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United States Steel Corporation Reports 2009 Second Quarter Results

PRNewswire
PITTSBURGH
(NYSE:X)
07.28.2009

PITTSBURGH, July 28 /PRNewswire-FirstCall/ --

  • Net loss of $392 million, or $2.92 per share
  • Shipments of 2.9 million tons, a decrease of 9 percent from first quarter 2009
  • Net sales of $2.1 billion, a decrease of 23 percent from first quarter 2009
  • Year to date cash flow from operations of $361 million
  • Maintained strong liquidity position with $1.95 billion of cash and $3.1 billion of total liquidity

United States Steel Corporation (NYSE: X) reported a second quarter 2009 net loss of $392 million, or $2.92 per diluted share, compared to a net loss of $439 million, or $3.78 per diluted share, in the first quarter of 2009 and net income of $668 million, or $5.65 per diluted share, in the second quarter of 2008.

    ------------------------------------------------------------------------
                              Earnings Highlights
    ------------------------------------------------------------------------
    (Dollars in millions except per share data)     2Q 2009 1Q 2009 2Q 2008
    ------------------------------------------------------------------------
    Net sales                                        $2,127  $2,750  $6,744
    ========================================================================
    Segment (loss) income from operations
        Flat-rolled                                   $(362)  $(422)   $468
        U. S. Steel Europe                              (53)   (159)    298
        Tubular                                         (88)    127     177
        Other Businesses                                 (7)     (3)     16
    ------------------------------------------------------------------------
    Total segment (loss) income from operations       $(510)  $(457)   $959
    Retiree benefit (expenses) income                   (34)    (32)      1
    Other items not allocated to segments                79      11      (6)
    ------------------------------------------------------------------------
    (Loss) income from operations                     $(465)  $(478)   $954
    ========================================================================
    Net interest and other financial costs                9      71      25
    ------------------------------------------------------------------------
    Income tax (benefit) provision                      (82)   (110)    255
    ========================================================================
    Net (loss) income attributable to
     United States Steel Corporation                  $(392)  $(439)   $668
    ------------------------------------------------------------------------
      - Per basic share                              $(2.92) $(3.78)  $5.69
      - Per diluted share                            $(2.92) $(3.78)  $5.65
    ------------------------------------------------------------------------

Commenting on results, U. S. Steel Chairman and CEO John P. Surma said, "Our second quarter operating loss was in line with the first quarter as our order book and operating rates remained at very low levels, spot market prices declined and we continued to incur carrying costs for our idled facilities."

The company reported a second quarter loss from operations of $465 million, compared to a loss of $478 million in the first quarter of 2009 and income from operations of $954 million in the second quarter last year.

Other items not allocated to segments in the second quarter of 2009 consisted of pre-tax income of $45 million from the reversal of a litigation reserve as a result of a favorable court ruling and $34 million associated with the recovery of federal excise taxes that were paid on coal export sales during 1990 to 1992. These items increased net income by $49 million, or 36 cents per diluted share. Other items not allocated to segments in the first quarter of 2009 increased net income by $7 million, or 6 cents per diluted share. Other items not allocated to segments in the second quarter of 2008 reduced net income by $4 million, or 3 cents per diluted share.

Net interest and other financial costs in the second quarter of 2009 included a foreign currency gain that increased net income by $41 million, or 31 cents per diluted share, due to the remeasurement of an $824 million U.S. dollar-denominated intercompany loan to a European affiliate and related euro-U.S. dollar derivatives activity. This compares to a foreign currency loss that decreased net income by $28 million, or 24 cents per diluted share, in the first quarter of 2009 and an immaterial amount for these items in the second quarter of 2008.

The effective tax benefit rate of 19 percent for the first six months of 2009 is lower than the statutory rate because losses in Canada and Serbia, which are jurisdictions where we have recorded a full valuation allowance on deferred tax assets, do not generate a tax benefit for accounting purposes.

