美國鋼鐵 (X) 2003 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

We appreciate your patience today.

Good morning and good afternoon.

Welcome to U.S.

Steel’s first quarter earnings release.

Now at this point All phones lines are muted or in a listen-only mode.

However, later in the conference there will be opportunities for questions and the instructions will be given at that time.

Just as a note, if you should require any assistance during today's earnings release, you may reach an AT&T operator by pressing zero and then star on your phone keypad.

As a reminder today’s conference is being recorded for replay purposes and

that information will be given out at the conclusion of today's release.

Now, ladies and gentlemen, should you so choose or if you would like to prefer, you may

listen to today's conference simultaneous webcast at the company website.

The following url, is WWW.U.S.steel. [and that is all one word] com.

Well with that being said, here with our opening remark is U.S.

Steel's manager of investor relations, Mr. John Surma.

Please go ahead Sr.

Thanks [inaudible].

Good afternoon and thank you for participating In U.S.

Steel corporations first quarter earnings conference call.

With me on the call this afternoon are Tom Usher, our chairman and CEO and John Quaid President and Gretchen Haggerty, our EVP, Treasurer and CFO.

Before we begin I must caution you our presentation today contains forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements.

The forward looking statements in this presentation address a variety of subjects affecting our domestic and Central European businesses

including but not limited to market condition, shipments and prices, operating costs, the level of capital expenditures and interest expense, cost improvements and a success timing and implementation of various projects including potential acquisitions and divestures.

In accordance with the Safe Harbor Provision of the Private Security Litigation Reform Act of 1995, the U.S.

Steel Corporation included in its 10-k for the year-ended December 31st, 2002 and in subsequent form AK’s (ph) cautionary statements including important factors but not necessarily all factors that could cause actual results differ materially from those set forth in the forward-looking statement.

Today, we will discuss first quarter result, current market conditions and our outlook for the second quarter then lastly, we will update you on a number of our strategic questions and the instructions will be given at that time.

Just as a note, if you should require any assistance during today's earnings release, you may reach an AT&T operator by pressing zero and then star on your phone keypad.

Today's conference is being [inaudible] before we open the call for your questions.

We have an ambitious agenda for today so I will turn it over to Gretchen Haggerty to begin the call.

Okay, thanks for joining us and good afternoon everyone.

As we indicated in our fourth quarter 2002 earnings release and again in Our form 10-K outlook discussion, results for the first quarter were significantly lower than the fourth quarter of 2002, due primarily to a number of cost-related effects on our domestic businesses.

First quarter costs were negatively affected by higher prices by natural gas, which increased by 36 million from the fourth quarter.

Furthermore, as we previously disclosed, our first quarter pension and retiring medical and life insurance costs were approximately 50 million higher than the fourth quarter's net cost.

Lastly, results from our other businesses were lower than the fourth quarter, due to normal negative seasonal affects as ice on the great lakes limits shipping from our [inaudible] operations in Northern Minnesota.

In Europe, on the other hand, our U.S.

Steel Kosice segment recorded record quarterly results benefiting from strong shipment levels and rising European stock market prices.

While results were lower than the fourth quarter, they were much improved from the first quarter of last year.

Compared to the year ago quarter our domestic businesses faced

increased natural gas costs of $54 million, an increased pension in retiring medical and life insurance costs of $61 million.

However, improved pricing versus the first quarter of last year in both the spot and contract markets for our domestic flat-rolled segment, an increased domestic volumes helped to cover most of these cost increase.

In Europe, results were much improved from the year ago which was negatively impacted by a blast

burn out outage as our USSK segments saw increases in steal production, pricing and shipments.

Excluding special items, the first quarter net loss of $17 million or 19 cents per share after deducting our preferred dividend was substantially improved from the first quarter 2002 net loss of $96 million or $1.07 per share.

In the first quarter, the reported net loss included a net charge of $21 million or 21 cents per share for litigation items and the adoption of a new accounting standard.

These items are further detailed in the notes to the statement of operations included in the earnings release as in prior quarters, the special items are also summarized in our earnings highlight table at the front of our release where we reconcile

from reporting GAAP earnings to adjusted earnings.

Before we get into the operating result, I would like to bring to your attention, our income tax benefit of the quarter of $49 million.

This was based on an actual effective tax benefit rate for the quarter of approximately 59%.

As we've discussed with you in prior quarters, our tax rate is affected by two factors.

Virtually no income taxes provided for USSK's income, and secondly , the domestic businesses income or losses generate taxes or benefits at more or less a statutory federal rate of 35%.

We did have some further discussion of the calculation of our taxes in the earnings release, and I refer you to footnote six there, if you have any questions during the call , we'll be happy to take them.

Now, back to the results for the quarter.

We recorded a loss of operations before special items of 19 million.

Which while down from the fourth quarter's income from operations of 51 million, was better than the loss of 81 million in the year ago quarter.

I should also note that the first quarter loss is about 4 million less than the average of operating income estimates included in the first call consensus.

Looking at first quarter results at the segment level, our flat-rolled product segment reported a loss from operations of $40 million or 16 dollars per ton compared to a loss of 32 dollars per ton of first quarter of last year.

Flat-rolled products shipments increased by 106,000 tons or 5% from the year ago quarter and the averaged realize price for the segment of 421 per ton was up $44 per ton or almost 12% versus the year ago quarter.

