United States Steel Corporation
Public Affairs
600 Grant Street
Pittsburgh, PA 15219-2800
 
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Contacts:
  
Media
John Armstrong
(412) 433-6792
Investors/Analysts
Dan Lesnak
(412) 433-1184
 
FOR IMMEDIATE RELEASE
 
UNITED STATES STEEL CORPORATION REPORTS
2008 FOURTH QUARTER AND FULL-YEAR RESULTS
 
Earnings Highlights

(Dollars in millions except per share data)
     4Q 2008       3Q 2008       4Q 2007    
2008
    
2007
  
Net sales
   $ 4,565     $ 7,312     $ 4,535     $ 23,817     $ 16,873  
Segment income (loss) from operations
                                        
Flat-rolled
   $ (2 )   $ 846     $ 63     $ 1,409     $ 382  
U. S. Steel Europe
     (134 )     173       85       498       687  
Tubular
     559       420       83       1,207       356  
Other Businesses
     22       22       26       78       84  
Total segment income from operations
   $ 445     $ 1,461     $ 257     $ 3,192     $ 1,509  
Retiree benefit expenses
     (18 )     (6 )     (15 )     (22 )     (143 )
Other items not allocated to segments
     122       (128 )     (126 )     (74 )     (153 )
Income from operations
   $ 549     $ 1,327     $ 116     $ 3,096     $ 1,213  
Net interest and other financial costs
     23       46       44       62       105  
Income tax provision
     210       339       31       862       218  
Net income
   $ 308     $ 919     $ 35     $ 2,130     $ 879  
- Per basic share
   $ 2.65     $ 7.84     $ 0.29     $ 18.19     $ 7.44  
- Per diluted share
   $ 2.65     $ 7.79     $ 0.29     $ 18.11     $ 7.40  
 
PITTSBURGH, January 27, 2009 - United States Steel Corporation (NYSE: X) reported fourth quarter 2008 net income of $308 million, or $2.65 per diluted share, compared to third quarter 2008 net income of $919 million, or $7.79 per diluted share, and fourth quarter 2007 net income of $35 million, or $0.29 per diluted share.  Fourth quarter 2008 net income was increased by $76 million, or 65 cents per diluted share, by certain items as discussed below.

 
 
 

For full-year 2008, U. S. Steel reported net income of $2,130 million, or $18.11 per diluted share, compared with full-year 2007 net income of $879 million, or $7.40 per diluted share.
 
U. S. Steel Chairman and CEO John P. Surma said, “Although the global economic situation negatively affected fourth quarter results, we had an outstanding year in 2008, with record net sales, income from operations and net income.  Our strategic acquisitions positioned us to realize substantial benefits from strong global market conditions during most of 2008.”
 
The company reported fourth quarter 2008 income from operations of $549 million, compared with income from operations of $1,327 million in the third quarter of 2008 and $116 million in the fourth quarter of 2007.  For the year 2008, income from operations was $3,096 million versus income from operations of $1,213 million for the year 2007.
 
Other items not allocated to segments in the fourth quarter of 2008 consisted of a $150 million pre-tax gain from the reversal of a contingent funding obligation as a result of the termination of the Clairton 1314B Partnership, partially offset by a pre-tax charge of $28 million related to our decision to exit the drawn-over-mandrel tubular business.  These items increased fourth quarter 2008 net income by $76 million, or 65 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.  Other items not allocated to segments in the fourth quarter of 2007 decreased net income by $117 million, or 98 cents per diluted share.
 
Net interest and other financial costs in the fourth quarter of 2008 included an immaterial foreign currency gain related to the remeasurement of an $815 million U.S. dollar-denominated intercompany loan to a European subsidiary and related euro-U.S. dollar derivatives activity.  This compares to a foreign currency loss of $39 million, or 33 cents per diluted share, for these items in the third quarter of 2008.

 
 
 

The annual effective tax rate for 2008 was higher than previous estimates due to a lower than anticipated percentage of total pre-tax earnings generated by our European operations.  As a result, our fourth quarter income tax provision included a $55 million adjustment to previously recorded tax expense.
 
Reportable Segments and Other Businesses
 
Management believes segment income from operations is a key measure to evaluate ongoing operating results and performance.  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.  The iron ore operations are managed as part of our Flat-rolled segment, which consumes almost all of our iron ore production.  Prior periods have been restated to reflect this change.
 
U. S. Steel’s reportable segments and Other Businesses reported segment income from operations of $445 million, or $106 per ton, in the fourth quarter of 2008, compared with $1,461 million, or $227 per ton, in the third quarter of 2008 and $257 million, or $43 per ton, in the fourth quarter of 2007.
 
