United States Steel Corporation Reports 2007 Third Quarter Results

PITTSBURGH, Oct. 30 /PRNewswire-FirstCall/ --

Earnings Highlights 3Q 2007 2Q 2007 3Q 2006 (Dollars in millions except per share data) Net sales $4,354 $4,228 $4,106 Segment income from operations Flat-rolled $170 $92 $230 U. S. Steel Europe 152 244 219 Tubular 74 97 164 Other Businesses 37 1 39 Total segment income from operations $433 $434 $652 Retiree benefit expenses (46) (43) (70) Other items not allocated to segments (27) - (21) Income from operations $360 $391 $561 Net interest and other financial costs 22 34 7 Income tax provision 68 53 136 Net income $269 $302 $417 -- Per basic share $2.28 $2.55 $3.44 -- Per diluted share $2.27 $2.54 $3.42

United States Steel Corporation reported third quarter 2007 net income of $269 million, or $2.27 per diluted share, compared to second quarter 2007 net income of $302 million, or $2.54 per diluted share, and third quarter 2006 net income of $417 million, or $3.42 per diluted share.

Commenting on results, U. S. Steel Chairman and CEO John P. Surma said, "We had a good quarter as each of our segments effectively responded to diverse challenges, including general economic concerns that affected our major markets. We made good progress in implementing a unified business model for our Tubular segment and are realizing synergies from the Lone Star acquisition."

The company reported third quarter 2007 income from operations of $360 million, compared with income from operations of $391 million in the second quarter of 2007 and $561 million in the third quarter of 2006.

Other items not allocated to segments in the third quarter of 2007 consisted of a $27 million pre-tax charge related to inventory acquired in the Lone Star acquisition. The tax provision included several discrete charges totaling $11 million. These charges and the item not allocated to segments reduced third quarter 2007 net income by $28 million, or 23 cents per diluted share. In the second quarter of 2007, net interest and other financial costs included a $23 million pre-tax charge related to the early redemption of our 9.75% Senior Notes due 2010. This charge reduced net income by $14 million or 12 cents per diluted share. Other items not allocated to segments in the third quarter of 2006 reduced net income by $21 million, or 17 cents per diluted share, and consisted of employee severance and benefit charges for a workforce reduction of over 20 percent at our Serbian operations.

We repurchased 285,000 shares of common stock for $28 million during the third quarter.

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 segment income from operations of $433 million, or $78 per ton, in the third quarter of 2007, compared with $434 million, or $79 per ton, in the second quarter of 2007 and $652 million, or $117 per ton, in the third quarter of 2006.

Flat-rolled income from operations improved for the third consecutive quarter, despite a $9 per ton decrease in average realized prices and higher raw material costs compared to the second quarter. The improved results primarily reflected higher operating rates including hot rolled band shipments to support Tubular, and lower outage and energy costs.

The decrease in European operating results was due primarily to lower shipments related to outages, increased raw material costs and higher unit costs resulting from lower raw steel capability utilization.

Tubular operating results declined due mainly to lower prices and the effects of integrating Lone Star into the U. S. Steel supply chain and establishing our unified business model. Distributor inventories and imports remained high.

Results for Other Businesses improved from the second quarter largely as a result of lower outage costs at iron ore operations.

Outlook

Commenting on U. S. Steel's outlook, Surma said, "We expect a decline in overall results for the fourth quarter mainly due to normal seasonal effects and several scheduled blast furnace outages. North American flat-rolled inventories and imports are at relatively low levels and over time the weaker U.S. currency should favor many of our steel-consuming customers. In Europe, steel consumption remains healthy; however, high imports, particularly from China, and high service center inventories are resulting in some pressure on spot prices and order rates."

For Flat-rolled, fourth quarter results are expected to decrease from the third quarter due primarily to lower shipments and higher raw material, outage and modernization-related costs. Prices are expected to remain in line with the third quarter.

Fourth quarter results are expected to decrease for U. S. Steel Europe (USSE). Prices and shipments are expected to remain comparable to the third quarter levels and costs are expected to increase slightly. Two planned blast furnace outages will continue to limit raw steel production.

In conjunction with efforts to increase productivity, we are commencing a voluntary early retirement program at U. S. Steel Kosice (USSK), which we anticipate will generate substantial future cost savings. We will not know the employee response to this program and the amount of the resulting fourth quarter charge until later this year.

Fourth quarter results for Tubular are expected to be consistent with third quarter results as average realized prices and costs are expected to improve and shipments should decrease, due primarily to continued high inventory levels and year-end seasonal effects.

