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United States Steel Corporation Reports 2005 Second Quarter Results

PRNewswire-FirstCall
PITTSBURGH
07.26.2005

                           Earnings Highlights

   (Dollars in millions
    except per share data)         2Q 2005         1Q 2005       2Q 2004

   Net sales                        $3,582          $3,787        $3,448

   Segment income from operations
      Flat-rolled Products            $190            $335          $335
      U. S. Steel Europe               141             212            76
      Tubular Products                 133             122            25
      Other Businesses                  23             (17)           18

   Total segment income from
    operations                        $487            $652          $454
   Retiree benefit expenses            (70)            (83)          (65)
   Other items not allocated
    to segments                         (4)             71            (1)

   Income from operations             $413            $640          $388

      Interest and other financial
       costs (income)                   20              (5)           70
      Foreign currency losses           43              27            16

   Net interest and other financial
    costs                               63              22            86

   Income tax provision                 93             155            86

   Net income                         $245            $455          $211
    - Per basic share                $2.11           $3.95         $1.82
    - Per diluted share              $1.88           $3.48         $1.62

United States Steel Corporation (NYSE: X) reported second quarter 2005 net income of $245 million, or $1.88 per diluted share, compared to first quarter 2005 net income of $455 million, or $3.48 per diluted share, and second quarter 2004 net income of $211 million, or $1.62 per diluted share.

Commenting on results, U. S. Steel President and CEO John P. Surma said, "Considering global steel market conditions, we had a good quarter with strong operating results from our European and Tubular segments and a solid performance by our Flat-rolled segment."

The company reported second quarter 2005 income from operations of $413 million, compared with income from operations of $640 million in the first quarter of 2005 and $388 million in the second quarter of 2004.

Other items not allocated to segments reduced second quarter 2005 net income by $3 million, or 2 cents per diluted share. First quarter 2005 results included net income of $58 million, or 45 cents per diluted share, primarily from a property tax settlement. Second quarter 2004 net income was reduced by $22 million, or 17 cents per diluted share, primarily resulting from a $33 million charge to net interest and other financial costs for the early redemption of senior debt.

Foreign currency losses in the second quarter of 2005 were $43 million, compared to losses of $27 million and $16 million in the first quarter of 2005 and the second quarter of 2004, respectively. The losses primarily reflect accounting remeasurement losses from the appreciation of the U.S. dollar functional currency versus the euro and other local currencies.

Reportable Segments and Other Businesses

Management uses segment income from operations to evaluate company performance because we believe it to be a key measure of ongoing operating results. U. S. Steel's reportable segments and Other Businesses reported segment income from operations of $487 million, or $100 per ton, in the second quarter of 2005, compared with $652 million, or $127 per ton, in the first quarter of 2005 and $454 million, or $82 per ton, in the second quarter of 2004.

The decrease in second quarter 2005 Flat-rolled income from operations compared to the first quarter primarily reflected declining spot market prices, reduced shipments and lower operating levels, with higher outage costs largely offset by lower raw materials costs. The decline in European operating results was due mainly to lower sheet spot market prices and higher raw material costs. Tubular results remained at record levels.

Outlook

Commenting on U. S. Steel's outlook, Surma said, "Operating results for the third quarter of 2005 are likely to be lower than in the second quarter, reflecting recent spot price trends in domestic and European markets for sheet products. We have been encouraged by recent reports of lower service center sheet inventory levels and improved Flat-rolled order entry rates; however, market conditions will determine if these trends will be sustained throughout the third quarter and the remainder of the year."

For Flat-rolled, third quarter 2005 average realized prices are expected to be moderately lower than in the second quarter, reflecting lower spot prices, and shipment levels and costs are expected to be comparable to second quarter levels. The Gary blast furnace project will continue throughout the third quarter and our remaining domestic production facilities will be operated at levels necessary to balance our inventories and our order book.

For U. S. Steel Europe (USSE), third quarter average realized prices are expected to be significantly lower than in the second quarter, primarily reflecting the recent decline in hot-rolled spot prices. The price decline should be partially offset by a significant decrease in raw material costs. The planned partial reline of the No. 2 blast furnace at U. S. Steel Kosice is expected to be completed during the third quarter and this furnace will be restarted when market conditions warrant. Third quarter 2005 shipments for USSE are expected to be about the same as in the second quarter.

Shipments and average realized prices for the Tubular segment in the third quarter of 2005 are expected to be in line with second quarter levels. Tube round costs will reflect a July 1 increase of $20 per ton to the transfer price for tube rounds supplied by Flat-rolled because of higher metallic addition costs.