During the second quarter of 2009, U. S. Steel raised $1.5 billion through common stock and senior convertible notes offerings, repaid $655 million of term loans due in 2010 and 2012 and amended our revolving credit facility to eliminate certain financial covenants and provide lenders a security interest in domestic inventory. We ended the second quarter with total liquidity of $3.1 billion.

Reportable Segments and Other Businesses

Management believes segment income from operations is a key measure in evaluating company performance. U. S. Steel's reportable segments and Other Businesses reported a segment loss from operations of $510 million, or $173 per ton, in the second quarter of 2009, compared with a loss of $457 million, or $142 per ton, in the first quarter of 2009 and income of $959 million, or $136 per ton, in the second quarter of 2008. The lower overall results as compared to first quarter 2009 reflect significantly lower Tubular results which more than offset the changes in Flat-rolled and U. S. Steel Europe (USSE). The results for the second quarter of 2009 included lower of cost or market related adjustments totaling approximately $100 million primarily at U. S. Steel Canada (USSC), USSE and Texas Operations, compared to $65 million in the first quarter of 2009. These adjustments reflect the significant decrease in flat-rolled and tubular selling prices in recent quarters.

The second quarter 2009 Flat-rolled loss from operations was less than the first quarter despite the extremely low capability utilization rate of 32 percent. The change was primarily due to the non-recurrence of accruals recorded in the first quarter for estimated future layoff benefits and for losses on excess natural gas forward purchase contracts, as well as reductions in spending and labor, partially offset by lower average realized prices, additional lower of cost or market inventory charges and reduced shipments. Second quarter results reflected continuing employee and other costs for idled facilities totaling approximately $285 million, compared to $230 million in the first quarter of 2009 as our Lake Erie Works was idled for the entire quarter and we idled additional iron ore capacity.

Second quarter 2009 results for USSE improved significantly compared to the first quarter primarily due to lower raw material costs, sales of emissions allowances and lower inventory write-downs. These items were partially offset by lower average realized prices.

Tubular results continue to reflect the impacts of lower oil and gas exploration and production activity, high inventory levels and the surge of unfairly traded and subsidized product from China. Tubular reported an operating loss in the second quarter of 2009 compared to income in the first quarter mainly due to a decrease in shipments, lower average realized prices and second quarter lower of cost or market related write-downs. These items were partially offset by the non-recurrence of accruals recorded in the first quarter for estimated future layoff benefits. Second quarter results reflected continuing employee and other costs for idled facilities totaling approximately $25 million, compared to $20 million in the first quarter of 2009.

Outlook

Commenting on U. S. Steel's outlook for the third quarter, Surma said, "While we anticipate an increase in our third quarter operating rates from the extremely low levels of last quarter, we expect each of our segments to report an operating loss in the third quarter due to continued low operating rates, idled facility carrying costs and lower average realized prices. There are some signs that the destocking cycle has ended in the North American and Central European steel markets as increased customer orders across almost all industry segments have resulted in an extension of lead times. We have begun to bring up idled facilities in line with customer demand and we have implemented price increases in our Flat-rolled and USSE segments in the third quarter. Despite these signs of improvement, the outlook for overall demand remains uncertain and the timing and magnitude of sustained economic recovery remain difficult to forecast."

For Flat-rolled, third quarter results are expected to decrease from the second quarter, reflecting lower index-based contract prices, which tend to lag the spot market, and increased shipments of lower margin semi-finished and hot-rolled product. Raw steel capability utilization and shipments are expected to improve in line with increased customer orders as we restart raw materials and steelmaking operations. However, the favorable effects of these items are expected to be offset by higher raw material and energy costs, as well as costs to restart idled facilities at our Granite City Works and several raw materials operations. Consideration will be given to restarting other facilities if sustained customer demand supports higher production levels. Also, we are currently negotiating with the United Steelworkers for a successor to the labor agreement covering our Lake Erie Works operations, which expires on July 31, 2009.