Concerning Stelco, the Stelco shareholders have approved the transaction, required regulatory approvals have been obtained, and we expect to complete this transaction and commence the integration later this week. Results for Stelco will be included in our Flat-rolled segment as of the date of the acquisition, and the above fourth quarter outlook does not include the Stelco operations.

This release contains forward-looking statements with respect to the acquisition of Stelco, market conditions, operating costs, shipments, prices and a voluntary early retirement program at USSK. Risks and uncertainties regarding the closing of the Stelco transaction include the approval of the Plan of Arrangement by the Ontario Superior Court of Justice. 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 facility projects; natural gas and electricity prices and usage; raw materials and transportation 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 shorter-term contracts and spot prices of steel products; changes in environmental, tax and other laws; employee strikes; energy outages or curtailments; 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. Factors that may affect the cost savings expected to result from the early retirement program at USSK include employee response to the program. 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, 2006, and in subsequent filings for U. S. Steel.

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

The company will conduct a conference call on third quarter earnings on Tuesday, October 30, at 2 p.m. EDT. To listen to the webcast of the conference call, visit the U. S. Steel web site, http://www.ussteel.com/, and click on the "Investors" button.

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

UNITED STATES STEEL CORPORATION STATEMENT OF OPERATIONS (Unaudited) ------------------------------------ Quarter Ended Nine Months Ended ------------------------------ -------------------- Sept. 30 June 30 Sept. 30 Sept. 30 (Dollars in millions) 2007 2007 2006 2007 2006 -------------------------------------------------------------------------- NET SALES $4,354 $4,228 $4,106 $12,338 $11,941 OPERATING EXPENSES (INCOME): Cost of sales (excludes items shown below) 3,749 3,595 3,308 10,523 9,745 Selling, general and administrative expenses 134 138 144 411 458 Depreciation, depletion and amortization 124 118 113 353 339 Income from investees (7) (10) (19) (19) (39) Net gains on disposal of assets (7) (3) - (20) (2) Other income, net 1 (1) (1) (7) (4) ----- ----- ----- ------ ------ Total operating expenses 3,994 3,837 3,545 11,241 10,497 ----- ----- ----- ------ ------ INCOME FROM OPERATIONS 360 391 561 1,097 1,444 Net interest and other financial costs 22 34 7 61 37 ----- ----- ----- ------ ------ INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS 338 357 554 1,036 1,407 Income tax provision 68 53 136 187 317 Minority interests 1 2 1 5 13 ----- ----- ----- ------ ------ NET INCOME 269 302 417 844 1,077 Dividends on preferred stock - - - - (8) ----- ----- ----- ------ ------ NET INCOME APPLICABLE TO COMMON STOCK $269 $302 $417 $844 $1,069 ===== ===== ===== ====== ====== COMMON STOCK DATA: -------------------------------------------------------------------------- Net income per share: -- Basic $2.28 $2.55 $3.44 $7.15 $9.39 -- Diluted $2.27 $2.54 $3.42 $7.10 $8.67 Weighted average shares, in thousands -- Basic 118,086 118,221 121,270 118,183 113,764 -- Diluted 118,755 118,891 121,964 118,896 124,226 Dividends paid per common share $.20 $.20 $.15 $.60 $.40 UNITED STATES STEEL CORPORATION CASH FLOW STATEMENT (Unaudited) ------------------------------------ Nine Months Ended September 30 ------------------- (Dollars in millions) 2007 2006 -------------------------------------------------------------------------- Cash provided from operating activities: Net income $844 $1,077 Depreciation, depletion and amortization 353 339 Pensions and other postretirement benefits (182) (199) Deferred income taxes 113 124 Net gains on disposal of assets (20) (2) Changes in: Current receivables (300) (335) Inventories 243 (180) Current accounts payable and accrued expenses 216 211 Other operating activities 87 - ------ ------ Total 1,354 1,035 ------ ------ Cash used in investing activities: Capital expenditures (460) (397) Acquisition of Lone Star Technologies, Inc. (1,990) - Disposal of assets 27 6 Other investing activities 2 6 ------ ------ Total (2,421) (385) ------ ------ Cash provided from (used in) financing activities: Issuance of long-term debt 1,583 - Repayment of long-term debt (458) (277) Common