Flat-rolled’s fourth quarter results were significantly lower than the third quarter primarily reflecting lower shipments and average realized prices.  Net favorable inventory effects of approximately $90 million, primarily from LIFO liquidations, provided a partial offset.  Flat-rolled operated at 45 percent of capability in the fourth quarter as we temporarily idled several facilities and reduced operations at others in response to reduced customer demand.  We idled the hot end at Hamilton Works in November and idled Granite City Works, Great Lakes Works and Keetac iron ore operations in December.

 
 
 

U. S. Steel Europe (USSE) recorded an operating loss in the fourth quarter mainly due to lower shipments and average realized prices, and a lower of cost or market charge of approximately $30 million related to inventory.  Production rates averaged 51 percent of capability for the quarter as a result of lower customer order rates.
 
Fourth quarter Tubular results were a record and improved from the third quarter as average realized prices increased and markets for tubular products were favorable.
 
Outlook
 
Commenting on U. S. Steel’s outlook, Surma said, “We expect an operating loss in the first quarter as results continue to reflect the extremely difficult global economic environment.  We do not know when conditions may improve, but we are well positioned to fully participate in a market recovery when it occurs.  In the meantime, we continue aggressive efforts to maximize liquidity and reduce costs and will take additional actions as market conditions warrant.”
 
Flat-rolled results for first quarter 2009 are expected to decrease substantially from fourth quarter 2008 primarily due to further declines in shipments as a result of lower customer demand, lower average realized prices and reduced effects from LIFO liquidations.
 
First quarter 2009 results for USSE are expected to be comparable to the fourth quarter as lower raw material acquisition costs begin to be reflected in cost of sales, and average realized prices are expected to be lower.
 
Results for Tubular in the first quarter of 2009 are expected to decrease significantly from fourth quarter 2008, although we expect to remain profitable.  Shipments and average realized prices are expected to decrease in line with market trends.

 
 
 

Capital expenditures for 2009 are expected to total approximately $740 million.  This excludes spending for a coke plant to supply Granite City Works by an unrelated third party, which we consolidate in our financial results.
 
Total costs for pension and other benefits plans are expected to be approximately $360 million in 2009 compared to $227 million in 2008, including an increase of approximately $100 million in pension expense primarily as a result of 2008 asset performance.  At year-end, our pension plans were underfunded on an accounting basis by approximately $2.0 billion and other benefits plans were underfunded by approximately $3.1 billion.
 
Common Stock Repurchase Program
 
We repurchased 260,000 shares of U. S. Steel common stock for $14 million during the fourth quarter, bringing total repurchases to 16.3 million shares for approximately $1 billion since the repurchase program was originally authorized in July 2005.  As of December 31, 2008, 4.4 million shares remained authorized for repurchase.  We have suspended repurchases under this program.
 
*****

 
 
 

This release contains forward-looking statements with respect to market conditions, operating costs, shipments, prices, capital spending and employee benefit costs.  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, nor can we assure that European natural gas supplies will continue unimpeded by political actions.  When a recovery occurs, U. S. Steel will incur costs related to the restart of idled facilities, 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, among others, 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; 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; 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.  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.  Factors that may affect our ability to construct new facilities include levels of cash flow from operations, general economic conditions, business conditions, availability of capital, whether or not assets are purchased or financed by operating leases, receipt of necessary permits and unforeseen hazards such as contractor performance, material shortages, weather conditions, explosions or fires, which could delay the timing of completion of particular capital projects.  Factors that may affect the amount of net periodic benefit costs include, among others, changes to laws affecting benefits, 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, 2007, 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 fourth quarter earnings on Tuesday, January 27, at 3 p.m. EST.  To listen to the webcast of the conference call, visit the U. S. Steel web site, www.ussteel.com, and click on the “Investors” button.
 
For more information on U. S. Steel, visit our web site at www.ussteel.com.
 
-oOo-
 
 
 
 
UNITED STATES STEEL CORPORATION
STATEMENT OF OPERATIONS (Unaudited)

    
Quarter Ended
    
Year Ended
  
    
Dec. 31
    
Sept. 30
    
Dec. 31
    
December 31
  
(Dollars in millions)
  
2008
    
2008
    
2007
    
2008
    
2007
  
NET SALES
   $ 4,565     $ 7,312     $ 4,535     $ 23,817     $ 16,873  
                                         
OPERATING EXPENSES (INCOME):
                                        
