United States Steel

founded: 1901

Contact Information:

headquarters: 600 grant street pittsburgh, pa 15219-2800 phone: (412)433-1121 url: http://www.ussteel.com

OVERVIEW

United States Steel produces a variety of steel products, including sheet steel, steel plate, and tubular steel. United States Steel's main steel plants are the Gary Works, one of the largest steel producing complexes in the world, located in northern Indiana; the Mon Valley Works in Pennsylvania; the Fairfield Works in Alabama; and through its foreign subsidiary USSK, the Koşice Works in the Slovak Republic. United States Steel has an annual raw steel production capability of 17.8 million tons. United States Steel is a so-called integrated steel company—it produces steel primarily from iron ore, in contrast to minimills that make steel from recycled scrap steel. Although integrated mills are able to manufacture steel of a higher quality, their production costs per ton are higher and they face stiff competition from minimills. In addition to steel, United States Steel is one of North America's top two makers of tin mill products, primarily for the container industry.

United States Steel is active in virtually every activity connected with the production of steel, including the mining of iron ore and coal, coke production, and transportation. The company's Minntac division mines taconite from which iron ore is then extracted. United States Steel mines are located in Mountain Iron, Minnesota. The firm operates coal mines in West Virginia and Alabama. It main coke works are located in Gary Indiana, Koşice, Slovakia, and the Clairton Works near Pittsburgh. United States Steel's Transtar subsidiary runs the company's truck and barge operation, which is used in large part to transport steel and raw materials. In 2001 Straightline Source was launched, an online service through which customers could place steel orders, regardless of size, directly with United States Steel. United States Steel is also engaged in real estate development, technology licensing, and consulting services.

COMPANY FINANCES

United States Steel has experienced troubled financial times for the better part of two decades, the result of heated foreign competition, aging facilities, and increasing fragmentation in the American steel industry. The years between 1997 and 2001 have been up and down at best. Total revenues declined from $7.16 billion in 1997 to $5.47 billion in 1999. By 2001, however, they had recovered, reaching $6.37 billion. That recovery disguised continuing declines in revenues for some of United States Steel's key products though; between 1997 and 2001 revenues from sheet and semi-finished steel products dropped from $3.92 billion to $3.16 billion, while raw materials (coal, coke, and iron ore) declined from revenues of $796 million to $485 million. These losses were made up by growth in tubular products revenues, which increased from $596 million in 1997 to $755 million in 2001. The company also experienced noteworthy growth in its plate and tin mill products, as well as its engineering and consulting services and its real estate development segment between 1999 and 2001.

Between 1997 and 2001, United States Steel's output fell in most key areas: coke production, coke shipments, iron ore pellet shipments, coal shipments, and domestic steel shipments. Domestic steel production declined from 12.35 million tons in 1997 to 10 million tons in 2001. Overall production only reached 14.14 million tons in 2001 because of the acquisition of VSZ in the Slovak Republic. Lower prices for steel in Central Europe offset those gains however—$260 for Slovakian steel in 2001 compared with $427 in the United States. United States Steel's year-end share price fluctuated at the end of the 1990s: $31.25 in 1997, $23 in 1998, $33 in 1999, and $18 in 2000. It seemed to level off in 2001 at $18.11.

ANALYSTS' OPINIONS

Analysts differ on the effects of United States Steel's spin off from the USX Corporation at the end of 2001. Hoover's speculated that the steel firm would miss the deep pockets of its former parent, particularly during the difficult times that continue to beset the U.S. steel industry. Labor and legacy costs, mainly pensions and insurance for retirees, place a huge burden on the company's bottom line. A Value Line report, on the other hand, acknowledged that the restructuring could hardly happen at a worse time in the steel industry. However it believed that United States Steel would be able to survive the separation, indeed it would be strengthened by it, maintaining its earning power. Value Line saw "momentum" in United States Steel's recovery and predicted that 2002 would be a transitional year leading to stronger future results.