Turning to flat rolled segment cost, as previously mention in the first quarter, costs were negatively affected by – I’m sorry, as previously mentioned, costs in the first quarter were negatively affected in increased prices for natural gas and higher employee 's benefit cost for pension and medical plans.

Our two bill of products segment recorded a loss of operations from $5 million or $24 per ton, down from the $16 per ton earned in the first quarter of 2002.

The decrease was mainly due to increased prices for natural gas and higher employee benefit costs.

First quarter tubular shipments increased 18,000 net tons or almost 10% from the year ago quarter.

However, the realized tubular price of 638 decreased $2 per ton from the first quarter of last year.

USSK had a great quarter with [inaudible] capability utilization of over 97% and income from operations of $64 million or $54 million per ton.

It's highest quarterly results since the accusation.

USSK had strong shipments for the quarter of 1.2 million tons which were 434,000 tons or about 57% higher than a year ago quarter.

The increased primarily relates 2 two items, first, the 2003 first quarter includes almost 110,000 tons of USSK shipments that will process that will process [inaudible] under our conversion agreement, which we're not in placed in the first quarter of 2002, and secondly, the first quarter of 2002 shipments were negatively impacted by a [inaudible] outage.

The average realized price for USSK of $341 per ton increased by $96 per ton, or 39%.

Compared to the first quarter of last year, as exchange rates moved favorably and realized prices increased were all prime products due to several price increases.

Versus the first quarter of last year, USSK’s costs increased primarily as a result of unfavorable affects of foreign exchange rate changes and business development costs associated with [inaudible] conversion operations there.

As we noted in our last quarterly conference call, our straight-line and U.S.S. real estate businesses have met certain quantitative thresholds and therefore are now shown as separate reportable segments. straightline, our start up virtual service center business recorded a loss from operations of 15 million in the first quarter, straightline has now established a significant presence in the field distribution industry and is focusing on growing its penetration into the markets in the state in which it now operates.

USS Real Estate which includes the operating results of U.S.

Steals domestic mineral interests that are not assigned to operating units, timber properties and residential, commercial and industrial real estate.

Reported income from operations of 13 million as compared to 10 million in the year ago quarter.

In summary, our domestic businesses were impacted by increased cost for natural gas and employee benefits and negative seasonal affects on our R&R operations while our European operations benefited from increased shipments and prices.

Now, John Surma will provide some additional detail in the quarter's results, John.

Thanks Gretchen Haggerty.

Turning to other items Quarterly interest in the first quarter, we recorded pension costs of approximately $16 million and retiree medical and life insurance costs were approximately $51 million.

For a total of $67 million or about $25 per ton across our domestic flat rolled and tubular segments.

As a reminder due to the use of our [inaudible] funds to pay union medical costs and the fundage status of our pension plan, both of these penal items for the year are largely noncash.

I should also note that while we do not expect any pension cash funding requirements for the 2003 playing year, we may choose to make voluntary contributions in this or future years to mitigate potentially larger contributions in later years.

Capital spending in the first quarter were $63 million and is detailed by segment in the supplemental statistics accompanying the company's earnings release.

Our current plan for 2003 has total capital spending at approximately $05 million excluding the last deferred purchase price payment for USSK of 37.5 million.

And we expect the appreciation to approximate 360 million a year.

Please note though that these capital

expenditure and depreciation amount do not take into account any effects related to the potential accusation of nationals or [inaudible] assests.

Reviewing the status of significant capital projects, at USSK, a new continuous and anealing line is currently being commissioned in connection with a new electrolytic pinning line which is targeted to commence operations during the third quarter.

Progress is also being made on a new dynamo line which is used to produce electrical steels and that line is scheduled for start-up in early 2004.

All of these projects support our goal of improving USSK 's value added production capability and target markets where we see strong and growing demand for the products.

At our number three stainless tube mill in [inaudible] Ohio, work is nearing completion on an in-line [inaudible] that will result significantly reduced cost and improve product quality for our tubular segment.

The Q and T (ph) line will commence operations this month and is scheduled to be fully operational in July with first customer shipments expected sometime late in the third quarter.

Looking at some highlights from the balance sheet, our long-term debt balance of $1.4 billion is essentially unchanged from the beginning of year.

For the remainder of the year, we have one scheduled debt repayment of $20 million in November on the USSK loan.

Our total shareholder's equity increased by about 200 million for the year, to approximately 2.2 billion due primarily to the issuance of $250 million of mandatory converged shares in early February.

That ended this -- had us end the quarter with a long-term debt plus equity ratio of 39%.

For the quarter, net interests expense and other financial costs totaled $38 million.

Looking forward, interest expense is expected to total approximately $150 million for the year, exclusive of any interest income or capitalized interest.

This estimate also excluded effects from any debt that might be issued in connection with the accusations of National Steel's assets.

At end of quarter, our available sources of liquidities totals over $1.5 billion in increase of 122 million from the year-end of 2002, again, due to the convertible shares that I have just mentioned.

The break down of our quarter end liquidity was as follows.

We had cash and cash equivalence of $367 million, availability under our AR facility of 343 million, availability under our inventory facility of 397 million, and availability under USSK 's credit facilities of 46 million, again, if a total of 1.153 billion dollars.

Lastly, I would like to update you on our cost saving efforts.