Third quarter results for USSE are expected to be in line with the second quarter. Lower raw material and energy costs and higher spot market prices later in the quarter are expected to be offset by the non-recurrence of the gain on sales of emissions allowances and lower contract prices. We have experienced a delay in the intended start up of our third blast furnace at U. S. Steel Kosice, but it is expected to be operating in late September. In the meantime, we are meeting our customers' requirements with increased production at U. S. Steel Serbia.

Third quarter results for Tubular are expected to show some improvement compared to the second quarter mainly due to a slight increase in shipments as customers fill limited inventory needs for certain specialized products. However, we expect an operating loss as we continue to incur idled facility carrying costs and shipments and average realized prices continue to be depressed by the inventory glut created by the surge of unfairly traded and subsidized product from China.

This release contains forward-looking statements with respect to market conditions, operating costs, shipments and prices. U. S. Steel has been, and we expect will continue to be, negatively impacted by the current global credit and economic problems. U. S. Steel cannot control or predict the extent and timing of economic recovery. When a recovery occurs, U. S. Steel will incur costs to restart idled facilities and to rebuild working capital, but we cannot accurately forecast the amount of such costs. Other more normal factors that could affect market conditions, costs, shipments and prices for both North American operations and USSE include global product demand, prices and mix; global and company steel production levels; plant operating performance; the timing and completion of facility projects; natural gas and electricity prices, usage and availability; raw materials and transportation prices and availability; international trade developments; 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, pension and other laws; the terms of collective bargaining agreements including any successor to the labor agreement covering our Lake Erie Works operations; employee strikes or other labor issues; 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, including those related to CO2 emissions and climate change. Economic conditions and political factors in Europe and Canada that may affect USSE's and USSC's results include, but are not limited to, taxation, nationalization, inflation, currency fluctuations, government instability, political unrest, regulatory changes, 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 U. S. Steel's Annual Report on Form 10-K for the year ended December 31, 2008, and in subsequent filings for U. S. Steel.

A Consolidated Statement of Operations (Unaudited), Consolidated Statement of Cash Flows (Unaudited), Condensed Consolidated Balance Sheet (Unaudited) and Preliminary Supplemental Statistics (Unaudited) for U. S. Steel are attached.

The company will conduct a conference call on second quarter earnings on Tuesday, July 28, at 3 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 "Overview" under the "Investors" section.

For more information on U. S. Steel, visit its web site at www.ussteel.com.

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

                                        Quarter Ended        Six Months Ended
                                  -------------------------  ----------------
                                  June 30  Mar. 31  June 30        June 30
    (Dollars in millions)            2009     2009     2008     2009     2008
    -------------------------------------------------------------------------
    NET SALES                      $2,127   $2,750   $6,744   $4,877  $11,940

    OPERATING EXPENSES (INCOME):
      Cost of sales (excludes
       items shown below)           2,340    3,007    5,497    5,347   10,140
      Selling, general and
       administrative expenses        154      143      171      297      313
      Depreciation, depletion
       and amortization               159      158      159      317      315
      Income from investees            10       21      (34)      31      (41)
      Net gains on disposal of
       assets                         (36)     (97)      (1)    (133)      (2)
      Other income, net               (35)      (4)      (2)     (39)      (5)
                                      ---       --       --      ---       --
        Total operating expenses    2,592    3,228    5,790    5,820   10,720
                                    -----    -----    -----    -----   ------

    (LOSS) INCOME FROM OPERATIONS    (465)    (478)     954     (943)   1,220
    Net interest and other
     financial costs                    9       71       25       80       (7)
                                      ---      ---      ---      ---      ---
    (LOSS) INCOME BEFORE INCOME
     TAXES                           (474)    (549)     929   (1,023)   1,227
    Income tax (benefit) provision    (82)    (110)     255     (192)     313
                                      ---    -----      ---    -----      ---
    Net (loss) income                (392)    (439)     674     (831)     914
        Less: Net income
         attributable to the
         noncontrolling interests       -        -        6        -       11
                                      ---      ---      ---      ---      ---
    NET (LOSS) INCOME ATTRIBUTABLE
     TO UNITED STATES STEEL
     CORPORATION                    $(392)   $(439)    $668    $(831)    $903
                                    =====    =====    =====    =====    =====