stock issued 15 16 Common stock repurchased (87) (396) Dividends paid (71) (54) Change in bank checks outstanding 61 5 Other financing activities (1) (13) ------ ------ Total 1,042 (719) ------ ------ Effect of exchange rate changes on cash 6 - ------ ------ Net increase (decrease) in cash and cash equivalents (19) (69) Cash at beginning of the year 1,422 1,479 ------ ------ Cash at end of the period $1,403 $1,410 ====== ====== UNITED STATES STEEL CORPORATION CONDENSED BALANCE SHEET (Unaudited) ------------------------------------ Sept. 30 Dec. 31 (Dollars in millions) 2007 2006 -------------------------------------------------------------------------- Cash and cash equivalents $1,403 $1,422 Receivables, net 2,309 1,799 Inventories 1,826 1,604 Other current assets 347 371 ------ ------ Total current assets 5,885 5,196 Property, plant and equipment, net 4,809 4,429 Investments and long-term receivables, net 315 336 Prepaid pensions 531 330 Intangible assets 231 - Goodwill 1,155 - Other assets 386 295 ------ ------ Total assets $13,312 $10,586 ====== ====== Accounts payable $1,656 $1,313 Payroll and benefits payable 1,100 1,028 Short-term debt and current maturities of long-term debt 68 82 Other current liabilities 340 279 ------ ------ Total current liabilities 3,164 2,702 Long-term debt 2,103 943 Employee benefits 2,111 2,174 Other long-term liabilities and minority interests 582 402 Stockholders' equity 5,352 4,365 ------ ------ Total liabilities and stockholders' equity $13,312 $10,586 ====== ====== UNITED STATES STEEL CORPORATION PRELIMINARY SUPPLEMENTAL STATISTICS (Unaudited) ----------------------------------------------- Quarter Ended Nine Months Ended ----------------------------- --------------- Sept. 30 June 30 Sept. 30 September 30 (Dollars in millions) 2007 2007 2006 2007 2006 -------------------------------------------------------------------------- INCOME FROM OPERATIONS Flat-rolled $170 $92 $230 $337 $569 U. S. Steel Europe 152 244 219 602 532 Tubular(a) 74 97 164 273 487 Other Businesses 37 1 39 40 72 ----- ----- ----- ----- ----- Segment Income from Operations 433 434 652 1,252 1,660 Retiree benefit expenses(b) (46) (43) (70) (128) (190) Other items not allocated to segments: Tubular inventory transition effects (27) - - (27) - Workforce reduction charges - - (21) - (21) Asset impairment charge - - - - (5) ----- ----- ----- ----- ----- Total Income from Operations $360 $391 $561 $1,097 $1,444 CAPITAL EXPENDITURES Flat-rolled $121 $69 $46 $240 $147 U. S. Steel Europe 52 47 67 129 162 Tubular(a) 10 1 1 13 2 Other Businesses 27 25 32 78 86 ----- ----- ----- ----- ----- Total $210 $142 $146 $460 $397 ----------- (a) Includes the results of the businesses acquired from Lone Star as of June 14, 2007. (b) Includes certain profit-based expenses for U. S. Steel retirees and National retirees pursuant to provisions of the 2003 labor agreement with the United Steelworkers. UNITED STATES STEEL CORPORATION PRELIMINARY SUPPLEMENTAL STATISTICS (Unaudited) ----------------------------------------------- Quarter Ended Nine Months Ended ------------------------------ ----------------- Sept. 30 June 30 Sept. 30 September 30 (Dollars in millions) 2007 2007 2006 2007 2006 -------------------------------------------------------------------------- OPERATING STATISTICS Average realized price: ($/net ton)(a) Flat-rolled $643 $652 $651 $648 $630 U. S. Steel Europe $738 $726 $640 $710 $589 Tubular(b) $1,282 $1,389 $1,491 $1,350 $1,492 Steel Shipments:(a)(c) Flat-rolled 3,601 3,599 3,695 10,388 11,102 U. S. Steel Europe 1,486 1,616 1,552 4,754 4,712 Tubular(b) 473 288 303 1,008 920 ----- ----- ----- ----- ----- Total Steel Shipments 5,560 5,503 5,550 16,150 16,734 Raw Steel-Production:(c) Flat-rolled 4,328 4,116 4,359 12,157 13,085 U. S. Steel Europe 1,661 1,865 1,734 5,325 5,290 Tubular(b)(d) 46 16 - 62 - Raw Steel-Capability Utilization:(e) Flat-rolled 88.5% 85.1% 89.1% 83.8% 90.2% U. S. Steel Europe 88.7% 100.8% 92.7% 95.9% 95.3% Domestic iron ore production(c) 5,323 4,949 5,953 15,167 16,919 Domestic coke production(c)(f) 1,382 1,299 1,446 4,047 4,421 ----------- (a) Excludes intersegment transfers. (b) Includes the results of the businesses acquired from Lone Star as of June 14, 2007. (c) Thousands of net tons. (d) The hot end at the Texas Operations was permanently idled in September 2007. (e) Based on annual raw steel production capability for Flat-rolled of 19.4 million net tons and annual raw steel production capability for U. S. Steel Europe of 7.4 million net tons. (f) Includes the Clairton 1314B Partnership.