Cost of sales (excludes items shown below)
     3,887       5,752       4,110       19,779       14,633  
Selling, general and administrative expenses
     155       151       178       619       589  
Depreciation, depletion and amortization
     141       149       153       605       506  
Income from investees
     (15 )     (51 )     (7 )     (107 )     (26 )
Net gains on disposal of assets
     (9 )     (6 )     (3 )     (17 )     (23 )
Other (income) loss, net
     (143 )     (10 )     (12 )     (158 )     (19 )
Total operating expenses
     4,016       5,985       4,419       20,721       15,660  
INCOME FROM OPERATIONS
     549       1,327       116       3,096       1,213  
Net interest and other financial costs
     23       46       44       62       105  
INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS
     526       1,281       72       3,034       1,108  
Income tax provision
     210       339       31       862       218  
Minority interests
     8       23       6       42       11  
NET INCOME
   $ 308     $ 919     $ 35     $ 2,130     $ 879  
 
COMMON STOCK DATA:
 
Net income per share:
                              
- Basic
   $ 2.65     $ 7.84     $ 0.29     $ 18.19     $ 7.44  
- Diluted
   $ 2.65     $ 7.79     $ 0.29     $ 18.11     $ 7.40  
                                         
Weighted average shares, in thousands:
                                        
- Basic
     116,147       117,169       117,813       117,102       118,090  
- Diluted
     116,445       117,826       118,581       117,621       118,815  
                                         
Dividends paid per common share
   $ .30     $ .30     $ .20     $ 1.10     $ .80  
 
 
 
 

UNITED STATES STEEL CORPORATION
CASH FLOW STATEMENT (Unaudited)

   
Year Ended
  
   
December 31
  
(Dollars in millions)
  
2008
    
2007
  
Cash provided from operating activities:
            
Net income
   $ 2,130     $ 879  
Depreciation, depletion and amortization
     605       506  
Pensions and other postretirement benefits
     (502 )     (157 )
Deferred income taxes
     377       182  
Noncash other income
     (150 )     -  
Net gains on disposal of assets
     (17 )     (23 )
Changes in: Current receivables
     (290 )     222  
Inventories
     (325 )     305  
Current accounts payable and accrued expenses
     85       (440 )
Bank checks outstanding
     (42 )     (13 )
Other operating activities
     (213 )     271  
Total
     1,658       1,732  
Cash used in investing activities:
                
Capital expenditures
     (896 )     (692 )
Acquisition of non-controlling interests of Clairton 1314B Partnership, L.P.
     (104 )     -  
Acquisition of pickle lines
     (36 )     -  
Acquisition of Lone Star Technologies, Inc.
     -       (1,993 )
Acquisition of Stelco Inc.
     (1 )     (2,036 )
Disposal of assets
     24       42  
Other investing activities
     (19 )     4  
Total
     (1,032 )     (4,675 )
Cash (used in) provided by financing activities:
                
Issuance of long-term debt
     -       2,976  
Repayments of long-term debt
     (380 )     (873 )
Revolving credit facilities - borrowings
     359       -  
                                              - repayments
     (44 )     -  
Common stock issued
     5       18  
Common stock repurchased
     (227 )     (117 )
Dividends paid
     (129 )     (95 )
Other financing activities
     111       (5 )
Total
     (305 )     1,904  
Effect of exchange rate changes on cash
     2       18  
Total net cash flow
     323       (1,021 )
Cash at beginning of the year
     401       1,422  
Cash at end of the year
   $ 724     $ 401  
 
 
 
 

UNITED STATES STEEL CORPORATION
CONDENSED BALANCE SHEET (Unaudited)

   
Dec. 31
    
Dec. 31
  
(Dollars in millions)
  
2008
    
2007
  
Cash and cash equivalents
   $ 724     $ 401  
Receivables, net
     2,288       2,077  
Inventories
     2,503       2,279  
Other current assets
     221       202  
Total current assets
     5,736       4,959  
Property, plant and equipment, net
     6,684       6,688  
Investments and long-term receivables, net
     709       694  
Prepaid pensions
     36       734  
Goodwill and intangible assets, net
     1,889       2,131  
Other assets
     1,076       426  
Total assets
   $ 16,130     $ 15,632  
Accounts payable
   $ 1,484     $ 1,730  
Payroll and benefits payable
     973       995  
Short-term debt and current maturities of long-term debt
     81       110  
Other current liabilities
     244       168  
Total current liabilities
     2,782       3,003  
Long-term debt, less unamortized discount
     3,064       3,147  
Employee benefits
     4,781       3,187  
Other long-term liabilities and minority interests
     590       764  
Stockholders’ equity
     4,913       5,531  
Total liabilities and stockholders’ equity
   $ 16,130     $ 15,632  

 
 
 

UNITED STATES STEEL CORPORATION
PRELIMINARY SUPPLEMENTAL STATISTICS (Unaudited)