HISTORY

United States Steel was the outcome of a mammoth consolidation of the American steel industry in 1901, a merger masterminded by banker J.P. Morgan, industrialist Andrew Carnegie, Charles Schwab, and Elbert Gary. Carnegie's company, U.S. Steel was acquired by Gary and Morgan and then combined with the Federal Steel Company. By the time the dust settled, a number of other companies had been added to the conglomerate, including American Steel & Wire Co., National Tube Company, American Tin Plate Co., American Steel Hoop Co., and the American Sheet Steel Co. When it was founded, United States Steel was capitalized at more than $1.4 billion, a sum equivalent to about $80 billion in 2001 dollars. It was the first billion-dollar corporation and the largest corporation in the world at the time.

In its first year of existence, United States Steel produced 67 percent of the steel made in the United States and 29 percent of the steel made in the world. The Gary Works in northern Indiana, begun in 1906, was the first major expansion of the company. The plant, which in 2001 was still the largest integrated steel plant in the western hemisphere, was comprised of four blast furnaces and had an annual capacity of 7.8 million tons. It was almost inevitable that in 1911 the U.S. Justice Department brought suit against United States Steel for antitrust violations, charging that the company had been formed specifically to dominate the U.S. steel industry. The case dragged on until 1920. In the end United States Steel was exonerated, a decision influenced, among other things, by the fact that far from dominating the U.S. steel trade, the company's market share had actually dropped from 67 percent in its first year to about 50 percent in 1911.

In the course of its history, United States Steel chalked up an impressive list of firsts. It was the first U.S. corporation to issue an annual report, to hold an annual shareholders' meeting, to adopt the eight-hour workday, and to establish an employee stock program. In 1917 it became the first company to reach $1 billion in revenues. It played a crucial roll in World War II by producing about one-third of the total U.S. steel production, about 156 million tons altogether. Immediately after the war started, while the federal government was prohibited by law from selling armaments, United States Steel bought $37 million worth and resold them to Britain and France.

The postwar years were a time of long decline for United States Steel. Imports, made in more modern factories by foreign workers who were paid less than unionized U.S. steelworkers, began increasing. Between 1958 and 1959 alone, imports jumped from 1.70 million tons to 4.39 million tons. By the end of the 1970s, the steel industry as a whole was facing a major depression that only deepened during the course of the decade. Finally, in spring 1979, David Roderick took over as United States Steel chairman and began the long painful turnaround. He initiated plant closures—and painful layoffs—that reduced the firm's overall capacity by two-thirds. Roderick ordered the long-overdue modernization of U.S. Steel facilities, a move that increased the firm's continuous casting capacity from 35 percent in 1989 to nearly 100 percent in 1992. He entered joint ventures with foreign competitors, such as Japan's Kobe Steel and South Korea's Pohang Iron & Steel. He also sold off holdings unrelated to steel production, in particular chemical and agri-chemical businesses.

Nonetheless United States Steel had to find ways to shore up its sagging bottom line. With that in mind, the company moved into the energy business. In 1982 it acquired the Marathon Oil Company and, in 1986, the Texas Oil & Gas Co. By 1986 steel accounted for less than one-third of the company's revenues. It was reorganized under the name USX. The new firm had four operating units, Marathon Oil Company, Texas Gas & Oil Corp, USS, and U.S. Diversified Group. In 1991 USX recognized the important distinction in its core businesses when it issued a new common stock, USXU.S., for its steel related businesses. At the end of 2001, USX underwent a major reorganization. Its steel-related businesses were spun off into a new independent company called the United States Steel Corporation. The rest of USX (its energy segments) were renamed Marathon Oil Corporation.

FAST FACTS: About United States Steel

Ownership: United States Steel is a publicly owned company traded on the New York, Chicago, and Pacific Stock Exchanges.

Ticker Symbol: X

Officers: Thomas J. Usher, Chmn., CEO, and Pres., 59, 2001 base salary $1,400,000; John P. Surma, VChmn. and CFO, 47, 2001 base salary $416,667; Dan D. Sandman, VChmn. and Chief Legal and Admin. Officer, 53, 2001 base salary $481,677

Employees: 35,600

Principal Subsidiary Companies: United States Steel has subsidiary companies and facilities in the United States, Slovakia, and Mexico. In addition to activities directly related to steel production, such as iron mining, coal mining, and coke making, the firm and its subsidiaries are also involved in consulting services, transportation, and real estate.

