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United States Steel Corporation Reports 2009 Third Quarter Results

PRNewswire
PITTSBURGH
(NYSE:X)
10.27.2009

PITTSBURGH, Oct. 27 /PRNewswire-FirstCall/ --

  • Net loss of $303 million, or $2.11 per share
  • Shipments of 4.2 million tons, an increase of 41 percent from second quarter 2009
  • Net sales of $2.8 billion, an increase of 32 percent from second quarter 2009
  • Year to date cash flow from operations of $118 million
  • Maintained strong liquidity position with $1.5 billion of cash and $2.7 billion of total liquidity

United States Steel Corporation (NYSE: X) reported a third quarter 2009 net loss of $303 million, or $2.11 per diluted share, compared to a net loss of $392 million, or $2.92 per diluted share, in the second quarter of 2009 and net income of $919 million, or $7.79 per diluted share, in the third quarter of 2008.

                                 Earnings Highlights
    -------------------------------------------------------------------------
    (Dollars in millions except per          3Q 2009     2Q 2009     3Q 2008
      share data)
    -------------------------------------------------------------------------
    Net sales                                 $2,817      $2,127      $7,312
    =========================================================================
    Segment (loss) income from operations
      Flat-rolled                              $(370)      $(362)       $846
      U. S. Steel Europe                           7         (53)        173
      Tubular                                    (21)        (88)        420
      Other Businesses                             5          (7)         22
    -------------------------------------------------------------------------
    Total segment (loss) income from
     operations                                $(379)      $(510)     $1,461
    Retiree benefit expenses                     (33)        (34)         (6)
    Other items not allocated to segments          -          79        (128)
    -------------------------------------------------------------------------
    (Loss) income from operations              $(412)      $(465)     $1,327
    =========================================================================
    Net interest and other financial costs        25           9          46
    -------------------------------------------------------------------------
    Income tax (benefit) provision              (130)        (82)        339
    =========================================================================
    Net (loss) income attributable to
      United States Steel Corporation          $(303)      $(392)       $919
    -------------------------------------------------------------------------
      - Per basic share                       $(2.11)     $(2.92)      $7.84
      - Per diluted share                     $(2.11)     $(2.92)      $7.79
    -------------------------------------------------------------------------

Commenting on results, U. S. Steel Chairman and CEO John P. Surma said, "Shipment volumes and operating rates for all of our reportable segments increased significantly from the very low levels of the second quarter as we brought several idled facilities online to satisfy increased customer order rates. Our European and Tubular segments had improved financial performance and our Flat-rolled segment's results were in line with the prior quarter despite the effects of continued low operating rates and facility restart costs."

The company reported a third quarter 2009 loss from operations of $412 million, compared with a loss of $465 million in the second quarter of 2009 and income from operations of $1,327 million in the third quarter of 2008.

The third quarter 2009 loss from operations did not include any other items not allocated to segments. Other items not allocated to segments in the second quarter of 2009 increased net income by $49 million, or 36 cents per diluted share. Other items not allocated to segments in the third quarter of 2008 reduced net income by $79 million, or 67 cents per diluted share.

Net interest and other financial costs in the third quarter of 2009 included a foreign currency gain that increased net income by $24 million, or 16 cents per diluted share. The net gain resulted from the remeasurement of an $828 million U.S. dollar-denominated intercompany loan to a European affiliate, partially offset by losses on euro-U.S. dollar derivatives activity. This compares to a foreign currency gain that increased net income by $41 million, or 31 cents per diluted share, in the second quarter of 2009 and a foreign currency loss that decreased net income by $39 million, or 33 cents per diluted share, in the third quarter of 2008.

The effective tax benefit rate of 22 percent for the first nine 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. Third quarter 2009 results included a $23 million, or 16 cents per diluted share, catch-up benefit adjustment as a result of a slight increase in the estimated annual effective tax benefit rate.

During the third quarter of 2009, we made a voluntary contribution of $140 million to our main defined benefit pension plan in the United States. We ended the quarter with $1.5 billion of cash and total liquidity of $2.7 billion.

U. S. Steel's annual goodwill impairment test, which was completed during the third quarter, resulted in no impairment to the approximately $1.7 billion of goodwill on our balance sheet.

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 $379 million, or $91 per ton, in the third quarter of 2009, compared to a loss of $510 million, or $173 per ton, in the second quarter of 2009 and segment income from operations of $1,461 million, or $227 per ton, in the third quarter of 2008.

