United States Steel Corporation · NYSE:X
United States Steel — Prudential 2007 Metals and Mining Conference
37 slides from United States Steel's conference presentation, Apr 4, 2007
Slide 1: United States Steel Corporation: Building Value for Today and the Future
United States Steel Corporation Building Value for Today and the Future April 4, 2007
Slide 2: Forward-Looking Statements
Forward-Looking Statements This presentation contains forward-looking statements with respect to market conditions, operating costs, shipments, prices and profit-based compensation payments. Some factors, among others, that could affect 2007 market conditions, costs, shipments and prices for both do
Slide 3: United States Steel Corporation
United States Steel Corporation Conservative, responsible company that generates a competitive return on capital and meets our financial and stakeholder obligations • 6th largest global producer • 2nd largest North American flat-rolled producer • 2nd largest Central European flat-rolled producer • L
Slide 4: Flat-rolled segment
Flat-rolled segment Leading producer of high quality product • LTM 4Q’06 shipments – 14.2 million tons • Approximately 50/50 contract versus spot • Typical contract term 1-3 years • Contract industries include: auto, appliance, tin and electrical • Demands sophisticated metallurgical applications wi
Slide 5: European segment
European segment Includes both Slovakia and Serbia • LTM 4Q’06 shipments – 6.3 million tons • Approximately 70% spot versus 30% contracts • Key industries: construction, service center, packaging and conversion • Commissioning auto quality galvanize line – 350,000 tonnes • Restarted second blast fur
Slide 6: Tubular segment
Tubular segment Oil country and standard and line pipe • LTM 4Q’06 shipments – 1.2 million tons: ¾ Seamless 1.1 million ¾ ERW 118,000 tons • Primarily spot sales • Oil Country 75% - Standard & Line 25% • Size ranges (outside diameter): ¾ Seamless -1.9” to 24” ¾ ERW – 8” to 20” • Shipments: ¾ NAFTA 8
Slide 7: Improving Industry – Why invest in Steel?
Improving Industry – Why invest in Steel? • Steel is a good product • Major regions are increasing consumption rates • Governments mostly out of industry (ex China) • Metallics are tight, level cost curve • Low Valuation: 2007 P/E* 21.0x 18.8x 18.0x 14.8x 14.2x 15.0x 12.0x 10.0x 9.3x 9.0x 8.5x 6.0x
Slide 8: Strong business climate: Selected Price Trends
Strong business climate Selected Price Trends – Through February 2007 $300 $775 Shredded scrap composite $/Gross ton Hot rolled $/Net Ton $275 $675 $250 $225 $575 $200 $475 $175 $150 $375 $125 $275 $100 $75 $175 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 May-02 Sep-02 May-03 Sep-03 May-04 Sep-04 May-
Slide 9: Global Raw Materials Integration
Global Raw Materials Integration Control over key raw materials Percent controlled Strong global raw material position: 100 • Significant portion of coal requirement are under long-term contract thru ’08 80 •Second largest NA iron ore producer ¾ produced 22 mmnt in 2006 60 ¾ reserves 786 mmnt • Iron
Slide 10: MSCI Flat Rolled Inventory
MSCI Flat Rolled Inventory January 2004 – February 2007 11,000 $600 1,400 $513 10,000 $660 1,150 $756 $635 9,000 $350 $460 900 8,000 $580 $535 650 7,000 6,000 400 Nov-04 Nov-05 Nov-06 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 May-04 May-05 May-06 Mar-04 Mar-05 Mar-06 Sep-04 Sep-05 Sep-06 Tons
Slide 11: Raw Material Cost - Impact on hot rolled band costs
Raw Material Cost - Impact on hot rolled band costs Raw material cost inflation has leveled the playing field – HRB cash cost $/ton $450 $362 $369 $375 $340 12% 15% 23% $270 $300 18% 17% 12% $204 $225 $190 41% 19% 24% $150 15% 24% 8% $75 66% 52% 68% 51% 65% 71% $0 '02 '02 '06 '06 '02 '06 1Q 4Q 4Q 1Q
Slide 12: Capital Allocation – Building Value
Capital Allocation – Building Value Responsible company that generates a competitive return on capital and meets our financial and stakeholder obligations • Improve capital structure and strengthen balance sheet • Focused capital plan • Responsible capital allocation • Remain shareholder focused Des
