrual - 9 - Costs related to Separation - - (8) Adjustment to gain on Transtar reorganization - - (2) ----- ----- ----- Total Income (Loss) from Operations $47 $(61) $(27) CAPITAL EXPENDITURES Flat-rolled Products $6 $11 $83 Tubular Products 10 5 - U. S. Steel Kosice 17 17 9 Other Businesses 15 23 12 ----- ----- ----- Total $48 $56 $104 OPERATING STATISTICS Average realized price: ($/net ton)(a) Flat-rolled Products $402 $377 $395 Tubular Products 636 640 677 U. S. Steel Kosice 257 245 249 Steel Shipments:(a)(b) Flat-rolled Products 2,571 2,330 2,296 Tubular Products 217 188 315 U. S. Steel Kosice 1,105 756 1,071 Raw Steel-Production:(b) Domestic Facilities 2,998 2,906 2,621 U. S. Steel Kosice 1,191 917 1,131 Raw Steel-Capability Utilization:(c) Domestic Facilities 93.9% 92.1% 82.1% U. S. Steel Kosice 95.5% 74.4% 90.7% Domestic Ore Shipments(b)(d) 5,059 2,289 5,189 Domestic Coke Shipments(b)(d) 1,356 1,164 1,293 ----------- (a) Excludes intersegment transfers. (b) Thousands of net tons. (c) Based on annual raw steel production capability of 12.8 million net tons for domestic facilities and 5.0 million net tons for U. S. Steel Kosice. (d) Includes intersegment transfers.
SOURCE: United States Steel Corporation
CONTACT: Media: Mike Dixon, +1-412-433-6870; or Investors/Analysts: John
Web site: http://www.ussteel.com/
Company News On-Call: