April 27, 2009 / 10:23 PM / in 9 years

UPDATE 3-U.S. Steel takes drastic moves to boost liquidity

* Quarterly dividend cut 83 percent

* Capital spending cut, payments to retiree trust delayed

* Sets 18 mln share issue and $300 mln convertible sale

* Q1 loss much wider than Wall Street analysts expected

* Stock down 6.8 percent after hours (Adds background, details on executive pay cuts, updates share activity)

LOS ANGELES, April 27 (Reuters) - U.S. Steel Corp (X.N) announced drastic measures to shore up its balance sheet on Monday, including slashing its dividend by more than 80 percent, delaying payments to a retiree healthcare trust and selling shares of common stock to pay down debt.

The company’s shares slumped nearly 7 percent following the announcement, in which the steelmaker also said it had amended the terms of a $750 million credit facility and $655 million term loans to eliminate existing financial covenants.

U.S. Steel also posted a first-quarter loss that was much bigger than analysts expected and said it expected to record an operating loss in the second quarter.

A global recession has crippled steel demand in construction, vehicle manufacturing and other industries, forcing steelmakers to cut production sharply, shelve investment plans and lay off workers.

The industry has undergone a dramatic about-face since this time last year, when worldwide steel prices were on their way to climbing 50 percent in the first half of 2008 on strong demand from China and other developing countries.

Earlier on Monday, the World Steel Association said it expects global demand to fall nearly 15 percent this year, the steepest decline since World War Two. [ID:nLR431360]

“We continue to face an extremely difficult global economic environment,” Chief Executive John Surma said in a statement. “Extremely short lead times coupled with the uncertainty surrounding financial markets and key steel-consuming industries such as automotive and construction make it difficult to forecast beyond a very short horizon.”

To boost liquidity, U.S. Steel said it was cutting its quarterly dividend by 83 percent to 5 cents a share from 30 cents a share, a move that will save $116 million a year.

The Pittsburgh company also said it would trim capital spending by $330 million and defer up to $170 million in retiree health and life insurance trust contributions, per an agreement with the United Steelworkers union.

The company said it plans to offer 18 million shares of common stock and $300 million of senior convertible notes due 2014. It will use the proceeds to pay down debt.

“Certainly the share issuance is a dilutive factor,” said Luke Folta, analyst at Longbow Research. “With the earnings estimates that were out there, certainly no one had a high level of confidence in the numbers. People had to somewhat expect the dividend cut.”

In addition, the company said Surma’s salary would be reduced by 20 percent effective July 1. Other executives would receive base salary cuts of 10 percent, while general manager salaries would be cut by 5 percent to 10 percent. Director fees would also be trimmed by 10 percent.

CEO Surma also informed the board of directors that he did not wish to be considered for any long-term incentive grants for 2009.

U.S. Steel reported a net loss of $439 million, or $3.78 a share, compared with a profit of $235 million, or $1.98 a share, in the same quarter of 2008.

Excluding one-time items, Reuters Estimates said U.S. Steel lost $3.84 per share, far more than the $1.62 per share loss analysts were expecting on a comparable basis.

Revenue fell 47 percent to $2.75 billion, below the $3.19 billion Wall Street was expecting. In the same period last year, revenue was $5.2 billion.

The company’s shares were last trading at $25.83, down 6.8 percent from their close of $27.71 on the New York Stock Exchange.

In January, U.S. Steel forecast a first-quarter loss, citing lower shipments of flat-rolled steel used in the auto industry and an operating loss in its European operations.

Then, last month, it said it would temporarily shut down most of its operations at a pair of plants in Ontario, Canada, a move that affected about 1,500 jobs. (Additional reporting by James Kelleher in Chicago and Anna Driver in Houston; Editing by Steve Orlofsky)

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