By KEVIN NEVERS

U.S. Steel Corporation is reporting a net income for 2007 of $879 million or $7.40 per diluted share, compared to a record net income in 2006 of $1.374 billion or $11.18 per diluted share.

The 2007 results were reduced by $158 million or $1.33 per diluted share from inventory transition effects, a workforce reduction charge, early debt redemption expense, and several discrete tax charges, the company said in a statement released today.

For the fourth quarter of 2006 USS reported a net income of $35 million or 29 cents per diluted share, compared to a net income of $269 or $2.27 per diluted share for the third quarter of 2007, and $297 million or $2.50 per diluted share for the year-ago period.

The fourth-quarter results were reduced by $117 million or 98 cents per diluted share from inventory transition effects and a workforce reduction charge.

“This past year was an important period of growth for our company as we completed major acquisitions in both our flat-rolled and tubular businesses and commissioned our new automotive galvanizing line in Europe,” USS Chair and CEO John Surma said. “We are making steady progress with integration activities on both acquisitions, and we still expected to achieve anticipated synergies.”

The inventory transitions effects which reduced the fourth-quarter results consisted of a $69 million pre-tax charge following the company’s two acquisitions in 2007: of Lone Star Technologies Inc., a leading manufacturer of welded oilfield tubular products based in Texas; and Stelco Inc., a Canadian steelmaker. There was also a $57 million pre-tax charge resulting from a voluntary early retirement program at U.S. Steel Kosice in Europe.

Income from Operations

by Reportable Segment

•Flat-rolled reported $53 million in the fourth quarter ($170 million in the third quarter, $31 million year-ago) and $390 for the year ($600 million in 2006). “Flat-rolled’s fourth quarter results were significantly lower than the third quarter and included the operating results of U.S.. Steel Canada (USSC) effective Oct. 31,” the company said. “Flat-rolled operated at 82 percent of capability, including only 60 percent for USSC, as we completed a number of blast furnace repair outages, both planned and unplanned, during the quarter. Lower average realized prices compared to the third quarter primarily reflected a shift in product mix to hot-rolled and semi-finished with the USSC acquisition. In addition, production costs increased due mainly to higher raw material, natural gas, outage, and modernization-related costs.”

•U.S. Steel Europe (USSE) reported $85 million in the fourth quarter ($152 million in the third-quarter, $182 year-ago) and $687 million for the year ($714 in 2006). “The decrease in fourth-quarter 2007 European income from operations compared to the third quarter was mainly due to a decline in euro-based prices as high imports, particularly from China, and high service center inventories pressured spot prices and order rates,” the company said. “Operating rates were curtailed to 79 percent capability as a result of two planned blast furnace outages. Shipments were reduced by the outages and outbound rail transportation disruptions in the quarter. Additionally, raw material and energy costs increased.”

•Tubular products reported $83 million in the fourth quarter ($74 million in the third quarter, $144 million year-ago) and $356 million for the year ($631 million in 2006). “Fourth quarter tubular results improved slightly from the third quarter due mainly to higher average realized prices resulting from a change in product mix, and improved overall cost performance,” the company said. “These were partially offset by lower shipments.”

*Other businesses reported $36 million in the fourth quarter ($37 million in the third quarter, $57 million year-ago) and $76 million for the year ($129 million in 2006).

•Total segment income from operations for the fourth quarter was $257 million or $43 per ton ($433 million or $78 per ton in the third quarter, $414 million or $85 per ton year-ago) and $1.509 billion for the year ($2.074 billion in 2006).

•Total income from operations in the fourth quarter—after deducting retiree benefit expenses of $15 million, inventory transition effects of $69 million, and workforce reduction expenses of $57 million—was $116 million ($360 million in the third quarter, $341 million year-ago) and $1.213 billion for the year ($1.785 billion in 2006).

More Numbers

•The average realized price per net ton for flat-rolled in the fourth quarter was $627 ($642 in the third quarter, $648 year-ago) and $642 for the year ($634 in 2006); for USSE $752 million ($738 in the third quarter, $665 year-ago) and $720 for the year ($608 in 2006); and for tubular $1,299 ($1,282 for the third-quarter, $1,523 year-ago) and $1,335 for the year ($1,499 in 2006).

•USS and USSE shipped a total of 5,958 net tons in the fourth quarter (5,560 in the third quarter, 4,898 year-ago) and 22,108 net tons for the year (21,632 in 2006). Flat-rolled production was 4,681 net tons for the fourth quarter (4,328 for the third quarter, 3,270 year-ago) and 16,838 for the year (16,355 in 2006).

•USS reported net sales of $4.535 billion for the fourth quarter ($4.354 billion for the third quarter, $3.774 billion year-ago) and $16.873 billion for the year ($15.715 billion in 2006).

Outlook for

First Quarter 2008

“We expect first-results to continue to reflect the volatile cost and pricing dynamics in our three major segments,” Surma said. “Overall, we should be in a good position as 2008 progresses to take advantage of favorable supply side conditions, our expanded product and geographic positions in North America, and our new galvanizing line at USSK.”

The company is projecting improvement in flat-rolled results “as shipments and operating rates are expected to increase compared to the fourth quarter, with the inclusion of USSC for the full quarter and the completion of the blast furnace projects.”

“Our facilities in Canada have been operating more reliably,” the company said. “Prices are also expected to be higher as increasing spot market prices will be realized throughout the quarter. In addition, customer commitments in place at USSC at the time of the acquisition are being completed and new commitments consistent with U.S. Steel’s commercial policies are being made. We also expect significant cost increases for raw materials, particularly for purchased scrap, coke, and alloys.”

The company is also projecting higher euro-based prices for USSE, while shipments could increase as result of higher facility availability in the quarter, although the escalating costs of raw materials will partially offset these improvements.

Shipments and prices for the tubular segment are expected to remain in line with the fourth quarter, while semi-finished steel costs will increase.

Other businesses will reflect the normal unfavorable seasonal effects of the closure of the Great Lakes for taconite pellet shipments.

USS expects capital expenditures in 2008 of around $940 million; and total pension plan and OPEB costs of around $200 million, compared to $266 million, due chiefly to lower pension expense.

Posted 1/29/2008