   
Quarter Ended
    
Year Ended
  
    
Dec. 31
    
Sept. 30
    
Dec. 31
    
December 31
  
(Dollars in millions)
  
2008
    
2008
    
2007
    
2008
    
2007
  
                               
INCOME (LOSS) FROM OPERATIONS
                              
Flat-rolled(a)(d)
   $ (2 )   $ 846     $ 63     $ 1,409     $ 382  
U. S. Steel Europe
     (134 )     173       85       498       687  
Tubular(b)
     559       420       83       1,207       356  
Other Businesses(c)(d)
     22       22       26       78       84  
Segment Income from Operations
     445       1,461       257       3,192       1,509  
Retiree benefit expenses(e)
     (18 )     (6 )     (15 )     (22 )     (143 )
Other items not allocated to segments:
                                        
Contingent liability reversal
     150       -       -       150       -  
Labor agreement signing bonuses
     -       (105 )     -       (105 )     -  
Litigation reserve
     -       -       -       (45 )     -  
Drawn-over-mandrel charge
     (28 )     -       -       (28 )     -  
Environmental remediation charge
     -       (23 )     -       (23 )     -  
Flat-rolled inventory transition effects
     -       -       (58 )     (23 )     (58 )
Tubular inventory transition effects
     -       -       (11 )     -       (38 )
Workforce reduction charges
     -       -       (57 )     -       (57 )
Total Income from Operations
   $ 549     $ 1,327     $ 116     $ 3,096     $ 1,213  
                                         
CAPITAL EXPENDITURES
                                        
Flat-rolled(a)(d)
   $ 175     $ 209     $ 127     $ 626     $ 418  
U. S. Steel Europe
     67       62       86       210       215  
Tubular(b)
     11       9       10       29       23  
Other Businesses (d)
     11       13       9       31       36  
Total
   $ 264     $ 293     $ 232     $ 896     $ 692  
 
(a)
Includes the results of the businesses acquired from Stelco Inc. as of October 31, 2007, excluding the real estate interests, and includes the results of the pickle lines acquired from Nelson Steel as of August 29, 2008.
(b)
Includes the results of the businesses acquired from Lone Star Technologies, Inc. as of June 14, 2007, excluding the results of a railroad.
(c)
Includes the results of the real estate interests acquired from Stelco Inc. as of October 31, 2007.
(d)
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.
(e)
Full-year 2007 includes certain profit-based expenses for former National employees pursuant to provisions of the 2003 labor agreement with the United Steelworkers.

 
 
 

UNITED STATES STEEL CORPORATION
PRELIMINARY SUPPLEMENTAL STATISTICS (Unaudited)

   
Quarter Ended
    
Year Ended
  
   
Dec. 31
    
Sept. 30 31
    
Dec. 31
    
December 31
  
(Dollars in millions)
  
2008
    
2008
    
2007
    
2008
    
2007
  
                               
OPERATING STATISTICS
                              
Average realized price: ($/net ton)(a)
                              
Flat-rolled(b)
     805       907       627       780       642  
U. S. Steel Europe
     847       1,086       752       932       720  
Tubular(c)
     2,675       2,390       1,299       2,041       1,335  
Steel Shipments:(a)(d)
                                        
Flat-rolled(b)
     2,790       4,505       4,146       16,845       14,534  
U. S. Steel Europe
     908       1,409       1,385       5,651       6,139  
Tubular(c)
     500       519       421       1,952       1,422  
Total Steel Shipments
     4,198       6,433       5,952       24,448       22,095  
Intersegment Shipments:(d)
                                        
Flat-rolled to Tubular
     420       540       314       1,877       912  
Raw Steel-Production:(d)
                                        
Flat-rolled(b)
     2,736       5,282       4,681       19,190       16,838  
U. S. Steel Europe
     954       1,623       1,467       6,410       6,792  
Raw Steel-Capability Utilization:(e)
                                        
Flat-rolled(b)
     44.7 %     86.2 %     82.0 %     79.0 %     83.3 %
U. S. Steel Europe
     51.1 %     87.0 %     78.6 %     86.6 %     91.8 %
 
(a)
Excludes intersegment shipments.
(b)
Includes the results of the businesses acquired from Stelco Inc. as of October 31, 2007, excluding the real estate interests, and includes the results of the pickle lines acquired from Nelson Steel as of August 29, 2008.
(c)
Includes the results of the businesses acquired from Lone Star Technologies, Inc. as of June 14, 2007, excluding the results of a railroad.
(d)
Thousands of net tons.
(e)
Based on annual raw steel production capability of 19.4 million net tons for Flat-rolled prior to October 31, 2007 and 24.3 million net tons thereafter, and 7.4 million net tons for U. S. Steel Europe.