United States Steel Corporation (X)

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United States Steel Corp. (X)

Q4 2009 Earnings Call

January 26, 2010 3:00 pm ET

Executives

John Surma - Chairman & Chief Executive Officer

Gretchen Haggerty - Executive Vice President & Chief Financial Officer

Dan Lesnak - Manager of Investor Relations

Analysts

Michael Gambardella - JP Morgan

Kuni Chen - Bank of America

Tony Rizzuto - Dahlman Rose

Timna Tanners - UBS

Luke Folta - Longbow

David Gagliano - Credit Suisse

Brett Levy - Jeffries

Brian Yu - Citi

Sal Tharani - Goldman Sachs

Mark Parr - KeyBanc

Charles Bradford - Affiliated Research

Wayne Atwell - Casimir Capital

John Tumazos - Very Independent Research

Bob Richard - Southridge Investment

Presentation

Operator

Ladies and gentlemen, thank you for standing by and welcome to the United States Steel Corporation fourth quarter 2009 earnings conference call and webcast. Now, at this time, all participants are in a listen-only mode, later we will conduct the question-and-answer session instructions will be given at that time. (Operator Instructions)

Starting off today hosting the speakers Dan Lesnak; please go ahead sir.

Dan Lesnak

Good afternoon, and thank you for participating in United States Steel Corporation’s fourth quarter 2009 earnings conference call webcast. We’ll start the call from brief introductory remarks from US Steel Chairman and CEO, John Surma. Next, I’ll provide some additional details through the fourth quarter and then Gretchen Haggerty, US Steel’s Executive Vice President and CFO will comment on the outlook for the fourth quarter 2010. Following our prepared remarks, we’ll be happy to take any questions.

Before we begin, however, I must caution you that today’s conference call contains forward-looking statements and that future results may differ materially from statements or projections made on today’s call. For your convenience the forward-looking statements and risk factors that could affect those statements are referenced at the end of our release and are included in our most recent Annual Report on Form 10-K and updated in our Quarterly Reports on Form 10-Q in accordance with the Safe Harbor provision.

Now, begin the call here is United States Chairman and CEO, John Surma.

John Surma

Thanks Dan and good afternoon, everyone thank you all of joining us this afternoon. Earlier today for the fourth quarter, we reported a quarterly loss of $267 million or $1.86 per diluted share, an improvement from the third quarter as we produced our losses in our North American Flat-rolled segment and our Tubular segment returned to profitability.

Lets more details on the figures in a moment, but first let me just reflect that 2009 was an extremely difficult year for our company and our people, but we remain focused on the continuing improvement of our employee safety performance. For the year we maintained our positive trend of reducing both our global rate of recordable injuries and our global days away from work rate, our fifth consecutive year of improved employee safety.

The global economic crisis that began during the fourth quarter of 2008 resulted in dramatic unprecedented reductions in demand for nearly all of our product lines. As one measure of the severity of the crisis domestic steel industry, capacity utilization as reported by SI averaged 51% in 2009 compared to an average of about 86% over the previous 20 years.

Our strong financial performance in balanced approach the capital allocation in recent years placed us in a strong position as we entered this downturn, but there was no way for us to escape the effect of the global recession of this magnitude. As we have reported throughout the year we took a number of steps that helped us to enhance our liquidity, maintain a solid balance sheet and position us for success in a longer term.

Those measures included idling all or portions of numerous still making finishing raw materials and Tubular operations in the US, Canada and Europe. While operating are remaining facilities that reduced levels to match our customers, lower demand requirements. On the financial side we reduced our quarterly dividend, completed successful offerings of senior convertible notes and common stock and renegotiated the provisions of existing financial covenants with lenders.

We curtail capital spending initiated substantial cost reduction activities that all location including reducing our non-represented workforce through attrition in an early retirement program. We agreed with the United Steel workers to defer certain mandatory trust contributions, froze hiring and eliminated annual merit pay salary increases, discontinued the company match 401(k) program reduced fees for our Board of Directors in paid salaries for all General Mangers and Executives.

These were very, very difficult decisions that were given careful and thoughtful consideration. We realize the profound impact these actions will have on our shareholders as well as our employees, their families and the communities where we operate and live, but the difficult steps we took are now enabling our company to take advantage of what appears to be the very early stages of an overall economic recovery.

Improved order rates in late 2009 and so far in 2010 and allowed us to increase our operating levels and spot market prices have been increasing. We believe with this reflects in part a restocking process since we believe our apparent demand for our 2009 was well below real end use demand and it appears that our customers in several of our product lines are increasing their inventory toward more appropriate levels.

We continuation of this trend will depend of course on the overall duration and strength of the general recovery. Now let me get back to our results. We reported a fourth quarter loss from operations of $329 million which may have noted included a pretax charge of $49 million related to the accrual of estimated environmental remediation cost at a formal production site in Utah. This charge reduced net income by $31 million or $0.21 per diluted share.

Net interest and other financial cost in the fourth quarter of 2009 and included a foreign currency loss that decreased net income by a $11 million for $0.07 per diluted share due to the re-measurement of a US dollar denominated inter company loan to a European affiliate and related Euro, US dollar derivatives activity.

Our North American Flat-rolled segment had an operating loss of $284 million in the fourth quarter. Our Flat-rolled shipments increased almost 18% to $3.2 million net tons, primarily reflecting improvements in the automotive and service center markets. Our average realized prices increased $28 to $633 per net ton as spot price increases in the third quarter were realized in our quarterly index based contract prices.

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