As we've been reporting to you quarterly, we have committed to a cost savings target for our total domestic operations of $30 per ton, or roughly $300 million over a three-year period ending in 2004.

Employees at each of our domestic facilities have identified and implemented Hundreds of cost savings projects and through the end of last year these efforts resulted in analyzed cost saving in excess of $100 million.

These efforts continuing in 2003 and we are currently on track to have achieved over 200 million in savings by the end of the year on accumulative basis.

I can also report that U.S.

Steel Kosice, after exceeding $10 per ton, 2002 cost savings goal has targeted additional cost savings of at least $10 per ton in 2003.

Cost savings Programs identified and implemented at USSK to date, put them on track to achieve this new objective.

With that I would like to turn it back to Gretchen Haggerty for a discussion of some of our major market, our outlook for both domestic and European operations in second quarter and an update on strategic initiatives.

Thanks again, John.

Looking at some of our major domestic markets for flat-rolled product products, while demand for sheep products from consumer relates industries such as auto and appliance manufactures have weakened somewhat from recent levels due to announced auto production cut backs for the second quarter it still remains healthy with expected U.S. auto sales of 16.5 million units and an expected North America auto build of 16.2 million units.

While these cutbacks certainly will have an affect on our result, it is not expected to be significant as we have picked up market share on a year-over-year basis.

Also on note, our intense efforts to be the leading supplier to automotive manufacturers by focusing on satisfying customer needs and our employee's hard work and attention to quality and customer service was recognized just this month when GM honored U.S.

Steel with their supplier of the year award for sheet steel products.

Looking at service centers which is another major market for U.S.

Steel flat-rolled products, although inventories continue to be high, they at least are beginning to move lower with February inventories coming in at less than $7.8 million turns and 3.8 months of supply.

Furthermore, demand from industrial-related markets, such as pipe and tube converters, sheet converters and nonresidential construction, continues to be poor and negatively impact manned for some of our sheet products and most of our play product.

Demand for tin products continues to be stable.

Looking forward, although we are seeing a softening in the order book late in the second quarter we still expect shipments for the flat rolled segments to improve somewhat versus the first quarter.

While the averaged realized price is expected to deKlein slightly as a result of weaker spot market price, we expect full year 2003 flat rolled shipments to be approximately 10 million tons.

Look at second quarter costs for the flat-rolled segment, natural gas prices while significantly higher than last year's second quarter, are expected to deKlein from this year's first quarter.

As a reminder, domestically used roughly 12.5 million mmbtu's of gas per quarter.

Costs in the second quarter will also be

impacted by scheduled repaired outages on the number 13 blast furnis at Gary -- our largest gas furnis as well as the hot strip at Gary and the other major facilities there.

These outage are expected to result in costs of almost 40 million in the quarter.

In contrast, tubular markets appear to be showing some overdue signs of life, the U.S. active rig count has increased to 986 as of end of last week, up to 220 rigs a year ago.

After it had hovered around 850 rigs per several quarters starting last May Furthermore, we believe tubular products distributors continue to operate with low inventories.

We expect second quarter tubular shipments to increase moderately from first quarter levels while prices are expected to be slightly lower.

Our annual shipping forecast for tubular products stands at one million tons and takes into

account of projected increase in second half tubular shipments in response to anticipated continued improvements in the Northern American drilling.

I should also note that we would expect to see a seasonal improvement in our Northern operations as the lakes are now opened for shipping.

Finally, turning to Europe, USSK’s second quarter shipments are expected to be in line with the first quarter and the averaged realized price is expected to increase versus the first quarter.

Due to a 20 Euro price increase for all products effective April 1st.

These price increase, however, will be partially offset by an Unfavorable change in product mix projected for the second quarter.

USSK shipments for full year

2003 are expected to total approximately 4.4 million tons including about 260,000 tons for shipments under USSK 's convergence agreement through [inaudible] through the end of the second quarter.

Now, I would like to provide a few final remarks on recent milestones we’ve reached toward our strategic initiatives before we turn to your questions.

Over the last year, we have discussed with many of you, our efforts to work aggressively on strategies that allows us to participate in consolidation in the domestic industry, grow our higher value-added businesses, montise non-strategic assets and expand globally.

On the domestic consolidation front, as we reported earlier last week, we have received bankruptcy court approval for our bid to acquire National Steel asset of 850 million in cash and the assumption of 200 million in lease and contractual obligation.

As you will recall, our January 9th estimate of acquisitions synergies of 170 million included operational synergies, SG&A reductions and the estimate of national union labor cost savings.

We've updated our expected synergies to reflect a number of new items including the affect of the

implementation of the new labor contract as it relates to national facilities.

And we now expect to achieve annual [inaudible] facilities of at least 200 million within the first two years.

We should also note there are two major items that were never included in our synergy estimate.

The elimination of pension and medical costs related to national retirees and the change in depreciation going forward.

These affects are in addition to our synergy estimate.

We find a definitive asset agreement with national and expected transition to close later in the second quarter.

In connection with our bid for national, we announced earlier this month that we have reached tentative agreement with the steelworkers union on the new labor contract that allows us operate both the U.S.

Steel and the national facilities with a more variable and world competitive cost structure.

At this point, we cannot say much about the details of the new agreement as we allow the union time to communicate the details to their members.