Slide 13: Improving capital structure – Building Value
Improving capital structure – Building Value Balanced approach to capital allocation Since LTM As of ($ in millions) 1/1/03 12/31/06 Cash Provided by Operations $4,884 $1,689 Capital Spending $2,284 $612 Debt Reduction $908 $587 Voluntary Pension & OPEB Funding $695 $190 Dividends Paid $212 $78 Stoc
Slide 14: Improving Earnings Trend
Improving Earnings Trend Adjusted earnings per share $4.00 $3.50 $3.00 $2.50 $2.00 $1.50 $1.00 $0.50 $0.00 ($0.50) ($1.00) ($1.50) 1Q'02 2Q'02 3Q'02 4Q'02 1Q'03 2Q'03 3Q'03 4Q'03 1Q'04 2Q'04 3Q'04 4Q'04 1Q'05 2Q'05 3Q'05 4Q'05 1Q'06 2Q'06 3Q'06 4Q'06 14
Slide 15: Improving capital structure – Building Value
Improving capital structure – Building Value As of ($ in millions) 12/31/03 12/31/06 Cash $316 $1,422 Net working capital $821 $823 Total debt $1,933 $908 Employee benefits $2,328 $2,174 Total liabilities $6,742 $6,183 Stockholder equity $1,093 $4,365 Total Capitalization $7,837 $10,586 $500 $434 De
Slide 16: Improving Capital Structure – Building Value
Improving Capital Structure – Building Value Total and Net Debt EBITDA $2,700 $2,100 $1,933 $2,226 $1,612 $2,200 $2,007 $1,600 $1,434 $1,371 $1,805 $1,025 $1,700 $1,100 $600 $1,200 $100 $700 $478 $316 ($400) $200 2002 2003 2004 2005 2006 2002 2003* 2004 2005 2006 Total Debt/EBITDA EBITDA/Net Interes
Slide 17: Improving capital structure – Manageable legacy obligations
Improving capital structure – Building Value Key considerations Manageable legacy obligations – 2007 Pension: • Defined benefit As of 12/31/06 ($ in millions) Pension OPEB Total plan closed in 2003 Benefit obligation $7,306 $2,867 $10,173 OPEB: Plan assets $7,516 $660 $8,176 • Co-pays Funded status
Slide 18: Capital Spending – Building Value
Capital Spending – Building Value U.S. Steel has spent less 2003 – 2005 Average CapEx per ton shipped than global peers in recent years $80 $76 Will likely incur higher capex during next few $70 years concentrated on $60 Capex per ton infrastructure, but will likely remain below the $50 global avera
Slide 19: Shareholder focus – Building Value
Shareholder focus – Building Value • Common dividend $0.80/share/year: ¾Quadrupled since 01/05 • 7.6 million shares remaining under current repurchase authorization: ¾ Repurchased 7.2mm shares in 2006 ¾ Repurchased 13.1mm shares since 7/05 19
Slide 20: Flat Rolled Products Segment Q4 2006 Review and Outlook
Flat Rolled Products Segment Q4 2006 Review and Outlook Outlook (tons in ‘000) 4Q05 3Q06 4Q06 1Q07 Shipments 3,346 3,695 3,078 + Ave. Price/ton $597 $651 $648 = Ave. Cost/ton $586 $589 $638 = Margin (loss)/ton $13 $62 $10 = Inc(loss) from Oper. (millions) $11 $230 $31 + Positives Negatives • End mar
Slide 21: Tubular Products Segment Q4 2006 Review and Outlook
Tubular Products Segment Q4 2006 Review and Outlook Outlook (tons in ‘000) 4Q05 3Q06 4Q06 1Q07 Shipments 292 303 271 - Ave. Price/ton $1,456 $1,491 $1,523 - Ave. Cost/ton $946 $950 $992 = Margin (loss)/ton $510 $541 $531 - Inc(loss) from Oper. (millions) $149 $164 $144 - Positives Negatives • Near r
Slide 22: U. S. Steel Europe Segment Q4 2006 Review and Outlook
U. S. Steel Europe Segment Q4 2006 Review and Outlook Outlook (tons in ‘000) 4Q05 3Q06 4Q06 1Q07 Shipments 1,359 1,552 1,549 + Ave. Price/ton $580 $640 $665 - Ave. Cost/ton $498 $499 $548 = Margin (loss)/ton $82 $141 $117 - Inc(loss) from Oper. (millions) $112 $219 $182 +/- Positives Negatives • Str
Slide 23: Making Steel - World Competitive - Building Value
Making Steel - World Competitive - Building Value Investment considerations • Strong business climate • Global raw materials integration • Building value: ¾Improving capital structure ¾Improving infrastructure and product mix ¾Responsible capital allocation ¾Remain shareholder focused 23
Slide 24: Strategic Acquisition of Lone Star Technologies, Inc.
