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United States Steel Corporation Reports 2006 Third Quarter Results

PRNewswire-FirstCall
PITTSBURGH
10.31.2006

                           Earnings Highlights
  ------------------------------------------------------------------------
  (Dollars in millions except per share data)    3Q 2006  2Q 2006  3Q 2005
  ------------------------------------------------------------------------
  Net sales                                       $4,106   $4,107   $3,200
  ========================================================================
  Segment income from operations
    Flat-rolled Products                            $230     $212      $41
    U. S. Steel Europe                               219      188       21
    Tubular Products                                 164      146      124
    Other Businesses                                  39       33       21
  ------------------------------------------------------------------------
  Total segment income from operations              $652     $579     $207
  Retiree benefit expenses                           (70)     (65)     (55)
  Other items not allocated to segments              (21)       -       (4)
  ------------------------------------------------------------------------
  Income from operations                            $561     $514     $148
  ========================================================================
  Net interest and other financial costs               7       14       20
  ------------------------------------------------------------------------
  Income tax provision                               136       91       27
  ========================================================================
  Net income                                        $417     $404      $93
  ------------------------------------------------------------------------
   - Per basic share                               $3.44    $3.60    $0.77
   - Per diluted share                             $3.42    $3.22    $0.71
  ========================================================================

United States Steel Corporation (NYSE: X) reported third quarter 2006 net income of $417 million, or $3.42 per diluted share, compared to second quarter 2006 net income of $404 million, or $3.22 per diluted share, and third quarter 2005 net income of $93 million, or $0.71 per diluted share.

Commenting on results, U. S. Steel Chairman and CEO John P. Surma said, "Earnings for each of our business segments improved from the second quarter, reflecting a very strong operating performance and favorable steel market conditions."

The company reported third quarter 2006 income from operations of $561 million, compared with income from operations of $514 million in the second quarter of 2006 and $148 million in the third quarter of 2005.

Other items not allocated to segments in the third quarter of 2006 reduced net income by $21 million, or 17 cents per diluted share, and consisted of employee severance and benefit charges for a workforce reduction of over 20 percent at our Serbian operations. In the second quarter of 2006, the income tax provision included a favorable adjustment of $15 million, or 12 cents per diluted share, related to the 2005 tax accrual.

We repurchased 4.7 million shares of U. S. Steel common stock for $279 million during the third quarter, bringing total repurchases to 12.4 million shares for $650 million since the repurchase program was originally authorized in July 2005.

Reportable Segments and Other Businesses

Management believes segment income from operations is a key measure in evaluating company performance. U. S. Steel's reportable segments and Other Businesses reported segment income from operations of $652 million, or $117 per ton, in the third quarter of 2006, compared with $579 million, or $99 per ton, in the second quarter of 2006 and $207 million, or $44 per ton, in the third quarter of 2005.

Segment income from operations for the third quarter of 2006 increased compared to the second quarter as average realized prices strengthened in all of our reportable segments. Higher average realized prices were partially offset by higher raw material costs and reduced shipment volumes.

Outlook

Commenting on U. S. Steel's outlook, Surma said, "We expect continued strong results from our European and Tubular segments in the fourth quarter; however, overall operating results are expected to decline from the third quarter, primarily reflecting reduced profitability in our Flat-rolled segment. Recent weakening in the U.S. economy coupled with high imports and customer inventory levels have resulted in softer flat-rolled spot markets in the near term."

For Flat-rolled, we expect fourth quarter 2006 average realized prices and shipments to be lower than in the third quarter, and costs are expected to increase primarily due to several blast furnace outages and lower operating rates. We will adjust the duration of these outages so that our operations are in balance with our anticipated customer demand.

Fourth quarter average realized prices are expected to remain around the third quarter level for U. S. Steel Europe (USSE), and higher costs are expected to more than offset the anticipated increase in shipment volumes.

Average realized prices for the Tubular segment in the fourth quarter of 2006 are expected to decline slightly from third quarter levels, and shipments will be significantly lower due to high levels of imports and customer efforts to bring their inventories in line with demand.

Our longer-term outlook will be determined by overall economic growth trends.

This release contains forward-looking statements with respect to market conditions, operating costs, shipments and prices. Some factors, among others, that could affect market conditions, costs, shipments and prices for both domestic operations and USSE include global product demand, prices and mix; global and company steel production levels; plant operating performance; the timing and completion of facility projects; natural gas and electricity prices and usage; raw materials availability and prices; the impact of fixed prices in energy and raw materials contracts (many of which have terms of one year or longer) as compared to shorter-term contracts and spot prices of steel products; changes in environmental, tax and other laws; employee strikes; power outages or curtailments; and U.S. and global economic performance and political developments. Domestic steel shipments and prices could be affected by import levels and actions taken by the U.S. Government and its agencies. Economic conditions and political factors in Europe that may affect USSE's results include, but are not limited to, taxation, nationalization, inflation, currency fluctuations, increased regulation, export quotas, tariffs, and other protectionist measures. 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 the forward- looking statements have been included in the Form 10-K of U. S. Steel for the year ended December 31, 2005, and in subsequent filings for U. S. Steel.