However, we have said that the new agreement provides for a work force restructuring at both national and U.S.

Steel facilities that will allow us to achieve productivity improvements of at least 20%.

The agreement also allows us to

significantly reduce our active and U.S.

Steel retiree health care expenses.

Implementation of the new agreement and related actions will result in some upfront cash costs and employee benefits-planned related accounting charges which were detailed in our April 21st release.

As we indicated in our earlier releases we intend to fund the accusation of national with existing cash, credit facilities and debt securities.

We expect to expand our credit facilities to take into account national accounts receivables and inventory in the near future.

In addition, we expect to the come to the market with a debt offering sometime around the closing of the acquisition.

With respect to our strategy to monetize nonstrategic assets, I am happy to report that last Friday , U.S.

Steel sold coal [inaudible] gas interests for net proceeds of $34 million.

And we are pursuing the sale of most of our remaining mineral interest for net proceeds of about 75 million.

We also continue to make progress on the sale of U.S.

Steel mining LLC, which includes active coal mine in West Virginia and Alabama.

As we first discussed with you on our fourth quarter earnings call, we also continue to work on structuring a contribution of some of our timberland and timber cutting rights to one of our employee benefit rights later this year.

On the international expansion front, we've also reached a couple of milestones inf the first quarter.

On April 1, we announced that U.S.

Steel Balkan (ph), a subsidiary of U.S.

Steel, has agreed purchase [inaudible] steel producer [inaudible] for a total purchase price of 23 million. [inaudible] has been operating under bankruptcy protection since July of last year. [inaudible] Provide us with an attractive opportunity to expand our product mix in Europe and provide us with deep water access, both for incoming raw materials and outgoing steel products.

We expect the accusation [inaudible] to be completed in the third quarter.

As we've discussed with you in the past, we also continue to look at the opportunity to expand into Poland, as it prepares to enter the European Union

, the Polish government has merged four of its steel mills into one company called [inaudible] or PHS in an effort to privatize its steel industry.

PHS, which accounts about 70% of Poland steel output produces both long and flat-rolled product.

The privatization has moved forward and last week, U.S.

Steel was one of two bidders to submit second offers.

Although we've Submitted what we believe to be a competitive proposal for privatizing P.H.S., at this point, it is still hard to say how this will play out.

Nonetheless, we are keenly interested in these assets as they fit very well with our Central European expansion strategy.

In closing, our acquisition of national steel assets, the new labor agreement , plants, noncore asset sales and the acquisition of art isis and others in central union are all consistent with our drive to build the company by investing in [inaudible] facilities and expanding globally.

With that Tom Usher and John Surma are here with us and we would be happy to answer any questions that you may have.

Very good and thank you, Ms. Haggerty.

Ladies and gentlemen, then as you just heard, if do you have any questions or comment, we invite to you queue up at this time.

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Representing Morgan Stanly, our first question comes from the line of Wayne Atwell (ph).

Please go ahead.

Thank you.

Could you go through your assumptions for the second quarter a little bit more.

You gave directional indications but you didn't give specifics.

You can give specific thoughts on volumes, pricing, and --

I guess, typically , Wayne, we give directional comment and not specific comments so I am not sure that we would change that this quarter.

could you at least give us a feel for the seasonal impact for [inaudible] the great lakes being frozen over and how much that swing may be

I think that we have that segment broken out for prior quarters and you can see what it would have been done seasonally and it's primarily the biggest chunk of that other business segment.

You can kind of see what that segment would have done in Q2 of '02 and Q2 of '01 to at least give you a range I mean pretty much in that quarter, we are not shipping anything, we're doing a lot of maintenance work which drives that seasonal loss.

Okay.

Thank you.

Thank you very much Mr. Atwell.

Next in the queue is Michel Applebaum with Smith Barney.

Please go ahead.

Hi.

Congratulations on a great quarter and it's wonderful to hear everything Gretchen Haggerty just had to say.

Thank you, Michele.

Thanks, Michele.

And I wanted to ask actually the exact same question.

So I have to think very fast about something else to ask.

You guys have not quantified in any way -- any of the impact of synergies beyond specifically to national, but you have a new labor contract here.

Are you going to start giving us some kind of color of what that can mean to you financially?

Yeah, I would say, Michele, that right now, we are -- giving the union the opportunity to present this to its members and that process should conclude somewhere around the 21st or so of May, and at that time, we will be able to get into a little bit more detail of what this represents.

But we have said that we expect to have a significant productivity improvement by being able to make the same amount of steel with last both represent and nonrepresented people, and that there is a variable element to the health care thing for both the active and the retirees of those for which will have responsibility, but the exact details of that, we are going to hold off until after the ratification by the union.

So that would be some time late May, right about the time we expect to be closing the national deal.

Okay.

Okay.

And then, I'm sorry, could you go through -- there was some cost reduction discussion.

Could you just quickly go through some of the ongoing cost reduction targets.

For this year.

I know USSK beat the numbers.

Would you mind going through that again.

Sure, Michele.

I just kind of updated that domestically, we've got a $30 per ton target over a three-year period ending in 2004 for all of our domestic operation.

Through the end of last year, we had cost savings in excess of 100 million.

As we look forward based on where we are now, we see accumulative cost savings at end of this year in the $200 million range.

Domestically.

On the USSK side --

When you say cumulative, including 2002.