*****

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 the rebuild of the No. 13 blast furnace at Gary Works and other 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 short-term contract and spot prices of steel products; changes in environmental, tax and other laws; employee strikes; power outages; 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, 2004, 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 second quarter earnings on Tuesday, July 26, at 3 p.m. EDT. To listen to the webcast of the conference call, visit the U. S. Steel web site, www.ussteel.com, and click on the "Investors" button.

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

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

                                    Quarter Ended          Six Months Ended
                              ---------------------------  -----------------
                              June 30  Mar. 31   June 30        June 30
  (Dollars in millions)         2005     2005      2004       2005    2004
  --------------------------------------------------------------------------

  NET SALES                    $3,582   $3,787   $3,448     $7,369   $6,378

  OPERATING EXPENSES (INCOME):
  Cost of sales (excludes items
   shown below)                 2,925    2,899    2,816      5,824    5,374
  Selling, general and
   administrative expenses        176      169      169        345      349
  Depreciation, depletion and
   amortization                    88       98       93        186      191
  Income from investees           (13)     (13)     (13)       (26)     (19)
  Net gains on disposal of
   assets                          (6)      (4)      (2)       (10)     (44)
  Other income, net                (1)      (2)      (3)        (3)     (12)
                                -----    -----    -----      -----    -----
    Total operating expenses    3,169    3,147    3,060      6,316    5,839
                                -----    -----    -----      -----    -----
  INCOME FROM OPERATIONS          413      640      388      1,053      539
  Net interest and other
   financial costs                 63       22       86         85      138
                                -----    -----    -----      -----    -----
  INCOME BEFORE INCOME TAXES,
   MINORITY INTERESTS AND
   CUMULATIVE EFFECT OF
   CHANGE IN ACCOUNTING
   PRINCIPLE                      350      618      302        968      401
  Income tax provision             93      155       86        248      137
  Minority interests               12        8        5         20        9
                                -----    -----    -----      -----    -----
  INCOME BEFORE CUMULATIVE
   EFFECT OF CHANGE IN
   ACCOUNTING PRINCIPLE           245      455      211        700      255
  Cumulative effect of change in
   accounting principle, net of
   tax                              -        -        -          -       14
                                -----    -----    -----      -----    -----
  NET INCOME                      245      455      211        700      269
  Dividends on preferred stock     (5)      (4)      (5)        (9)      (9)
                                -----    -----    -----      -----    -----
  NET INCOME APPLICABLE TO
   COMMON STOCK                  $240     $451     $206       $691     $260
                                =====    =====    =====      =====    =====



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

                                    Quarter Ended          Six Months Ended
                              ---------------------------  -----------------
                              June 30  Mar. 31   June 30        June 30
  COMMON STOCK DATA:            2005     2005      2004       2005    2004
  --------------------------------------------------------------------------
  Per share:
  Income before cumulative
   effect of change in
   accounting principle:
   - Basic                      $2.11    $3.95    $1.82      $6.06    $2.24
   - Diluted                    $1.88    $3.48    $1.62      $5.36    $2.01

  Cumulative effect of change in
   accounting principle,
   net of tax:
   - Basic                         $-       $-       $-         $-     $.13
   - Diluted                       $-       $-       $-         $-     $.11

  Net income:
   - Basic                      $2.11    $3.95    $1.82      $6.06    $2.37
   - Diluted                    $1.88    $3.48    $1.62      $5.36    $2.12

  Weighted average shares, in
   thousands
   - Basic                    114,222  114,169  113,332    114,196  110,029
   - Diluted                  130,646  130,830  129,874    130,757  126,778

  Dividends paid per
   common share                  $.10     $.08     $.05       $.18     $.10



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

                                                           Six Months Ended
                                                           ----------------
                                                               June 30
  Cash Flow Data                 (In millions)              2005      2004
  -------------------------------------------------------------------------
  Cash provided from operating activities:
   Net income                                           $    700  $    269
   Depreciation, depletion and amortization                  186       191
   Pensions and other postretirement benefits                (81)       30
   Property tax settlement gain                              (95)        -
   Deferred income taxes                                     158        90
   Net gains on disposal of assets                           (10)      (44)
   Changes in: Current receivables                            58      (337)
               Inventories                                  (231)      (48)
               Current accounts payable and accrued
                expenses                                    (193)      215
   Other operating activities                                 11       (41)
                                                          ------    ------
    Total                                                    503       325
                                                          ------    ------
  Cash used in investing activities:
   Capital expenditures                                     (279)     (165)
   Disposal of assets                                         10        78
   Other investing activities                                 (5)       (1)
                                                          ------    ------
    Total                                                   (274)      (88)
                                                          ------    ------
  Cash (used in) provided from financing activities:
   Repayment of long-term debt                                (6)     (289)
   Common stock issued                                         7       341
   Dividends paid                                            (29)      (19)
   Change in bank checks outstanding                          27        (4)
   Other financing activities                                (23)        8
                                                           ------    ------
    Total                                                    (24)       37
                                                           ------    ------
  Total net cash flow                                        205       274
  Cash at beginning of the year                            1,037       316
                                                          ------    ------
  Cash at end of the period                             $  1,242  $    590
                                                          ======    ======