    COMMON STOCK DATA:
    -------------------------------------------------------------------------
    Net income per share:
        - Basic                    $(2.92)  $(3.78)   $5.69   $(6.63)   $7.68
        - Diluted                  $(2.92)  $(3.78)   $5.65   $(6.63)   $7.64

    Weighted average shares, in
     thousands
        - Basic                   134,634  116,103  117,507  125,420  117,551
        - Diluted                 134,634  116,103  118,217  125,420  118,190

    Dividends paid per common
     share                           $.05     $.30     $.25     $.35     $.50



                       UNITED STATES STEEL CORPORATION
                CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
                ------------------------------------------------

                                                             Six Months Ended
                                                                 June 30
                                                             ----------------
    (Dollars in millions)                                     2009       2008
    -------------------------------------------------------------------------

    Cash provided from operating activities:
      Net (loss) income                                      $(831)      $914
      Depreciation, depletion and amortization                 317        315
      Pensions and other postretirement benefits                 1       (216)
      Deferred income taxes                                   (248)        97
      Net gains on disposal of assets                         (133)        (2)
      Changes in: Current receivables                        1,028     (1,053)
                  Inventories                                  718       (292)
                  Current accounts payable and accrued
                   expenses                                   (532)       798
                  Bank checks outstanding                       (1)        (5)
      Other operating activities                                42        (93)
                                                                --        ---
        Total                                                  361        463
                                                               ---        ---
    Cash used in investing activities:
      Capital expenditures                                    (206)      (299)
      Capital expenditures - variable interest entities        (93)       (41)
      Disposal of assets                                       339          7
      Other investing activities                               (55)       (17)
                                                               ---        ---
        Total                                                  (15)      (350)
                                                               ---       ----
    Cash (used in) provided from financing activities:
      Issuance of long-term debt                               839          -
      Repayment of long-term debt                             (667)       (36)
      Common stock issued                                      666         11
      Common stock repurchased                                   -        (85)
      Dividends paid                                           (42)       (59)
      Other financing activities                                90         34
                                                                --         --
        Total                                                  886       (135)
                                                               ---       ----
    Effect of exchange rate changes on cash                     (6)        12
                                                                --         --
    Net increase (decrease) in cash and cash equivalents     1,226        (10)
    Cash at beginning of the year                              724        401
                                                               ---        ---
    Cash at end of the period                               $1,950       $391
                                                            ======       ====



                       UNITED STATES STEEL CORPORATION
                CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
                ------------------------------------------------

                                                            June 30   Dec. 31
    (Dollars in millions)                                      2009      2008
    -------------------------------------------------------------------------
    Cash and cash equivalents                                $1,950      $724
    Receivables, Net                                          1,257     2,288
    Inventories                                               1,781     2,492
    Other current assets                                        470       228
                                                                ---       ---
        Total current assets                                  5,458     5,732
    Property, plant and equipment, net                        6,740     6,676
    Investments and long-term receivables, net                  630       695
    Goodwill and intangible assets, net                       1,927     1,891
    Other assets                                                982     1,093
                                                                ---     -----
        Total assets                                        $15,737   $16,087
                                                            =======   =======
    Accounts payable                                         $1,073    $1,483
    Payroll and benefits payable                                787       967
    Short-term debt and current maturities of
     long-term debt                                              18        81
    Other current liabilities                                   271       247
                                                                ---       ---
        Total current liabilities                             2,149     2,778
    Long-term debt, less unamortized discount                 3,333     3,064
    Employee benefits                                         4,720     4,767
    Other long-term liabilities                                 406       419
    United States Steel Corporation stockholders' equity      4,873     4,895
    Noncontrolling interests                                    256       164
                                                                ---       ---
        Total liabilities and stockholders' equity          $15,737   $16,087
                                                            =======   =======