A Statement of Operations (Unaudited), Other Financial Data (Unaudited) and Preliminary Supplemental Statistics (Unaudited) for U. S. Steel are attached.

The company will conduct a conference call on third quarter earnings on Tuesday, October 31, at 2 p.m. EST. To listen to the webcast of the conference call, visit the U. S. Steel web site, http://www.ussteel.com/, and click on the "Investors" button.

For more information on U. S. Steel, visit its web site at http://www.ussteel.com/.

                     UNITED STATES STEEL CORPORATION
                   STATEMENT OF OPERATIONS (Unaudited)
                   ------------------------------------

                                         Quarter Ended        Nine Months
                                                                 Ended
                                  --------------------------- ------------
                                  Sept. 30  June 30 Sept. 30    Sept. 30
  (Dollars in millions)             2006      2006    2005    2006    2005
  ------------------------------------------------------------------------

  NET SALES                        $4,106  $4,107   $3,200 $11,941 $10,569

  OPERATING EXPENSES (INCOME):
  Cost of sales (excludes
   items shown below)               3,308   3,339    2,830   9,745   8,660
  Selling, general and
   administrative expenses            144     156      150     458     473
  Depreciation, depletion and
   amortization                       113     114       88     339     274
  Income from investees               (19)    (13)      (2)    (39)    (28)
  Net gains on disposal of assets       -      (1)      (7)     (2)    (17)
  Other income, net                    (1)     (2)      (7)     (4)    (10)
                                    ------  ------   -----  ------   -----
     Total operating expenses       3,545   3,593    3,052  10,497   9,352
                                    ------  ------   -----  ------   -----
  INCOME FROM OPERATIONS              561     514      148   1,444   1,217
  Net interest and other financial
   costs                                7      14       20      37     113
                                     -----   -----   -----   -----   -----
  INCOME BEFORE INCOME TAXES
   AND MINORITY INTERESTS             554     500      128   1,407   1,104
  Income tax provision                136      91       27     317     275
  Minority interests                    1       5        8      13      28
                                     -----   -----   -----   -----   -----
  NET INCOME                          417     404       93   1,077     801
  Dividends on preferred stock          -      (4)      (4)     (8)    (13)

                                     -----   -----   -----   -----   -----
  NET INCOME APPLICABLE TO COMMON
   STOCK                           $  417  $  400   $   89  $1,069   $ 788
                                     =====   =====    =====  =====   =====

  COMMON STOCK DATA:
  -------------------------------------------------------------------------
  Net income per share:
    - Basic                        $ 3.44  $ 3.60    $ .77  $ 9.39  $ 6.90
    - Diluted                      $ 3.42  $ 3.22    $ .71  $ 8.67  $ 6.13

  Weighted average shares, in
   thousands
    - Basic                       121,270 111,129  113,980 113,764 114,054
    - Diluted                     121,964 125,242  130,339 124,226 130,583

  Dividends paid per common share   $ .15   $ .15    $ .10   $ .40  $  .28



                     UNITED STATES STEEL CORPORATION
                     OTHER FINANCIAL DATA (Unaudited)
                   ------------------------------------

                                                         Nine Months Ended
                                                         -----------------
                                                              Sept. 30
  Cash Flow Data                 (In millions)            2006        2005
  -------------------------------------------------------------------------
  Cash provided from operating activities:
    Net income                                         $   1,077 $     801
    Depreciation, depletion and amortization                 339       274
    Pensions and other postretirement benefit               (199)      (77)
    Property tax settlement gain                               -       (95)
    Deferred income taxes                                    124        85
    Changes in: Current receivables                         (335)      153
              Inventories                                   (180)     (137)
              Current accounts payable
               and accrued expenses                          211      (104)
    Other operating activities                                (2)      (16)
                                                          ------    ------
      Total                                                1,035       884
                                                          ------    ------
  Cash used in investing activities:
    Capital expenditures                                    (397)     (473)
    Other investing activities                                12        36
                                                          ------    ------
      Total                                                 (385)     (437)
                                                          ------    ------
  Cash used in financing activities:
    Repayment of long-term debt                             (277)       (7)
    Common stock repurchased                                (396)      (52)
    Dividends paid                                           (54)      (45)
    Other financing activities                                 8        21
                                                          ------    ------
      Total                                                 (719)      (83)
                                                          ------    ------
  Effect of exchange rate changes on cash                      -        (7)
                                                          ------    ------
  Net increase (decrease) in cash and cash equivalents       (69)      357
  Cash at beginning of the year                            1,479     1,037
                                                          ------    ------
  Cash at end of the period                            $   1,410 $   1,394
                                                          ======    ======