Income from operations for Flat-rolled was comparable to the second quarter, reflecting improved operating efficiencies, higher shipments and lower inventory write-downs, offset by lower average realized prices, higher raw material costs and approximately $65 million of facility restart costs. Raw steel capability utilization for the quarter increased to 58 percent versus 32 percent in the second quarter. Shipments improved by 50 percent to 2.7 million tons while average realized prices decreased by 11 percent to $605 per net ton. Third quarter results reflected continuing employee and other costs for idled facilities totaling approximately $165 million, compared to $285 million in the second quarter of 2009, reflecting steelmaking facility restarts at our Granite City Works, Great Lakes Works, Hamilton Works and our raw materials operations; however, given current order rates, we plan to adjust our operating configuration as discussed below in the Outlook section.

Our European segment recorded a small profit in the third quarter compared to the second quarter loss as lower raw material and energy costs and improved operating efficiencies were somewhat offset by the non-recurrence of a $34 million second quarter gain on sales of emissions allowances. Raw steel capability utilization for the quarter increased from 57 percent in the second quarter to 82 percent in the third quarter as we restarted our third blast furnace at U. S. Steel Kosice (USSK) in early September and operated both blast furnaces at U. S. Steel Serbia for most of the third quarter. Shipments increased by 24 percent to 1.3 million tons and average realized prices increased by two percent to $615 per net ton as a decrease in euro-based prices was more than offset by foreign currency translation effects.

Tubular reported a reduced operating loss in the third quarter of 2009 compared to the second quarter mainly due to higher shipments and lower inventory write-downs, partially offset by lower average realized prices. Shipments and average realized prices continued to be depressed by the inventory glut created by the surge of unfairly traded and subsidized product from China. Shipments increased by 64 percent to 151 thousand tons, which is still well below historical levels, and average realized prices decreased by three percent to $1,474 per net ton. Third quarter results reflected continuing employee and other costs for idled facilities totaling approximately $25 million, in line with the second quarter of 2009 as we operated our welded facilities at reduced levels.

Outlook

Commenting on U. S. Steel's outlook, Surma said, "We expect improvement in our overall fourth quarter results mainly as a result of increased demand for Flat-rolled products in North America, driven primarily by automotive markets and continued strength in tin mill markets. However, we expect to report an overall operating loss in the fourth quarter due primarily to continued low operating rates and idled facility carrying costs for our Flat-rolled and Tubular segments. We remain cautious in our outlook for end user demand as customer order rates in Flat-rolled and U. S. Steel Europe (USSE) have decreased from the third quarter, partly due to seasonal slowdowns, and we will continue to adjust production to meet our customers' demand. Despite these concerns and uncertainties, we believe that the U.S. and global economies are in the early stages of a gradual recovery, which has been aided by global stimulus policies and may be supported by continued improvement in credit markets and inventory restocking."

For Flat-rolled, fourth quarter results are expected to improve somewhat from the third quarter due primarily to higher average realized prices and increased shipments; however, we expect to report an operating loss for the fourth quarter primarily due to low operating rates and continued carrying costs for idled facilities. In order to adjust production to meet customer order rates, during the fourth quarter we expect to idle the #14 Blast Furnace at our Gary Works for necessary repairs, as well as one of two furnaces at Granite City Works. As a result, we currently expect fourth quarter raw steel capability utilization rates to be in line with third quarter levels. The labor agreement covering our Lake Erie Works operations has expired and we have not yet reached a successor agreement.

We expect fourth quarter results for USSE to be in line with the third quarter as higher average realized prices are offset by higher raw material costs and slightly lower shipments. Due to a planned maintenance outage for one of the three blast furnaces at USSK, we expect raw steel capability utilization rates to be lower than third quarter levels. The blast furnace operating configuration in Serbia will be adjusted as required in the fourth quarter to coincide with customer order rates.

Fourth quarter results for Tubular are expected to be comparable to the third quarter as operating levels, shipments and prices remain around prior quarter levels and we continue to incur carrying costs for idled facilities.

On October 9, 2009, U. S. Steel Canada (USSC) entered into an agreement with an unaffiliated third party providing for the sale of USSC's 44.6 percent interest in the Wabush Mines Joint Venture (Wabush) for approximately $53 million. Wabush owns and operates iron ore mining and pellet facilities in Newfoundland and Labrador and Quebec, Canada. On October 12, 2009, Cliffs Natural Resources Inc., one of the other owners of Wabush, exercised its right of first refusal and is now obligated to acquire USSC's interest in Wabush. Completion of the transaction is subject to customary closing conditions, including regulatory approvals and third party consents, and is scheduled to occur in the fourth quarter of 2009.

