By KEVIN NEVERS

U.S. Steel Corporation (USS) has had another monumental quarter, the best ever since the company began reporting steel results separately in 1991 and the third consecutive record-breaker.

On Monday USS reported net income of $462 million or $3.55 per diluted share, a nearly 31 percent increase over the net income for the third quarter of $354 million or $2.72 per diluted share, and a whopping $484 million turnaround from its net loss in the year-ago period of $22 million or 26 cents per diluted share.

For the year USS reported a net income of $1.085 billion or $8.44 per diluted share, compared to a net loss in 2003 of $463 million or $4.64 per diluted share. That net loss includes after-tax workforce reduction charges of $404 million.

“Favorable global steel markets coupled with our acquisitions and ongoing cost reduction efforts resulted in record income for U.S. Steel for both the fourth quarter and the full year,” USS President and CEO John Surma said. “Noteworthy accomplishments during 2004 included successful integration of the National and Serbian facilities we acquired in 2003, and substantial cash generation, which enabled us to strengthen our balance sheet and our financial capability to support future growth initiatives.”

The sustained robustness of the steel market goes to heart of the company’s big numbers. In 2003 the average realized price per net ton of flat-rolled product was $422; in 2004, the average realized price was $574, an increase of 36 percent (USS reported an average realized price per ton of flat-rolled product of $627 in the third quarter and $623 in the fourth). But USS also shipped more flat-rolled last year: 15,635 tons in 2004, compared to 13,517 in 2003, an increase of almost 16 percent.

Income from Operations

by Reportable Segment

•Flat-rolled reported income from operations of $376 million in the fourth quarter, compared to $362 million in the third quarter and $23 million in the fourth quarter of 2003. For the year it reported an income from operations of $1.186 billion, compared to a loss from operations of $54 million in 2003.

•U.S. Steel Europe reported income from operations of $136 million in the fourth quarter, compared to $146 million in the third quarter and $37 million in the fourth quarter of 2003. For the year it reported an income from operations of $398 million, compared to $203 million in 2003.

•Tubular products reported income from operations of $113 million in the fourth quarter, compared to $55 million in the third quarter and a loss from operations of $6 million in the fourth quarter of 2003. For the year it reported income from operations of $196 million, compared to a loss from operations of $25 million in 2003.

•Real estate reported income from operations of $8 million in the fourth quarter, compared to $5 million in the third quarter and $10 million in the fourth quarter of 2003. For the year it reported income from operations of $30 million, compared to $50 million in 2003.

•Total segment income from operations was $652 million in the fourth quarter, compared to $570 million in the third quarter and $49 million in the fourth quarter of 2003. For the year total segment income from operations was $1.838 billion, compared to $69 million in 2003.

•On a per-ton basis, the company’s reportable segments and other businesses reported segment income of $121 per ton in the fourth quarter, compared to $108 per ton in the third quarter and $9 per ton in the fourth quarter of 2003. For the year they reported segment income of $84 per ton, compared to $4 per ton in 2003.

•Total income from operations—reflecting $76 million in retiree benefit expenses, a loss of $8 million for stock appreciation rights, and $17 million in workforce reduction charges—was $551 million in the fourth quarter, compared to $494 million in the third quarter and a total loss from operations of $34 million in the fourth quarter of 2003. For the year total income from operations—reflecting $257 million in retiree benefit expenses, a loss of $23 million for stock appreciation rights, $17 million in workforce reduction charges, and an income of $43 million from the sale of certain assets—was $1.584 billion, compared to a total loss from operations of $730 million in 2003.

“Compared to the third quarter,” the company said, “segment results for the fourth quarter of 2004 increased by $84 million. Domestic operations benefited from increased prices for tubular products and lower purchased coke costs, while costs increased for natural gas, scrap, and coal. European operating results reflected improved prices and volumes, as well as unfavorable effects results from a refinement of inventory accounting policies for these operations.”

More Numbers

•USS and U.S. Steel Europe shipped a total of 21,767 net tons in 2004, compared to 19,248 in 2003, an increase of 13 percent.

•The company’s domestic facilities utilized 88.8 percent of their raw steel capability in 2004, compared to 88.3 percent in 2003. U.S. Steel Europe utilized 76.6 percent of its raw steel capability in 2004, compared to 84.3 percent in 2003.

•USS and U.S. Steel Europe produced a total of 22,951 raw tons of steel in 2004, compared to 19,750 in 2003.

•In 2004 USS contributed $295 million to its main defined benefit pension plan and $30 million to a voluntary employee benefit association trust. The company said that it expects the total costs in 2005 for domestic defined benefit pension plans and other post-retirement benefits to be approximately the same as in 2004.

•USS ended 2004 with $1.037 billion in cash and cash equivalents, compared to $316 million at year-end 2003.

Outlook

“First quarter 2005 average realized prices for the flat-rolled segment are expected to remain in line with fourth quarter levels,” the company said. “However, results will be negatively affected by higher costs for raw materials and natural gas, as well as slightly lower shipments. For full-year 2005, flat-rolled shipments are expected to be about 15.4 million tons, reflecting the planned outage at the Gary No. 13 blast furnace.”

For full-year 2005, shipments at U.S. Steel Europe are expected to increase by around 15 percent, “due mainly to higher operating levels at the Serbian facilities following the planned mid-year startup of a second blast furnace.”

For full-year 2005, shipments in the tubular segment are expected to increase by around 10 percent.

The company is projecting capital expenditures in 2005 of approximately $755 million: $475 at its domestic facilities—including the rebuild of the Gary No. 13 blast furnace, scheduled for the third quarter—and $280 million at its European facilities. “European expenditures include initial outlays for a new hot-dip galvanizing line to support U.S. Steel’s European automotive strategy,” the company said.

Posted 1/25/2005