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

                                       Quarter Ended          Six Months Ended
                              ----------------------------    ----------------
                              June 30    Mar. 31  June 30         June 30
    (Dollars in millions)        2009       2009     2008     2009       2008
    --------------------------------------------------------------------------

    (LOSS) INCOME FROM
     OPERATIONS
    Flat-rolled(a)             $(362)      $(422)    $468    $(784)      $565
    U. S. Steel Europe           (53)       (159)     298     (212)       459
    Tubular                      (88)        127      177       39        228
    Other Businesses(a)           (7)         (3)      16      (10)        34
                                 ---         ---      ---      ---        ---
    Segment (Loss) Income
     from Operations            (510)       (457)     959     (967)     1,286
      Retiree benefit
       expenses                  (34)        (32)       1      (66)         2
      Other items not
       allocated to
       segments:
        Litigation reserve        45           -        -       45        (45)
        Federal excise tax
         refund                   34           -        -       34          -
        Net gain on sale of
         assets                    -          97        -       97          -
        Workforce reduction
         charges                   -         (86)       -      (86)         -
        Flat-rolled inventory
         transition effects        -           -       (6)       -        (23)
                                 ---         ---       --      ---        ---
          Total (Loss) Income
           from Operations     $(465)      $(478)    $954    $(943)    $1,220

    CAPITAL EXPENDITURES(b)
    Flat-rolled(a)               $65         $98     $126     $163       $201
    U. S. Steel Europe            18          10       49       28         81
    Tubular                        3           3        5        6          9
    Other Businesses(a)            2           7        5        9          8
                                 ---         ---      ---      ---        ---
        Total                    $88        $118      $185    $206       $299
    ---------------
    (a) Effective with the fourth quarter of 2008, the operating results of
        our iron ore operations, which were previously included in Other
        Businesses, are included in the Flat-rolled segment.  Prior periods
        have been restated to reflect this change.
    (b) Excludes capital spending by variable interest entities, which is not
        funded by U. S. Steel.



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

                                         Quarter Ended       Six Months Ended
                                   ------------------------- ----------------
                                   June 30  Mar. 31  June 30       June 30
                                      2009     2009     2008     2009    2008
    -------------------------------------------------------------------------
    OPERATING STATISTICS
      Average realized price:
       ($/net ton)(a)
         Flat-rolled                   677      715      777      697     713
         U. S. Steel Europe            602      672      986      634     890
         Tubular                     1,526    2,353    1,690    2,100   1,508
      Steel Shipments:(a)(b)
         Flat-rolled                 1,815    2,123    4,849    3,938   9,550
         U. S. Steel Europe          1,035      897    1,696    1,932   3,334
         Tubular                        92      207      500      299     933
                                       ---      ---      ---      ---     ---
           Total Steel Shipments     2,942    3,227    7,045    6,169  13,817
      Intersegment Shipments:(b)
         Flat-rolled to Tubular         34       88      472      122     917
      Raw Steel-Production:(b)
         Flat-rolled                 1,964    2,279    5,614    4,243  11,172
         U. S. Steel Europe          1,059      999    1,925    2,058   3,833
      Raw Steel-Capability
       Utilization:(c)
         Flat-rolled                  32.4%    38.0%    92.7%    35.2%   92.2%
         U. S. Steel Europe           57.4%    54.8%   104.3%    56.1%  103.9%
    ---------------
    (a) Excludes intersegment shipments.
    (b) Thousands of net tons.
    (c) Based on annual raw steel production capability of 24.3 million net
        tons for Flat-rolled and 7.4 million net tons for U. S. Steel Europe.

SOURCE United States Steel Corporation

SOURCE: United States Steel Corporation

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

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