Exactly.

Exactly.

And then on the USSK side, we were available to take -- save $10 per ton last year and we have the same goal this year as well.

And right now, they're on track to achieve that objective.

Gretchen Haggerty We track that every month, Michele.

And we have a myriad of projects at all of our locations.

And I think we're just trying to say that we look beyond track to do another $10 a ton this year.

Okay, that's great.

Okay, thank you.

Thank you.

Okay, and thank you very much , Ms. Applebaum.

Our representing J.P.

Morgan, we go to the line of Michael Gamberdella (ph).

Please go ahead.

Yes, good afternoon.

You guys are unique in the sense that you have production sites that are all over the cost curve.

You have, you know, the traditional U.S.

Steel production which probably when the industry's restructured, going to be considered somewhat higher costs of production.

You have the national assets which would be considered low-cost production.

And then you have the USSK which would be considered very low cost production.

Two questions.

Can you give us an idea as to how that will influence your production strategy going forward, and also on an hourly basis for labor costs.

Can you give us an idea, just a general idea, of the cost differential on an hourly basis, or the existing U.S. Steel?

The new national steel, and USSK and how big a range that is?

I will say in terms of our loading of the facilities, we -- I mean, one of the first things we need to do is get in and really dig into the operations at national plants we've done a fair amount of due diligence.

We have seen a number of opportunities that we think that we can improve some things.

And we've done a lot of work on this, but still a level of ignorance on our part that we will not get into until we actually have our hands on the equipment and the people and so forth.

So asfar as that differential, obviously, there's going to be an advantage in that they don't have some of the legacy costs that the U.S.

Steel plants have.

But at the same sense in terms of productivity and a lot of the things we have done over the last several years same I think our current U.S.

Steel plants are pretty competitive and certainly with scrap prices where they are today, I think across the Northern American spectrum are pretty competitive plants especially the mund valley and Gary.

In terms of the differential between plants, probably too early to comment on that.

Obviously, our Slovakian operation is our lowest cost.

But we have a strong market in Central and Western Europe there where I think we operated about 97% of capacity.

And have done well, and you can see the differences in the profit per ton and I think you can use this as a surrogate to get back to what some of the cost differentials are.

And then any idea, just general idea, between national and host emergence and the old U.S.

Steel operations?

In terms of hourly labor costs fully loaded?

Well , again, on the hourly labor costs fully loaded, the basic difference would be the cost that we have for our U.S.

Steel retirees, which they would not have.

That would be the basic difference.

I am not sure of this, John, I am not sure we would necessarily look at them as the former national plant over the former U.S.

Steel plants.

We are going to have a [inaudible] of assets, we are going to run the most efficient way we can with the labor force that we are going to structure and compensate in accordance with the new contract.

To the extent that we, as U.S.

Steel now still have and will maintain a fine benefit plan.

That's difference, perhaps, then to where national would have been.

That’s a relatively well funded situation and not one

that we think provides an extreme competitive disadvantage.

On the health care side that would be one difference but by having a number of now new tons with in effect no legacy health care costs are certainly over.

Our average comes down, and as Tom commented later, the details come clearer, we think that we have helped ours substantially in that regard.

I don’t know if we'll be looking at this as the old national plants with certain cost structure or the old U.S.

Steel plants with a certain cost structure.

We are going to run the most efficient consolidated system we can domestically.

Mike, one of the big advantages that we feel is we'll be able to load different products on different mills than we have done in the past now that we have a little more opportunity.

So that certain products, which might be higher costs products, might be run on a mill that they hadn't been run on before.

Tin plate, some of our automotive product, we may have shipped on how we load these on individual facilities.

So as John said, we won't be one having an advantage over the other.

We are going to take these assets and load them the best way that we can.

Just looking forward, if your successful at the national and getting some of these cost savings, do you anticipate you'll be able to take up your market share and the domestic automotive market?

Your main competitors on the domestic automotive front, they are going to be stuck with high costs.

We think that we've had a fair amount of

encouragement for our customers for this national deal and we think our quality and cost and service position are very strong.

We think the automotive center, which a number of you had an opportunity to visit a few months ago in Detriot, gives us a competitive edge, and we expect to enhance our automotive position.

That was one of the objectives of the national deal and we would tend to fulfill that.

Thanks a lot, Tom.

Thank you Mr. Amerdella.

And next representing Prudential financial, we go to John Tumazos.

Please go ahead.

Congratulation s on all the progress, and just I guess keep it from being a little too mushy, I will ask you about a problem.

Thank you, John, I'm proud of you.

The 15 million on straightline I guess is like a 150,000 a day?

It seems more than virtual.

Could you describe if this is a mismatch of a particular buy with a particular sale?

If you're expenses 100 computer programmers because the software doesn't work, the system vendors screwed up?

Or just how you're losing so much money?

It's the sort of thing that even Ryerson has a hard time doing.

Well, they got more experience then we have but we are working on that.

But in all serious, John, this is an area of concern to us.

The Straightline.

I would say the working part of it in terms of computer programs and software and all of that stuff works exceptionally well.

The biggest problem we have had have been some problems that we made in our buying and selling last year.

Last year was a very volatile year.

And we were buying steel as the market was going up, and then selling some as it was going down.

And we have not really captured the kind of volume that we thought initially we would capture.

