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U. S. Steel Reports 4th Quarter and Full-Year Results
02/01/2012 - United States Steel reported a net loss of $226 million on net sales of $4.664 billion for the fourth quarter, and a net loss of $68 million on net sales of $19.636 billion for the full year 2011.
United States Steel Corp. reported a net loss of $226 million on net sales of $4.664 billion for the fourth quarter, and a net loss of $68 million on net sales of $19.636 billion for the full year 2011.
Fourth quarter Results — The net loss of $226 million ($1.57 per diluted share) compares to net income of $22 million ($0.15 per diluted share) in the previous quarter (3Q-2011) and a net loss of $249 million ($1.74 per diluted share) in the year-ago fourth quarter.
The company reported a loss from operations of $160 million, compared to income from operations of $199 million in the previous quarter and a loss from operations of $114 million in the year-ago fourth quarter of 2010.
Full-Year 2011 Results — The full-year net loss of $68 million ($0.47 per diluted share) compared with a full-year 2010 net loss of $482 million ($3.36 per diluted share). Excluding the $51 million of net foreign currency losses and an $11 million after-tax environmental remediation charge, adjusted fourth quarter 2011 net loss is $164 million ($1.14 per diluted share).
For the year 2011, income from operations was $248 million versus a loss from operations of $111 million for the year 2010.
Management Comments — Commenting on results, U. S. Steel Chairman and CEO John P. Surma said, "Our operating results for the fourth quarter included another solid performance by our Tubular segment reflecting the continued strength of oil-directed drilling. Our Flat-rolled segment incurred a loss from operations due to soft steel market conditions during most of the quarter, increased costs related to planned maintenance outages and accounting losses on transactions to sell excess iron ore pellets. U. S. Steel Europe results continue to reflect the difficult economic situation in the region."
Other items not allocated to segments in the fourth quarter of 2011 included a pre-tax environmental remediation charge of $18 million. Other items not allocated to segments in the fourth quarter of 2010 included a pre-tax net gain of $21 million related to the sale of transportation assets in Alabama as well as the sale of the bar mill and bloom and billet mill assets located at Hamilton Works.
Postretirement benefit expenses increased in 2011, reflecting higher amortization of unrecognized losses and lower asset returns, both of which relate to a lower market-related value of assets caused by the recognition of remaining deferred 2008 investment losses.
Net interest and other financial costs in the fourth quarter of 2011 included a foreign currency loss that decreased net income by $51 million (35 cents per diluted share). This compares to a foreign currency loss that decreased net income by $96 million (57 cents per diluted share) in the previous quarter and a foreign currency loss that decreased net income by $33 million (23 cents per diluted share) in the year-ago fourth quarter.
For the full year 2011, the company recorded a tax provision of $77 million on pre-tax income of $9 million. In accordance with accounting guidance, the tax provision does not reflect any tax benefit for pre-tax losses in Canada and Serbia, which are jurisdictions where we have recorded a full valuation allowance on deferred tax assets, and for foreign currency gains and losses that are not recognized in any tax jurisdiction.
Capital expenditures for 2011 of $848 million largely consisted of strategic projects primarily related to coke and coke substitute production, including blast furnace coal injection in Europe, a carbon alloy facility at Gary Works, and an environmentally advanced coke battery at the Mon Valley Works' Clairton Plant; heat treat and finishing facilities at the company’s Lorain Tubular Operations in Ohio; ongoing implementation of an enterprise resource planning system; and non-discretionary environmental and other infrastructure projects. This compares with capital expenditures of $676 million for 2010.
As of December 31, 2011, U. S. Steel had $408 million of cash and $1.8 billion of total liquidity as compared to $578 million of cash and $2.1 billion of total liquidity at December 31, 2010.
Segment Income — In the fourth quarter, U. S. Steel's reportable segments and Other Businesses reported a loss of $43 million ($8 per ton), vs. income of $295 million ($54 per ton) in the previous quarter (3Q-2011) and a loss of $77 million ($14 per ton) in the year-ago fourth quarter.
Flat-rolled segment — For the fourth quarter, the company’s Flat-rolled segment reported a loss from operations of $24 per ton compared to income from operations of $53 per ton in the previous quarter. The company said the decrease was driven largely by lower average realized prices and shipments created by the uncertain economic outlook and increased domestic supply, which perpetuated cautious purchasing patterns early in the quarter. Fourth quarter prices decreased by $32 per ton to $741 per ton, reflecting lower average realized prices on spot market business and index-based contracts. Market-related effects totaled approximately $185 million as compared to the third quarter.
During the fourth quarter, maintenance outages were performed at several facilities, which resulted in increased costs of approximately $50 million compared to the third quarter. The company also incurred approximately $20 million in costs related to the ratification of the Hamilton Works labor agreement and associated finishing facility restart costs. Accruals for profit-based payments were approximately $30 million lower in the fourth quarter as compared to the third quarter.