                                                        Sept. 30    Dec. 31
  Balance Sheet Data            (In millions)             2006        2005
  -------------------------------------------------------------------------
  Cash and cash equivalents                            $   1,410 $   1,479
  Receivables, net                                         2,018     1,609
  Inventories                                              1,673     1,466
  Other current assets                                       184       288
  Property, plant and equipment, net                       4,269     4,015
  Investments and long-term receivables, net                 288       292
  Intangible pension asset                                   252       251
  Other assets                                               368       422
                                                          ------    ------
  Total assets                                         $  10,462 $   9,822
                                                          ======    ======
  Accounts payable                                     $   1,355 $   1,256
  Payroll and benefits payable                             1,102       912
  Short-term debt and current maturities of long-term
   debt                                                       26       249
  Other current liabilities                                  285       332
  Long-term debt, less unamortized discount                1,327     1,363
  Employee benefits                                        1,786     2,008
  Other long-term liabilities and minority interests         386       378
  Stockholders' equity                                     4,195     3,324
                                                          ------    ------
  Total liabilities and stockholders' equity           $  10,462 $   9,822
                                                          ======    ======



                     UNITED STATES STEEL CORPORATION
             PRELIMINARY SUPPLEMENTAL STATISTICS (Unaudited)
             -----------------------------------------------

                                          Quarter Ended         Nine Months
                                                                  Ended
                                     ------------------------- ------------

                                     Sept. 30 June 30 Sept. 30   Sept. 30
  (Dollars in millions)                 2006   2006     2005   2006   2005
  -------------------------------------------------------------------------

  INCOME FROM OPERATIONS
  Flat-rolled Products                  $230   $212     $41   $569    $566
  U. S. Steel Europe                     219    188      21    532     390
  Tubular Products                       164    146     124    487     379
  Other Businesses                        39     33      21     72      27
                                       -----  -----   -----  -----   -----
  Segment Income from Operations         652    579     207  1,660   1,362
  Retiree benefit expenses(a)            (70)   (65)    (55)  (190)   (208)
  Other items not allocated to
   segments:
      Workforce reduction charges        (21)     -      (3)   (21)     (9)
      Asset impairment charge              -      -       -     (5)      -
      Property tax settlement gain         -      -       -      -      70
      Stock appreciation rights            -      -      (1)     -       2
                                       -----  -----   -----  -----   -----
      Total Income from Operations      $561   $514    $148 $1,444  $1,217

  CAPITAL EXPENDITURES
  Flat-rolled Products                   $46    $32     $83   $147    $220
  U. S. Steel Europe                      67     51      67    162     175
  Tubular Products                         1      1       1      2       4
  Other Businesses                        32     40      43     86      74
                                       -----  -----   -----  -----   -----
      Total                             $146   $124    $194   $397    $473

  -----------
  (a) Includes certain profit-based expenses for U. S. Steel retirees and
      National retirees pursuant to provisions of the 2003 labor agreement
      with the United Steelworkers of America.




                     UNITED STATES STEEL CORPORATION
             PRELIMINARY SUPPLEMENTAL STATISTICS (Unaudited)
             -----------------------------------------------

                                          Quarter Ended       Nine Months
                                                                 Ended
                                    ------------------------- ------------
                                    Sept. 30 June 30 Sept. 30  Sept. 30
  (Dollars in millions)                2006   2006    2005    2006    2005
  ------------------------------------------------------------------------

  OPERATING STATISTICS
      Average realized price: ($/net
       ton)
        Flat-rolled Products(a)          $651   $624   $586    $630   $624
        U. S. Steel Europe                640    581    562     589    631
        Tubular Products                1,491  1,479  1,393   1,492  1,281
      Steel Shipments:(a)(b)
        Flat-rolled Products            3,695  3,878  3,191  11,102  9,950
        U. S. Steel Europe              1,552  1,652  1,230   4,712  3,852
        Tubular Products                  303    298    264     920    864
                                        -----  -----  -----  ------ ------
          Total Steel Shipments         5,550  5,828  4,685  16,734 14,666
      Raw Steel-Production:(b)
        Domestic Facilities             4,359  4,585  3,514  13,085 11,414
        U. S. Steel Europe              1,734  1,803  1,200   5,290  4,234
      Raw Steel-Capability
       Utilization:(c)
        Domestic Facilities              89.1%  94.8%  71.9%   90.2%  78.7%
        U. S. Steel Europe               92.7%  97.4%  64.1%   95.3%  76.2%
      Domestic iron ore production(b)   5,953  5,493  5,878  16,919 16,930
      Domestic coke production(b)(d)    1,446  1,485  1,602   4,421  4,607
  -----------
  (a) Excludes intersegment transfers.
  (b) Thousands of net tons.
  (c) Based on annual raw steel production capability for domestic
      facilities of 19.4 million net tons and annual raw steel production
      capability for U. S. Steel Europe of 7.4 million net tons.
  (d) Includes the Clairton 1314B Partnership.

SOURCE: United States Steel Corporation

CONTACT: John Armstrong, +1-412-433-6792, or Investors-Analysts: Nick
Harper, +1-412-433-1184, both of United States Steel Corporation

Web site: http://www.ussteel.com/

Company News On-Call: http://www.prnewswire.com/comp/929150.html

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