Strategic Acquisition of Lone Star Technologies, Inc. © United States Steel Corporation 2007
Slide 25: Forward-Looking Statements
Forward — Looking Statements Risks and Uncertainties Regarding United States Steel Corporation and Lone Star Technologies, Inc. Some factors, among others, that could affect market conditions, costs, shipments and prices for the domestic and foreign operations of U. S. Steel and Lone Star include gl
Slide 26: U. S. Steel to Acquire Lone Star Technologies
U. S. Steel to Acquire Lone Star Technologies Lone Star Transaction Overview U. S. Steel acquires Lone Star for $2.1 billion or $67.50 per share All cash transaction •Financed with cash on hand and committed credit facilities a leading North American Potential annual synergies in excess of $100 mill
Slide 27: Lone Star Steel Technologies, Inc. (LSS) Business Overview
Lone Star Steel Technologies, Inc. (LSS) Business Overview Leading North American producer of welded OCTG Major producer and marketer of line pipe Other Businesses: Major supplier to oil patch of threading,heat treating and finishing Producer of Annual production capacity of 1mm tons*. specialty tub
Slide 28: Business Case for Acquisition
Lone Star Steel Technologies, Inc. Business Case for Acquisition Complementary Assets & Attributes Expanded and Complementary Product Portfolio Strong Tubular Product Mix Creates largest North American fully integrated seamless and welded tubular producer Annual synergies estimated to be in excess o
Slide 29: U.S. Steel and Lone Star - Complementary Assets & Attributes
U.S. Steel and Lone Star - Complementary Assets & Attributes Lone Star U. S. Steel Technologies Significant North American Leading North American seamless supplier welded pipe supplier Full seamless size range Full size welded range 1.9” through 26” utilizing the Alliance mills 1” through 60” Limite
Slide 30: Expanded and Complementary Product Portfolio
Expanded and Complementary Product Portfolio Inches 1 5 10 15 20 25 30 50 60 Lone Star Steel Welspun * Northwest Pipe * Welspun JV ERW Apolo JV Seamless LSS DSAW Bellville Texas Tubular * Spiral Tex-Tube * Welded * Identifies LSS Hunan Valin – Potential JV alliances Lorain #4 Lorain #3 USSK USS Fair
Slide 31: U. S. Steel and Lone Star - Strong Tubular Product Mix
U. S. Steel and Lone Star - Strong Tubular Product Mix U. S. Steel (1.2 mm tons) Lone Star (1.0 mm tons) OCTG OCTG LSS Flat Roll 59% 59% 17% S&L** S&L** 41% Specialty * 15% 9% S&L** 29% 2006 OCTG Pro forma 59% Specialty 4% Shipments LSS Flat Roll (2.2 mm tons) 8% *Customer specified (custom) dimensi
Slide 32: Creates the Largest N.A. Seamless and Welded Tubular Producer
Creates the Largest N.A. Seamless and Welded Tubular Producer Million Tons Tubular Capacity 3 2.8 * * 1.8 mm USS & 1.0 mm LSS * * 2006 Acquisitions 2.4 2 1.7 1 0.5 0 USS / LSS IPSCO / NS Tenaris / V&M Star Group ** Maverick ** 32 Source: Company filings and equity research
Slide 33: Strong Market Outlook Drives Demand
Strong Market Outlook Drives Demand Source: Spears $ Barrel Spot Price $ mmbtu 80 10 60 WTI Spot 8 Price 40 6 20 Natural Gas 4 Price 0 2 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 Total N.A. Rig Count 2,500 2,000 1,500 1,000 500 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 33 33
Slide 34: Financial Overview of Tubular Business
Financial Overview of Tubular Business $ millions FY 2006 U.S. Steel Tubular Lone Star Tons Shipped 1.2 million 1.0 million* Revenue $1,798 $1,378 Operating Income $631 $173 % margin 35.1% 12.5% EBITDA** $644 $203 % margin 35.8% 14.7% Source: Company filings * Excludes alliance mills & Apolo joint v
Slide 35: U. S. Steel and Lone Star Technologies Transaction Summary
U. S. Steel and Lone Star Technologies Transaction Summary Creates the leading North American supplier of OCTG products • Largest North American supplier of seamless and welded pipe to energy sector • Leverages U.S. Steel’s production platform to drive operating performance Financially attractive: •
Slide 36: Additional Information
Additional Information In connection with the proposed merger, Lone Star Technologies, Inc. intends to file a proxy statement and related materials with the Securities and Exchange Commission (SEC). The documents will contain important information about the proposed merger, and the shareholders of L
Slide 37: Strategic Acquisition of Lone Star Technologies, Inc.
Strategic Acquisition of Lone Star Technologies, Inc. © United States Steel Corporation 2007
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