Chief Competitors: In addition to domestic and foreign steel makers, United States Steel competes with firms that manufacture a diverse array of other materials such as aluminum, cement, composites, glass, plastics, and wood, which compete with steel in construction and manufacturing. Some primary competitors are Nucor Corporation, Nippon Steel Corporation, Pohang Iron and Steel Co., Arbed SA, Alcoa, and Bethlehem Steel.

STRATEGY

At a time of increasingly fierce competition in the highly fragmented domestic market, United States Steel has adopted a strategy of consolidating and streamlining its vast infrastructure. It is modernizing the productive facilities that are most productive and closing down the rest. Significant modernization projects include new degasser facilities at the Mons Valley Works, a new hot-dip galvanized line at PRO-TEC and upgrades at the Gary Works. Its modernization efforts focused on producing high-quality specialty steels for specific markets, such as the automobile and construction industries. The company also recognizes the importance of globalization to its long-term health. Beginning in 2000, United States Steel made its first significant move into the global economy with the purchase of VSZ in the Slovak Republic. It is also involved in joint ventures with Japanese and Mexican firms. United States Steel's globalization strategy has various goals: To be closer to foreign workforces, to broaden the company's base of customers, and, as with domestic plant upgrades, the production of high-quality steel with special characteristics.

INFLUENCES

Imported steel presented United States Steel with a major challenge during the latter half of the twentieth century. Less developed nations in particular are able to produce steel at costs that U.S. companies—largely because of wage and benefit agreements with organized labor—are unable to match. As a result, by 1999, the United States was importing nearly one-third of all the steel it consumed. Some of that was steel which foreign producers "dumped" (or sold at an artificially low cost, often lower than the cost of producing it) on the American market. Dumped steel frequently came from countries whose steel industries were government subsidized. In both 2000 and 2001, United States Steel filed complaints with the International Trade Commission (ITC) and the U.S. Department of Commerce charging 24 countries with unfair trade practices and, in some cases, dumping. The ITC found in United States Steel's favor in the 2000 cases. In addition, the firm has urged the administration of George W. Bush to establish rules with foreign governments for steel trade and the elimination of government subsidies. The Bush administration responded in March 2002 with new quotas and tariffs on steel imports.

CURRENT TRENDS

The late 1990s witnessed the rise of a number of online steel exchanges such as Metal Suppliers, MetalSite, Metal Network Exchange Services, and eSteel. Steel consumers could visit their sites, get the best price for a type and quantity of steel, and place an order. United States Steel's response in October 2001 was to found a new division, Straightline. Specializing in carbon flat-rolled steel, Straightline enables customers, including customers whose orders would previously have been too small to place directly with United States Steel, to order online at Straightline's Web site. The site manages every aspect of the order: finding the steel at one of United States Steel's facilities, giving a quote and placing the order, meeting the specifications of the customer, and delivery. By the end of 2001, it offered delivery in North Carolina, South Carolina and parts of Florida, Tennessee, Illinois, Indiana, Michigan, and Wisconsin. New areas were planned for 2002.

CHRONOLOGY: Key Dates for United States Steel

1901:

United States Steel is founded in Pittsburgh, Pennsylvania

1906:

Construction of Gary Works

1911:

Antitrust suit brought against United States Steel by U.S. Justice Department

1917:

United States Steel is the first company in history to have revenues of $1 billion

1942-45:

United States Steel produces 156 tons of steel for war effort

1979:

United States Steel begins series of plant closures

1982:

United States Steel acquires Marathon Oil Company

1986:

United States Steel acquires Texas Gas & Oil Corp

1986:

United States Steel reorganized as USX

2000:

USX acquires VSZ in the Slovak Republic

2001:

USX spins off its steel-related companies as United States Steel Corporation

PRODUCTS

With competition for steel customers at a high pitch, United States Steel in 2001 began focusing on the production of specialty steels with unique characteristics. Special tubular goods were developed for the oil industry and higher quality tin products for containers. The automotive industry—one of the world's largest buyers of steel—was targeted in particular with new kinds of steel, such as bake-hardenable and coated steels. In 2001 DUAL-TEN automotive steel was introduced, which possessed an unprecedented combination of plasticity for shaping, lightness for fuel efficiency, and strength for safety.