Additionally, lower-than-anticipated operating levels in 2011 and contractual obligations to purchase iron ore pellets resulted in inventory levels in excess of expected requirements. The company sold purchased iron ore pellets as they were better positioned for sale and better matched customer specifications. However, they were recorded at the original purchase cost, which is considerably higher than the company’s own average or incremental pellet costs. As a result, the company recorded a loss of $60 million in the fourth quarter, thereby reducing the average cost of the remaining pellets and reducing future consumption costs. The company also recorded a lower-of-cost-or-market-adjustment of approximately $15 million on purchased pellets expected to be sold in 2012. These pellet sales are expected to result in cash flow of approximately $100 million in 2012.
The segment achieved a raw steel capability utilization rate of 75% in the fourth quarter, which was comparable to the third quarter. For the full year 2011, the company’s Flat-rolled segment had operating income of $452 million.
U. S. Steel Europe — Fourth quarter results for U. S. Steel Europe (USSE) were lower than the previous quarter primarily due to lower average realized euro-based prices, production volume and shipments as market demand softened in response to the difficult economic conditions in Europe. Operating costs decreased compared to the third quarter, reflecting lower raw materials and facility repair and maintenance costs partially offset by higher energy costs. In response to reduced spot market prices and weak demand, a blast furnace in Serbia remained idled and a blast furnace in Slovakia was taken off-line late in the quarter. As a result, our European raw steel capability utilization rate decreased to 65% for the fourth quarter. For the full year 2011, the company’s USSE segment had an operating loss of $162 million.
Tubular — fourth quarter 2011 Tubular results were in line with the previous quarter as average realized prices increased to $1,711 per ton and shipments of 482,000 tons were comparable to the third quarter. Results reflect the continued strong demand for energy-related tubular products. Also reflected in fourth quarter results were increased maintenance outage and repair costs and start-up costs for the newly commissioned heat treat and finishing facilities at the company’s Lorain Tubular Operations in Ohio. For the full year 2011, the company’s Tubular segment had operating income of $316 million.
U. S. Steel Serbia — Effective January 31, 2012, U. S. Steel sold U. S. Steel Serbia d.o.o. to the Republic of Serbia for a nominal purchase price. In addition, U. S. Steel Kosice will receive payment of certain intercompany balances owed by U. S. Steel Serbia for raw materials and support services, subject to adjustment. U. S. Steel expects to record a total non-cash charge of between $400 and $450 million in the first quarter of 2012, which includes the loss on the sale and a charge of approximately $50 million to recognize the cumulative currency translation adjustment related to the company's net investment in Serbia.
"Our efforts to improve the operation's cost structure and shift our commercial focus toward more value-added products have been unable to offset the particularly difficult economic conditions in Southern Europe,” said Surma. “As mentioned last quarter, in response to sustained operating losses at our Serbian operations, we have been pursuing all options to improve our situation there. The option that proved to be in the best interest of our shareholders is this sale to the Republic of Serbia," added Surma. "The sale will allow U. S. Steel to exit the operations quickly, avoid further losses in Serbia, which were in excess of $200 million in 2011, and redirect our capital to other operations."
Outlook — Commenting on U. S. Steel's outlook for the first quarter, Surma said, "We expect to report a significant improvement in our operating results in the first quarter as compared to the fourth quarter, mainly driven by improved average realized prices and shipments for our Flat-rolled segment. Our Tubular operations are expected to have another strong performance as operating results are expected to be in line with the fourth quarter. We expect our European segment results to reflect the effects of the continued difficult economic environment across Europe."
“We expect good results for our Flat-rolled segment in the first quarter as a result of increased average realized prices and shipments, as improving end-user demand and lower customer inventories began to significantly improve market conditions late in the fourth quarter,” continued Surma. “While our quarterly index-based pricing for the first quarter will be lower than the fourth quarter, incorporating the decrease from the third to fourth quarter in published market price assessments, the expected increase in first quarter prices reflects higher average realized prices on both spot and contract business reflecting increases in our newly negotiated cost-based and firm priced contracts. Additionally, operating costs are expected to improve in the first quarter, reflecting reduced energy costs and facility maintenance and outage costs partially offset by higher raw materials costs. First quarter results will also improve as compared to the fourth quarter due to the absence of the effect of the pellet transactions described above.
“Excluding the loss on the sale of U. S. Steel Serbia, we expect the first quarter results for our European segment to improve compared to the fourth quarter 2011 due to the elimination of operating losses associated with our Serbian operations. European spot market prices appear to have bottomed and are expected to increase throughout the remainder of the quarter; however, contract prices are expected to decrease compared to the fourth quarter. Maintenance work has been completed and we restarted the blast furnace in Slovakia in late January that was taken off-line late in the fourth quarter.
“First quarter 2012 results for our Tubular segment are expected to maintain the solid performance achieved in the prior two quarters as the demand for oil country tubular goods (OCTG) and line pipe remains strong. Shipments are expected to increase modestly from the fourth quarter while average realized prices are expected to be comparable to the fourth quarter. Overall, shale resource development and oil-directed drilling continue to drive the rig count, while natural gas drilling is being affected by the high levels of natural gas in storage.
Total accounting costs for pension and other benefits plans are expected to be approximately $535 million in 2012 compared to approximately $600 million in 2011. Company payments for these plans in 2011 were approximately $630 million, which included a voluntary contribution of $140 million to our main defined benefit pension plan.
