UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
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Date of Report (Date of earliest event reported):
September 22, 2003
United States Steel Corporation
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(Exact name of registrant as specified in its charter)
Delaware 1-16811 25-1897152
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(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification No.)
incorporation)
600 Grant Street, Pittsburgh, PA 15219-2800
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(Address of principal executive (Zip Code)
offices)
(412) 433-1121
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(Registrant's telephone number,
including area code)
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Item 5. Other Events
On September 12, 2003, U. S. Steel Balkan, d.o.o., (USSB) an indirect wholly-
owned Serbian subsidiary of United States Steel Corporation (U. S. Steel),
acquired out of bankruptcy Sartid a.d. (In Bankruptcy), an integrated steel
company majority-owned by the Government of the Union of Serbia and Montenegro,
and four of its subsidiaries (collectively "Sartid"). Sartid, headquartered in
the Republic of Serbia, primarily manufactures hot-rolled, cold-rolled, and tin-
coated flat-rolled steel products, and complements the operations of our Kosice,
Slovakia subsidiary, U. S. Steel Kosice, s.r.o. (USSK). The completion of this
purchase resulted in the termination of a toll conversion agreement, a facility
management agreement and a commercial and technical support agreement. The toll
conversion agreement provided for the conversion of raw materials and substrate
into hot-rolled bands and other finished products. Under the facility
management agreement, USSK provided management oversight of Sartid's tin
production facilities. Under the commercial and technical support agreement
USSK provided similar support to the main Sartid facility in Smederevo.
The acquisition purchase price was approximately $23 million cash, plus
transaction costs of approximately $5 million. Upon consummation of the
purchase of two small remaining subsidiaries of Sartid, a.d. (In Bankruptcy),
whose operations are currently being conducted by USSB pursuant to an interim
agreement, the transaction requires the following commitments by USSB; (i)
spending during the first five years for working capital, the repair,
rehabilitation, improvement, modification and upgrade of facilities and
community support and economic development of up to $157 million, subject to
certain conditions; (ii) a stable employment policy for three years assuring
employment of the approximately 9,000 employees, excluding natural attrition and
terminations for cause; and (iii) an agreement not to sell, transfer or assign a
controlling interest in the former Sartid assets to any third party without
government consent for a period of five years. USSB did not assume or acquire
any pre-acquisition liabilities including environmental, tax, pension and social
insurance liabilities, product liabilities and employee claims.
The acquisition was accounted for by the purchase method of accounting under
Statement of Financial Accounting Standards No. 141, Business Combinations and,
accordingly, the statements of consolidated income will include the results of
Sartid beginning September 12, 2003, and Sartid will be presented in the same
reportable segment as USSK.
For the reasons discussed below, reliable historical financial data, which
includes audited financial statements, is not available for the operations of
Sartid, nor is it believed that reliable historical financial statements could
be prepared from the data that exists. Furthermore, U. S. Steel management
believes that historical financial information for Sartid is not material to
U. S. Steel and is irrelevant to investors. Consequently, no historical
financial information for Sartid is presented in this Form 8-K or will be
provided in future filings. In addition, pro forma financial data is not
presented for the current or prior years because there is no reliable historical
information on which to base pro forma amounts.
From 1992 to 1995 and again from 1999 to October 2000 political and economic
sanctions were enforced against Serbia by the United Nations. As a result of
operating under the sanctions and government control, the limited financial data
available for Sartid is not reliable and does not reflect a market-based
operation. The Union of Serbia and Montenegro is only now adopting the type of
economic reforms that were put in place in the nations of Central and Eastern
Europe after the fall of communism in 1989.
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Excluding Sartid, U. S. Steel has annual global steelmaking capability of
approximately 24.4 million tons. In recent years, Sartid's shipments have
averaged 0.5 million tons annually, which is approximately 2 percent of
U. S. Steel's annual global steelmaking capability. Most of Sartid's production
has been lower value product with lower revenue than the average U. S. Steel
unit sale. In the first year of operations after acquisition, U. S. Steel
expects to produce approximately 0.9 million tons from the Sartid facilities.
U. S. Steel's technical assessment has determined that, with the introduction of
market-driven operating practices, an extensive rehabilitation program and a
capital spending program, the assets acquired have annual raw steel design
production capability of about 2.4 million tons. The ramp-up from current
production levels, the costs of which will be covered by the spending
commitment, is expected to take 4 to 5 years to accomplish, and would still
equate to less than 10 percent of U. S. Steel's current capability. Without the
rehabilitation and capital expenditure program, Sartid's annual production
capability would be closer to historical levels.
Based on our projections for the next five years, the revenues of Sartid are
expected to be approximately 3% of the total revenues for U. S. Steel, inclusive
of Sartid.