There was some segments of the market that we thought this would be attractive.

I am not sure that will come to be.

Having said that, these type of losses are not tolerable.

We cannot continue them.

Much longer.

But we still feel there is some merit to continue this a while longer.

That while a number of the Assumptions we've had have not panned out, some other things have developed that still give us the expectation that there is a model and an opportunity to generate a strong return on our capital employed.

So I guess I would say this will not continue at this kind of loss levels moving into the future.

And if in fact we can't demonstrate that what we think will happen will happen will happen, we will see these things -- we will see Straightline coming to a conclusion.

I think it's still a bit premature to say that today, but I think so far as investors, they need realized that we take these losses seriously and not let them go undetermineably.

Should we look to profit or drop dead date at end of the current year, or would you be patient into '05 or '07?

I can guarantee you '07 isn’t on the cards.

I can guarantee you '05 isn’t on the cards.

It would be later in '03.

Just stick to the discipline, Tom.

Thank you.

Thank you, John.

Thank you very much.

Next, we go to the line of Bruce Klein (ph) with Credit Suisse First Boston.

Please go ahead.

Hi, good afternoon.

Just if you can just review for us the noncash portion of the pension in opeg or what expense will be, the full year expense for '03 and the noncash portion would be helpful, and secondly , if you can give us any color on obviously national has a fair bit of contract business and how they might have fared commercially going into '03.

We have heard from some of the others, of how the auto contracts were set.

I am wondering to what extent national participated in that improvement.

This is John, Bruce.

On the latter question, we’re still competitors sitting here today and don't really know that and won't until after the closing occurs , and national's a competitor.

We are still arm's length competitors right now and we’ll know a lot about that later having said that, we do know just from our own activities that they are active in the automotive sector and that's a key part of this the reason behind this transaction Tom’s commented on.

We have greater expectations of the long term importance of national automobile position with our position regardless of how the current pricing structure may be set.

On the pension --

Ya Bruce, just to recap , for 2003, looking at pension cost of 65 million.

And there's as we said no, required cash funding.

So that would be all noncash.

On the opeg side, we’re looking at about 2003 million.

As we have in the K" probably 40 million of that would be cash.

and you gave us I guess the first quarter numbers so it we can kind of straightline that in terms of the noncash, is that fair.

Yeah.

And lastly, with regard to Poland, what is the rough tajs in terms of the long and the flatrolled shipment that those four energies make up in total.

One of the I guess complications I would say to this is that Poland is coming into the EU and there are currently negotiations going to right now of possible capacity restructuring and so forth that may take place and Poland as a result of that session into the E.U., but just in general terms, we are talking about capacity of about 8 million tons, and -- Yeah, probably 3.5, 3 to 3.5, will be flat product and the rest would be tubular and long products.

majority would be long.

We would have plans for configuration going long term that wouldn't necessarily keep that products slate given with the capital ideas we would have or currently the majority of the long products.

Okay, and lastly, just your view of what's going on in the spot market on the hot rolled side?

We know there is pressure and kind of what your view of that and what kind of levels you are seeing out there?

We are seeing I would say some softening here.

Nothing great but it is soft.

And I think a lot of it just dependent on the general economy.

When it starts to come back here, definitely off a little since the first of the year.

Not precipitously, but soft.

And service centers have improved their positions some, but still got a fair amount of hot rolled out there.

My sense is through this quarter the spot business especially hot rolled will still stay relatively soft.

Thanks, guys.

Okay, and thank you very much, Mr. Klein.

Next we go to the line of Mark Parr with McDonald Investments, please go ahead.

Thank you, good afternoon.

Hi, mark.

I was -- I had a couple of questions.

First of all, related to the tentative agreement you have you with the USWA.

Are there any requirements or restrictions around maintaining facilities or rationalizing facilities?

Is there any guaranteed clause in the contracts that would require to you continue operating everything that are currently operating?

I would say, Mark, we Entered into this thing with the expectation that we weren't buying it to shut anything down.

So we intend to run all of the facilities.

But ultimately, the market will decide what can operate and what can't operate.

We need orders to be able to support it.

And that is sort of the attitude that we're operating into this thing.

That we intend to operate the facilities, and if the market gets to the point where we need to take a blast furnis off, we will take a blast furnis a off, and really let the market dictate this thing, and that's how we are approaching it.

Okay.

Second question.

Related to other scheduled maintenance items are a -- of a significant nature, you have indicated $40 million focused primarily on Gary works for the second quarter.

Could you give us any other scheduled maintenance items for the rest of the year?

I think we did some outage work up in Minnesota in the first quarter, which impacted our results there in addition to the shipping restrictions.

This is really the big job we have at Gary, it’s our number 13 blast furnis and the strip mill are the two key units in the corporation.

Beyond that we have some minor outages going into the second half of the year, but nothing of any significance like that.

I think there is shop creek work on the number eight furnis down in Dearfield (ph) maybe in December [inaudible]

A little work but for the most part, this will be the majority of that, we’ll have behind us by the end of the second quarter.

And some odd and ends in Kosice as well, but nothing too dramatic.

Okay, terrific.

All right.

Thank you very much.

And congratulations on a solid quarter.

And also, Tom, congratulations on the success with the national situation.

Thank you, Mark.

And thank you Mr. Parr.

Representing Goldman sacks a question from Aldo Mazzaferro (ph) -- Please go ahead.