CORPORATE CITIZENSHIP

In February 2002 United States Steel's domestic steelmaking facilities were registered under the environmental management systems standard of ISO 14001, administered by the International Standards Organization in Geneva Switzerland. The ISO standards were implemented in 1996 as a means of reducing pollution and improving the environment. Registration established United States Steel's commitment to adhere to existing environmental standards and to continuously develop new projects in the area. The company was the first integrated steelmaker to have all facilities registered under the ISO standard. In 2000 United States Steel was recognized by the Wildlife Habitat Council for its work in rehabilitating the site of its Clairton Works plant in Pennsylvania. The company was cited for its work as an environmental steward and in supporting biodiversity on the site.

HELMETS FOR THE WAR

World War II was called, among other things, a war of steel. It was a war of steel ships, steel tanks, steel planes, and steel guns. Unique new steel alloys were required to meet the demands of warfare, many of which were developed by United States Steel. These special steels sometimes had to possess seemingly impossible characteristics. For example, United States Steel was instructed by the U.S. government to develop a steel alloy for helmets worn by soldiers. It had to be light enough to wear, flexible enough to be mechanically stamped into shape from sheet metal without tearing, and tough enough to deflect a .45-caliber bullet. The company pulled it off. By war's end, United States Steel had turned out enough of the alloy to make 21 million helmets.

GLOBAL PRESENCE

United States Steel made its first move into the global market in November 2000 when it purchased VSZ, a.s., a steelmaking company in Koşice the Slovak Republic. The company, renamed USSK (United States Steel-Koşice), gave United States Steel an added 4 million tons in annual steel producing capacity. The Slovak venture was undertaken to give the firm a foothold in the European market. United States Steel also participates in various international joint ventures, including a U.S. steel plant it operates with the South Korean firm Pohang Iron & Steel Co., Ltd., and another with the Japanese firm Kobe Steel, Ltd. The company's Mexican subsidiary, United States Steel Export Company de Mexico, participates in Acero Prime with two Mexican companies, Fer-alloy Mexico, S.R.L. de C.V., and Intacero de Mexico, S.A. de C.V. The joint venture operates slitting and warehouse operations in Mexico. Walzwerk Finow GmbH in Germany is a wholly owned subsidiary of United States Steel that produces precision steel tubes and other specialty steel.

SOURCES OF INFORMATION

Bibliography

apelt, brian. the corporation: a centennial biography of united states steel corporation. pittsburgh: cathedral press, 2001.

berglund, abraham. the united states steel corporation: a study of the growth and influence of combination in the iron and steel industry. new york: ams press, 1968.

berner, robert. "finally forging ahead." business week, 14 january 2002.

"a centennial history of united states steel corporation." pittsburgh magazine, february 2001.

fisher, douglas a. steel serves the nation, 1901-1951: the fifty year story of united states steel. new york: united states steel corp, 1951.

lee, jennifer. "an echo of big dreams of a world with big steel." new york times, 5 december 2001.

"united states steel corporation." hoover's company profiles, 2002. available at http://www.hoovers.com.

united states steel home page, 2002. available at http://www.ussteel.com.

For an annual report:

on the internet at: http://www.ussteel.com/corp/investor_shareholdersor write: shareholder services, 600 grant street, room 611, pittsburgh, pa 15219-2800

For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. united states steel's primary sics are:

1011 iron ore mining

1231 anthracite mining

3312 blast furnaces & steel mills

also investigate companies by their north american industry classification system codes, also known as naics codes. united states steel's primary naics codes are:

331110 iron and steel mills

331513 steel foundries (except investment)

336414 iron and steel forging