Management views the Sartid transaction as a purchase of dormant assets in
significant disrepair that have the potential to profitably serve Central
European markets only after the introduction of market-driven operating
practices, extensive rehabilitation, a capital spending program, and an infusion
of working capital. Our approach in evaluating the purchase was the same as if
U. S. Steel were to develop a new business in Central Europe by constructing a
steel plant from the ground up while utilizing certain core physical assets
already in place.
U. S. Steel intends to make significant changes to the Sartid facilities and
their commercial and operating practices. It is planned that Sartid will move
from a government-controlled entity without market-based transactions to a
market-oriented operation under U. S. Steel management. Among the significant
fundamental changes planned post-acquisition are the following:
Trade Names
* A new trade name will be established with name recognition to global
steel customers through its relationship to U. S. Steel and European
recognition due to USSK.
Revenue Producing Activity
* Market forces will drive the customer-focused revenue activity.
* The customer base will be expanded based on the relationship with
U. S. Steel and USSK.
* New products will be added to meet market demand.
* Sales will be expanded to geographical areas outside of Central
Europe.
* Barter arrangements will be minimized and use of intermediaries will
be reduced.
* Direct, end-user customer relationships will be established using
U. S. Steel's and USSK's existing worldwide sales network.
* The customer base and new markets will be developed through the
addition of strong customer technical services and improved product
quality. A customer-focused sales force will be staffed, trained and
led by proven commercial managers using a market-oriented sales
philosophy.
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Physical Facilities
* Facilities will be modified and upgraded in order to expand product
offerings to meet market demand.
* World-class operating practices will be implemented to achieve quality
standards required by customers, make the facilities cost competitive
and fully utilize the capability of the plant.
* ISO 9000 certification will be sought in order to assure product
quality and expand the customer base.
* Facilities and operating procedures will be implemented to assure
compliance with governing environmental, health and safety
regulations.
Supply Chain
* Acquisition of raw materials via barter transactions will be
significantly curtailed.
* Significant working capital will be invested to enable direct
purchases from suppliers.
* Purchased goods and services will be competitively bid to detailed
specifications to ensure cost competitiveness, product quality and
fairness.
* A code of ethical business conduct, applicable to employees and
suppliers, will be implemented.
USSB will be subject to risks of price fluctuations related to anticipated
revenues and operating costs, and currency risk associated with financial assets
or liabilities denominated in currencies other than U.S. dollars. Additionally,
USSB will be subject to the political and economic risks related to operating in
Serbia. Under the leadership of its late Prime Minister, the Serbian
Government, formed on January 25, 2001, immediately launched a program of
reforms aimed at putting isolated, divided and bankrupt Serbia on a path to
political, economic, and social rehabilitation, reintegration and stability.
This leadership group inherited a country ravaged by pervasive corruption, years
of international economic and political sanctions and a mismanaged and
unreformed economy. Inflation has been brought down from 113 percent in 2000 to
39 percent in 2001, 12 percent in 2002 and 5 percent through August 2003. When
the Government took power, over 70 percent of prices were government controlled;
today only prices of a few items, such as bread and basic utilities, are
controlled. The new Prime Minister, appointed through democratic processes, has
vowed continued support of economic reform. Because of historical high rates of
inflation in Serbia, the U.S. dollar will be considered the functional currency.
Statements concerning the potential benefits of the acquisition of Sartid,
potential rehabilitation of the acquired facilities, productivity improvements
and expected stabilization of inflation and the Serbian economy are forward-
looking statements. Future results will depend upon market conditions, costs,
shipments, prices, and USSB's ability to complete the expected rehabilitation
and realize productivity improvements. USSB's ability to complete the proposed
rehabilitation will be affected by factors that include access to the necessary
capital, receipt of the requisite governmental permits and approvals and
availability of the needed equipment and labor. Realization of productivity
improvements could be affected by a number of factors including, among others,
USSB's ability to resume operation of dormant facilities and implement
anticipated cost reduction programs. The anticipated stabilization of inflation
and the Serbian economy will be affected by several factors outside USSB's
control including political and economic developments. Other important factors
that could affect market conditions, costs, shipments and prices include import
levels, future product demand, prices and mix, global and company steel
production, plant operating
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performance, energy prices, and Central European and world economic performance
and political developments. In accordance with "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995, cautionary statements
identifying important factors, but not necessarily all factors, that could cause
actual results to differ materially from those set forth in these forward-
looking statements have been included in U. S. Steel's Form 10-K for the year
ended December 31, 2002, and in subsequent filings by U. S. Steel.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
UNITED STATES STEEL CORPORATION
By /s/ Larry G. Schultz
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Larry G. Schultz
Vice President & Controller
Dated: September 22, 2003