Hi, good afternoon.

Hello.

I was wondering on the price change that you saw in the flat-rolled from fourth quarter to third quarter down ten bucks, was there a mixed change that may have been offset by something?

Or could you break that for a little bit for us?

We saw a fair amount of semi-finished labs in the first quarter.

Some people were doing blast furnis work and we sold them some semifinish.

So that's a considerable drop.

Also our tubular business was a little weaker which tends to be a higher price product.

So those would be the major things.

You think of the $10 deKlein in the flat rolled the mix was the

majority of that.

Yeah, predominantly.

I would say almost all.

How about your outlook for the second quarter?

Is there a mixed change assumed there, has it come back at all?

No, I think we're still selling some semifinish in the second quarter, and I would say probably about the same.

Okay.

Tom, if I could ask you generally, if you look at labor costs across the industry or across your company right now, and you think on a per hour basis maybe the average is in the high thirties or so per hour, how much of that do you think is the cost of retiree benefits?

How much do you think might be the ongoing pension in health care benefit s.

For who, the industry?

Like, if you take your Gary plant, for example.

If you had an average wage of, and benefits included say close to $40 an hour, would $10 of that be the retiree portion?

Or can you break that at all a little bit for us?

Probably want to do a little -- I would have to do a little work.

Why don't I have John get back to you on that and give you better sense with more accuracy between the health care and pension, the insurance and things like that.

I would rather do that rather than just give you an answer off of the top of my head.

I would appreciate that.

And if I can take one more quick one for Gretchen Haggerty .

You mentioned you had some proceeds that came in from sales of coal assets and there was one other one, and I think I missed the two number.

But the question is what were the numbered and were they posted in the second quarter, I mean the first quarter?

Yes.

Although we sold some interest in coal feed gas, properties for $34 million.

And that was in the second quarter.

I think that was right in our release there, too.

That was after the first quarter.

After the first quarter numbers.

I think Gretchen also mentioned that there is a conditional consideration being given to some similar kinds of

resource asset sales that Gretchen you mentioned the numbered of

Of about $75 Million for the balance later in the year.

We're working on that.

I get it.

Okay, thanks very much.

Thank you very much Mr. Mazzaferro.

And now, ladies and gentlemen once again to ask a question, just press the one on your Touch-Tone phone.

We do have a follow-up question from Wayne Atwell from Morgan Stanly.

Please go ahead.

Thank you, I have a theoretic question for you.

Have you taken out your costs lets say maybe $30 a ton at U.S.

Steel and maybe 40, 50, 60 and national.

And a number your competitors, ISG have taken a lot out of their costs with lower costs historically have come lower pricing, do you think the auto industry's going to be reading the paper and looking very carefully at this and be negotiating pretty tough with you this fall when they're asking for the contracting?

Do you think they are going to extract a pricing out of you when they see your cost come down?

This sounds more like a pragmatic question than a theoretical question.

I would say a couple of things.

First of all, we have negotiations with auto people at different times, and in some cases, we're tied into mobile year contracts.

Secondly, I think one of the things that much of customer community, including automotive came to appreciate was over the last several years, the ability to have a supply-based that can supply world-class products is very important to them, and as they look -- and, as you know, always looking to reduce costs.

They, I think, have come to realize that there's a balance between cost pressure on their suppliers and having the suppliers invest in equipment and do things that really can work to drive down their costs.

And we've found through the development of many of our new grades and processes and working with them on a lot of the EVI or the early vehicle involvement programs that we in effect can help them reduce their costs and still keep our proceeds up.

And coincidentally, we're taking this call from Detroit.

We have had our shareholder meeting up here today.

We have the opportunity yesterday to visit a customer plant, and a lot of discussion on the part of the customer executives and ourselves about things that we are doing to reduce their costs, our customer costs through substitution of different grades and types of steal and so forth.

So it's a win-win situation for both of us and I would expect that to continue moving forward.

One follow-up.

With the Euro having gotten relatively strong, the dollar having gotten relatively weak and a lot of consolidation in Europe and pricing fairly firm there, are we hearing about steel being exported from the United States to Europe.

Are you able to participate in that at all.

It'll depend how these things develop but I’d say right now is our focus would be on supplying our domestic customers with our domestic steel.

You're not at this point, exporting to Europe?

We are currently not exporting to Europe.

Is it the sort of thing you think that might be attractive the next six to 12 months?

I would say possible but not probable.

So in the mean time you are trying to gain share?

We are trying to share gain in the United States.

Great.

In those markets where we want to gain share.

Great, thank you.

Thank you, Mr. Atwell.

We have a question now from Frank Dunau (ph) with Adage capital.

Please go ahead.

A couple.

On Poland.

Two bidders and like, more than one facility.

Can they split the facilities among the bidders or is it all or none?

My sense is they could do anything but I don't think that's their objective.

I would think it would be more of an all or none but I think you need to recognize this is still fluid.

We have no reason to believe they would split.

We don't expect that.

Anything could happen.

And, so, my sense is that would be a reach.

So recognizing its fluid, what I am trying to figure out, I know how much you are going to spend on national, once that deal is consummated and I am trying to get an idea of how much money you will have to raise altogether to do this whole program if you went Poland.

A lot depends on the structure of the deal that will take place in Poland.