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. As the recovery occurs, U. S. Steel is incurring and will continue to 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 CO(2) 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. Consummation of the sale of our interest in Wabush is subject to regulatory approvals, third party consents and other customary closing conditions. 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 Cash Flow Statement (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 third quarter earnings on Tuesday, October 27, 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 "Overview" then "Current Information" 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       Nine Months Ended
                                  -------------------------- ----------------
                                  Sept. 30  June 30 Sept. 30      Sept. 30
    (Dollars in millions)            2009     2009    2008      2009     2008
    -------------------------------------------------------------------------

    NET SALES                      $2,817   $2,127   $7,312   $7,694  $19,252

    OPERATING EXPENSES (INCOME):
      Cost of sales (excludes
       items shown below)           2,902    2,340    5,752    8,249   15,892
      Selling, general and
       administrative expenses        163      154      151      460      464
      Depreciation, depletion
       and amortization               167      159      149      484      464
    Loss (income) from
     investees                          1       10      (51)      32      (92)
    Net gains on disposal of
     assets                            (1)     (36)      (6)    (134)      (8)
    Other income, net                  (3)     (35)     (10)     (42)     (15)
                                   ------   ------   ------   ------   ------
    Total operating expenses        3,229    2,592    5,985    9,049   16,705
                                   ------   ------   ------   ------   ------
    (LOSS) INCOME FROM
     OPERATIONS                      (412)    (465)   1,327   (1,355)   2,547
      Net interest and other
       financial costs                 25        9       46      105       39
                                   ------   ------   ------   ------   ------
    (LOSS) INCOME BEFORE
     INCOME TAXES AND
     MINORITY INTERESTS              (437)    (474)   1,281   (1,460)   2,508
    Income tax (benefit)
     provision                       (130)     (82)     339     (322)     652
                                   ------   ------   ------   ------   ------
    Net (loss) income                (307)    (392)     942   (1,138)   1,856
      Less: Net (loss) income
       attributable to the
       noncontrolling interests        (4)       -       23       (4)      34
                                   ------   ------   ------   ------   ------
    NET (LOSS) INCOME ATTRIBUTABLE
     TO UNITED STATES STEEL
     CORPORATION                    $(303)   $(392)    $919  $(1,134)  $1,822
                                   ======   ======   ======   ======   ======


    COMMON STOCK DATA:
    -------------------------------------------------------------------------
    Net (loss) income per
     share:
      - Basic                      $(2.11)  $(2.92)   $7.84   $(8.62)  $15.51
      - Diluted                    $(2.11)  $(2.92)   $7.79   $(8.62)  $15.43

    Weighted average shares, in
     thousands
      - Basic                     143,363  134,634  117,169  131,466  117,423
      - Diluted                   143,363  134,634  117,826  131,466  118,051

    Dividends paid per common
     share                           $.05     $.05     $.30     $.40     $.80


                        UNITED STATES STEEL CORPORATION
                    CONSOLIDATED CASH FLOW STATEMENT (Unaudited)
                    --------------------------------------------

                                                            Nine Months Ended
                                                               September 30
                                                            -----------------
    (Dollars in millions)                                     2009      2008
    -------------------------------------------------------------------------
    Cash provided from operating activities:
      Net (loss) income                                    $(1,138)   $1,856
      Depreciation, depletion and amortization                 484       464
      Pensions and other postretirement benefits              (160)     (388)
      Deferred income taxes                                   (258)      262
      Net gains on disposal of assets                         (134)       (8)
      Changes in: Current receivables                          671    (1,264)
                  Inventories                                  865      (478)
                  Current accounts payable and accrued
                   expenses                                   (237)      931
                  Bank checks outstanding                      (10)       (9)
      Other operating activities                                35       (35)
                                                            ------    ------
      Total                                                    118     1,331
                                                            ------    ------
    Cash used in investing activities:
      Capital expenditures                                    (323)     (539)
      Capital expenditures - variable interest entities       (126)      (94)
      Acquisition of pickle lines                                -       (36)
      Acquisition of Stelco Inc.                                 -        (1)
      Disposal of assets                                       340        19
      Other investing activities                              (101)      (14)
                                                            ------    ------
      Total                                                   (210)     (665)
                                                            ------    ------
    Cash provided from (used in) financing activities:
      Issuance of long-term debt                               839         -
      Repayment of long-term debt                             (671)     (359)
      Revolving credit facilities - borrowings                   -       359
                                  - repayments                   -       (44)
      Common stock issued                                      667        11
      Common stock repurchased                                   -      (214)
      Dividends paid                                           (49)      (94)
      Other financing activities                               127        68
                                                            ------    ------
      Total                                                    913      (273)
                                                            ------    ------
    Effect of exchange rate changes on cash                     (2)       (1)
                                                            ------    ------
    Net increase in cash and cash equivalents                  819       392
    Cash at beginning of the year                              724       401
                                                            ------    ------
    Cash at end of the period                               $1,543      $793
                                                            ======    ======


