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United States Steel Corporation Reports Improved 2016 Second Quarter Results And Stronger Cash And Liquidity Position

Earnings Highlights


(Dollars in millions, except per share amounts)

2Q 2016

1Q 2016

2Q 2015

Net Sales

$

2,584


$

2,341


$

2,900


Segment earnings (loss) before interest and income taxes




Flat-Rolled

$

6


$

(188)


$

(64)


U. S. Steel Europe

55


(14)


20


Tubular

(78)


(64)


(66)


Other Businesses

10


14


6


Total segment loss before interest and income taxes

$

(7)


$

(252)


$

(104)


Postretirement benefit income (expense)

12


16


(14)


Other items not allocated to segments

23


(25)


(274)


Earnings (loss) before interest and income taxes

$

28


$

(261)


$

(392)


Net interest and other financial costs

81


65


55


Income tax (benefit) provision

(7)


14


(186)


Less: Net earnings attributable to the noncontrolling interests




Net loss attributable to United States Steel Corporation

$

(46)


$

(340)


$

(261)


-Loss per basic share

$

(0.32)


$

(2.32)


$

(1.79)


-Loss per diluted share

$

(0.32)


$

(2.32)


$

(1.79)






Adjusted earnings (loss) before interest, income taxes, depreciation and amortization (EBITDA) (a)

$

134


$

(107)


$

20


(a) Please refer to the Non-GAAP Financial Measures section of this document for the reconciliation of net loss attributable to United States Steel Corporation to adjusted EBITDA.

Commenting on results, U. S. Steel President and Chief Executive Officer Mario Longhi said, "Our second quarter results improved significantly from the first quarter as our European segment posted its best results since the third quarter of 2008 and our Flat-Rolled segment returned to profitability. Our improving cost structure continues to drive increases in our margins and the recent increases in steel prices started to be reflected in our results. Also, our successful debt offering, continued reductions in working capital, and increasing cash generation significantly improved financial flexibility and our cash and liquidity position. While market conditions have improved recently, we remain focused on lowering our break-even point and working closely with our customers to improve our market position and create value for all of our stakeholders."

Segment loss before interest and income taxes was $7 million, or $2 per ton, for the second quarter of 2016 compared with segment loss before interest and income taxes of $252 million, or $70 per ton, in the first quarter of 2016 and segment loss before interest and income taxes of $104 million, or $27 per ton, in the second quarter of 2015.

For the second quarter 2016, we recorded a tax benefit of $7 million on our pre-tax loss of $53 million. Due to the full valuation allowance on our domestic deferred tax assets, the tax provision does not reflect any tax benefit for domestic pretax losses.

We generated positive operating cash flow of $313 million for the six months ended June 30, 2016. As of June 30, 2016, U. S. Steel had $820 million of cash and $2.4 billion of total liquidity.

Segment Analysis

Second quarter results for our Flat-Rolled segment improved from the first quarter as steel prices increased throughout the quarter. The increase in average realized price reflects the flow through of higher index prices to our monthly contracts and increased pricing on spot business. Second quarter results also improved sequentially as the first quarter results included a $50 million unfavorable effect from planned liquidations of inventory costed using the last-in-first-out (LIFO) method related to our targeted working capital reductions in 2016. Maintenance and outage costs were higher in the second quarter due to planned and unplanned outages at Gary Works early in the quarter.

Second quarter results for our European segment increased compared to the first quarter. Higher average realized euro-based prices combined with higher volumes, favorable raw material prices, improved operating efficiencies, and increased Carnegie Way benefits contributed to better results.

Second quarter results for our Tubular segment decreased compared to the first quarter primarily due to lower shipments and prices. Shipments were adversely impacted as average rig counts were lower in the second quarter.

2016 Outlook

Commenting on U. S. Steel's outlook for 2016, Longhi said, "The significant improvements we have made to our earnings power through our Carnegie Way transformation will become more apparent as market prices recover from the very low levels at the end of 2015. While we began to realize some benefit from recent price increases in the second quarter, we will see better average realized prices, primarily in our Flat-Rolled and European segments, in the second half of the year. The steel industry continues to face challenging conditions as a result of global overcapacity and unfair trade practices. We remain focused on improving our trade laws and their enforcement, and we are encouraged that final affirmative determinations in recent trade cases have been a catalyst for increasing steel prices. Our Carnegie Way journey continues to create improvements in our business model that will enable us to be profitable across the business cycle."

If market conditions, which include spot prices, customer demand, import volumes, supply chain inventories, rig counts and energy prices, remain at their current levels, we would expect:

  • 2016 net earnings to be approximately $50 million, or $0.34 per share, and adjusted EBITDA to be approximately $850 million.
  • Results for our Flat-Rolled and European segments should each be higher than their 2015 results and results for our Tubular segment should be lower than their 2015 results.
  • To be cash positive for the year, including approximately $400 million of cash benefits from working capital improvements in 2016, primarily related to better inventory management, driven by improved sales and operations planning practices, helping to offset growing accounts receivables balances.

We believe market conditions will change, and as changes occur during the balance of 2016, our net earnings and adjusted EBITDA should change consistent with the pace and magnitude of changes in market conditions.

We expect improved results for Other Businesses, primarily from real estate, and approximately $60 million of post retirement benefit income.

Please refer to the Non-GAAP Financial Measures section of this document for the reconciliation of the Outlook net earnings to adjusted EBITDA.

We present adjusted net earnings (loss), adjusted net earnings (loss) per diluted share, earnings (loss) before interest, income taxes, depreciation and amortization (EBITDA) and Adjusted EBITDA, which are non-GAAP measures, as additional measurements to enhance the understanding of our operating performance.

We believe that EBITDA, considered along with the net earnings (loss), is a relevant indicator of trends relating to cash generating activity and provides management and investors with additional information for comparison of our operating results to the operating results of other companies.

Adjusted net earnings (loss) and adjusted net earnings (loss) per diluted share are non-GAAP measures that exclude the effects of restructuring charges, impairment charges, losses associated with U. S. Steel Canada and losses on debt extinguishment that are not part of the Company's core operations. Adjusted EBITDA is also a non-GAAP measure that excludes the effects of restructuring charges, impairment charges and losses associated with U. S. Steel Canada. We present adjusted net earnings (loss), adjusted net earnings (loss) per diluted share and adjusted EBITDA to enhance the understanding of our ongoing operating performance and established trends affecting our core operations, particularly cash generating activity, by excluding the effects of restructuring charges, impairment charges and losses associated with non-core operations that can obscure underlying trends. U. S. Steel's management considers adjusted net earnings (loss), adjusted net earnings (loss) per diluted share and adjusted EBITDA useful to investors by facilitating a comparison of our operating performance to the operating performance of our competitors, many...


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