How much will be cash?

How much will be liability assumption?

How much it'll be future commitments on capital spending to restructure the industry.

So I mean, if you were sitting next to the person that knows as much as anything, you probably want to know a hell a lot more than I just told you, because in is fluid.

It depends on how the deal materializes, and what form it takes, and whether there is a cash component and how much cash component would be and liabilities and future spending and et cetera.

I would love to give you better guidance I just don't know any better.

And rather than give you any false guidance, I would just say it is something we don't know the answer too.

All right, assuming the national goes through, is that basically do it for you in terms on of consolidating whats going on in North America or is there still more that what you want to do?

No, as I said before, I don't think this is the end game.

I think there is still additional opportunities there.

And we would be aggressive in pursuing them.

Okay, thanks.

We have a question now from the line of Marty Pollack with NWQ Investment Management.

Please go ahead.

Very good results.

I do want to ask you a question with regard to cash.

If I adjust the for first quarters for the litigation the cash use was 95 million and capital was the big part of that.

Directionally, can you give us some sense of what happens to the cash use in the second quarter that was seasonal improvement s.

That you are expecting and because it does seem that with the 40 million plants spend you may still be drawing on cash.

Marty, probably a little closer to break even on cash in the second quarter.

This would be after that 40 million you spent ?

Yes.

We do have assureity bond potential issues that I think we've disclose.

This year about 50 million to do.

So we have some of that in the second quarter that we have to fund.

Now, is working capital itself, what happens to working capital itself?

Does it -- it are you requiring much less?

I am sorry --

Work capital use its self.

Over the rest of the year?

no, in the second quarter.

On the second quarter.

I don't know, I guess I would expect it to be about flat.

I would say flat.

Seasonally we generally build or using cash and working capital in the first quarter, early in the second quarter but.

By the time in the second quarter, we probably starting to work something off some products such as tin we tend to build inventory in the second quarter on tin because of the packing season and so forth.

We generate run our facilities full and build inventory, I will say about flat though.

One other question, with regard to the national deal.

You guys were saying $200 million of worth of savings within

two years.

I'm just wondering, does that suggest that -- I mean, can we see some significant savings even in first six months of the year, let's say if the deal close and then you guys own the company at vindeer?

I would say to expect this rather quickly and also I think just to help you guys track us, we would probably on calls of this type, get into a little more detail on these synergies and how we're doing against them and what our bogey is.

We will have a definite plan.

What we would attempt to accomplish each quarter and We’ll track to you what are we doing there.

Clearly, it seems that this deal could be very highly -- last year if you could get the entire synergies done by the end of next year.

That would be in the two years.

I don't know whether you are actually expecting some of these synergies over-cost benefits to flow into '05?

We will attempt certainly on some of the labor savings and so forth to move very aggressively on this.

This will not be a long torturous process. and we will move quickly on that and I think that you will see these things occurring pretty quickly.

Thank you.

Okay, and thank you very much, Mr. Pollack.

Next in queue is Elliot Glaser(ph) with [inaudiable] and company.

Please go ahead.

The agreement with the union.

Reversing your previous positions to sell certain assets.

Was that the transportation coal coke and taconite pellets?

What it was, we had an agreement to sell our iron ore in Minnesota, and our coking operation and some our transportation facilities.

And what we agreed to do was to let that agreement expire which it will do at end of April, and from a strategic standpoint, you know, these were very good units.

Our coking operations is a very low cost coking operation.

Our iron ore operation was the best on the range.

And while this was I think a fair price, part our thinking at that time was a strategic objective to get a little short on raw materials.

We found out during this last downturn that we were a little long on raw materials.

And that by selling 80% of these businesses, it would allow us to get short on the raw materials.

The ability to do the national deal has really accomplished that objective.

And we're still, then, going to be able to keep the benefits of having two very low cost raw material operations.

So I would say that with the national acquisition, we have accomplished our goal being a little short on the raw materials.

And we have not had a dispose of those raw material assets.

Some of the other ones that you mentioned Elliot , such as coal, and some of the transportation units, they would still be eligible for sale and in fact, where I think are getting pretty close on the sale of our two remaining coal mines and some of the railroads and barge lines as we move through the year would also be candidates for asset disposition, but we would intend to continue to run our coking operations and our operations in Minnesota.

Thank you.

Thank you very much Mr. Glazer.

Ladies and gentlemen, thank you very much for your interest in today's conference.

I can see by the clock, it is time now conclude our q & a session, and with that Mr. Usher and our panel, I will turn the call back to you.

Thank you, all, for joining us.

This have been, as you might gather, a very interesting quarter for us.

We've had a lot of things going on, both domestically and internationally.

But I think that we really are putting ourselves in a strong position.

This economy will come back.

We've been looking at that for several years especially on the capital good's side of the thing.

It's been kind a depressed market for two to three years now.

But with the acquisition of national, the new union contract and our expansion in central Europe, I think we are very well poised to take advantage of the situation when market gets a little stronger.

And I think we have significantly improved our cost position.

We have had this program of -- through a lot of blocking and tackling taking out costs at all of our operations but this new union contract and the synergies associated with the national deal, really allows us to make a step function in our cost improvements.

So we're excited.

We're energized, and we're looking forward to the rest of the year.

I appreciate all your support, your participation in the call.

And look forward to talking to you next quarter.

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