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

                                                           Sept. 30   Dec. 31
    (Dollars in millions)                                     2009      2008
    -------------------------------------------------------------------------
    Cash and cash equivalents                               $1,543      $724
    Receivables, net                                         1,638     2,288
    Inventories                                              1,677     2,492
    Other current assets                                       398       228
                                                           -------   -------
      Total current assets                                   5,256     5,732
    Property, plant and equipment, net                       6,860     6,676
    Investments and long-term receivables, net                 697       695
    Goodwill and intangible assets, net                      1,983     1,891
    Other assets                                             1,053     1,093
                                                           -------   -------
      Total assets                                         $15,849   $16,087
                                                           =======   =======
    Accounts payable                                        $1,490    $1,483
    Payroll and benefits payable                               770       967
    Short-term debt and current maturities
     of long-term debt                                          19        81
    Other current liabilities                                  187       247
                                                           -------   -------
      Total current liabilities                              2,466     2,778
    Long-term debt, less unamortized discount                3,346     3,064
    Employee benefits                                        4,593     4,767
    Other long-term liabilities                                405       419
    United States Steel Corporation stockholders'
     equity                                                  4,749     4,895
    Noncontrolling interests                                   290       164
                                                           -------   -------
      Total liabilities and stockholders' equity           $15,849   $16,087
                                                           =======   =======


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

                              Quarter Ended                 Nine Months Ended
                      --------------------------------      -----------------
    (Dollars in       Sept. 30     June 30    Sept. 30         September 30
     millions)          2009        2009       2008          2009        2008
    -------------------------------------------------------------------------

    (LOSS) INCOME FROM
     OPERATIONS
    Flat-rolled(a)     $(370)      $(362)      $846       $(1,154)     $1,411
    U. S. Steel
     Europe                7         (53)       173          (205)        632
    Tubular              (21)        (88)       420            18         648
    Other Businesses(a)    5          (7)        22            (5)         56
                       -----       -----      -----         -----       -----
    Segment (Loss)
     Income from
     Operations         (379)       (510)     1,461        (1,346)      2,747
    Retiree benefit
     expenses            (33)        (34)        (6)          (99)         (4)
    Other items not
     allocated to
     segments:
      Federal excise
       tax refund          -          34          -            34           -
      Litigation
       reserve             -          45          -            45         (45)
      Net gain on sale
       of assets           -           -          -            97           -
      Workforce
       reduction charges   -           -          -           (86)          -
      Labor agreement
       signing payments    -           -       (105)            -        (105)
      Environmental
       remediation         -           -        (23)            -         (23)
      Flat-rolled
       inventory
       transition
       effects             -           -          -             -         (23)
                       -----       -----      -----         -----       -----
        Total (Loss)
         Income from
         Operations    $(412)      $(465)    $1,327       $(1,355)     $2,547

    CAPITAL EXPENDITURES(b)

    Flat-rolled(a)       $68         $65       $155          $231        $357
    U. S. Steel
     Europe               46          18         62            74         143
    Tubular                3           3          9             9          18
    Other
     Businesses(a)         -           2         13             9          21
                       -----       -----      -----         -----       -----
      Total             $117         $88       $239          $323        $539


    (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           Nine Months Ended
                           -------------------------------  -----------------
    (Dollars in            Sept. 30    June 30    Sept. 30      September 30
     millions)                2009       2009        2008     2009       2008
    -------------------------------------------------------------------------

    OPERATING STATISTICS
      Average realized
       price:($/net ton)(a)
        Flat-rolled            605        677         907      660        775
        U. S. Steel
         Europe                615        602       1,086      627        948
        Tubular              1,474      1,526       2,390    1,889      1,823

      Steel Shipments:(a)(b)
        Flat-rolled          2,722      1,815       4,505    6,660     14,055
        U. S. Steel
         Europe              1,285      1,035       1,409    3,217      4,743
        Tubular                151         92         519      450      1,452
                             -----      -----       -----    -----      -----
          Total Steel
           Shipments         4,158      2,942       6,433   10,327     20,250
      Intersegment
       Shipments:(b)
        Flat-rolled to
          Tubular              123         34         540      245      1,457
      Raw Steel-Production:(b)
        Flat-rolled          3,548      1,964       5,282    7,791     16,454
        U. S. Steel
         Europe              1,528      1,059       1,623    3,586      5,456
      Raw Steel-Capability
       Utilization:( c )
        Flat-rolled           57.9%      32.4%       86.2%    42.9%      90.2%
        U. S. Steel
         Europe               82.0%      57.4%       87.0%    64.8%      98.2%


    (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

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

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