                                                         June 30   Dec. 31
  Balance Sheet Data           (In millions)               2005      2004
  -------------------------------------------------------------------------

  Cash and cash equivalents                             $  1,242  $  1,037
  Other current assets                                     3,295     3,206
  Property, plant and equipment - net                      3,723     3,627
  Pension Asset                                            2,430     2,538
  Other assets                                               548       548
                                                          ------    ------
  Total assets                                          $ 11,238  $ 10,956
                                                          ======    ======
  Current liabilities                                   $  2,116  $  2,531
  Long-term debt                                           1,355     1,363
  Employee benefits                                        2,076     2,125
  Other long-term liabilities                              1,012       939
  Minority interests                                          30        28
  Stockholders' equity                                     4,649     3,970
                                                          ------    ------
  Total liabilities and stockholders' equity            $ 11,238  $ 10,956
                                                          ======    ======


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

                                    Quarter Ended          Six Months Ended
                              ---------------------------  -----------------
                              June 30  Mar. 31   June 30        June 30
  (Dollars in millions)         2005     2005      2004       2005    2004
  --------------------------------------------------------------------------
  INCOME (LOSS) FROM OPERATIONS
  Flat-rolled Products          $190     $335      $335       $525    $448
  U. S. Steel Europe             141      212        76        353     116
  Tubular Products               133      122        25        255      28
  Other Businesses(a)             23      (17)       18          6      24
                               -----    -----     -----      -----   -----
  Segment Income from
   Operations                    487      652       454      1,139     616
  Retiree benefit expenses(b)    (70)     (83)      (65)      (153)   (109)
  Other items not allocated to
   segments:
      Property tax settlement
       gain(c)                     -       70         -         70       -
      Stock appreciation rights    2        1        (1)         3     (11)
      Workforce reduction
       charges(d)                 (6)       -         -         (6)      -
      Income from sale of real
       estate interests            -        -         -          -      43
                               -----    -----     -----      -----   -----
        Total Income from
         Operations             $413     $640      $388     $1,053    $539

  CAPITAL EXPENDITURES
  Flat-rolled Products           $78      $59       $37       $137     $58
  U. S. Steel Europe              59       49        40        108      79
  Tubular Products                 -        3         2          3       5
  Other Businesses                20       11        16         31      23
                               -----    -----     -----      -----   -----
      Total                     $157     $122       $95       $279    $165

  -----------
  (a) Includes the results of the former Real Estate segment.

  (b) 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.

  (c) Reflects the portion of the Gary property tax settlement gain that is
      included in cost of sales, and excludes $25 million that is included
      in net interest and other financial costs.

  (d) Reflects special termination benefits for a USSK voluntary early
      retirement program.



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

                                    Quarter Ended          Six Months Ended
                              ---------------------------  -----------------
                              June 30  Mar. 31   June 30        June 30
  (Dollars in millions)         2005     2005      2004       2005    2004
  --------------------------------------------------------------------------

  OPERATING STATISTICS
   Average realized price:
   ($/net ton)
      Flat-rolled Products(a)   $633     $650      $583       $642    $528
      U. S. Steel Europe         643      684       491        663     457
      Tubular Products         1,302    1,165       779      1,233     725

   Steel Shipments:(a)(b)
      Flat-rolled Products     3,224    3,535     3,982      6,759   8,143
      U. S. Steel Europe       1,332    1,290     1,263      2,622   2,436
      Tubular Products           297      303       269        600     541

   Raw Steel-Production:(b)
      Domestic Facilities      3,597    4,303     4,230      7,900   8,709
      U. S. Steel Europe       1,486    1,548     1,467      3,034   2,811

   Raw Steel-Capability
    Utilization:(c)
      Domestic Facilities       74.4%    90.0%     87.5%      82.1%   90.0%
      U. S. Steel Europe        80.2%    84.6%     79.5%      82.4%   76.1%

   Domestic iron ore
    production(b)              5,670    5,382     6,011     11,052  11,623
   Domestic iron ore
    shipments(b)(d)            6,232    3,389     6,722      9,621  10,758
   Domestic coke
    production(b)(f)           1,585    1,420     1,666      3,005   3,315
   Domestic coke
    shipments(b)(e)(f)           241      245       642        486   1,314

  -----------
  (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 trade shipments and intersegment transfers.
  (e) Includes trade shipments only.
  (f) Includes the Clairton 1314B Partnership.

SOURCE: United States Steel Corporation

CONTACT: Media, 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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