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United States Steel Corporation Reports 2006 Second Quarter Results

PRNewswire-FirstCall
PITTSBURGH
07.25.2006

                           Earnings Highlights
  (Dollars in millions except
   per share data)                 2Q 2006        1Q 2006        2Q 2005
  -----------------------------------------------------------------------
  Net sales                        $4,107          $3,728        $3,582
  =======================================================================
  Segment income from operations
     Flat-rolled Products            $212            $127          $190
     U. S. Steel Europe               188             125           149
     Tubular Products                 146             177           133
     Other Businesses                  33              --            23
  -----------------------------------------------------------------------
  Total segment income
   from operations                   $579            $429          $495
  Retiree benefit expenses            (65)            (55)          (70)
  Other items not allocated
   to segments                         --              (5)           (4)
  Income from operations             $514            $369          $421
  =======================================================================
  Net interest and other
   financial costs                     14              16            68
  -----------------------------------------------------------------------
  Income tax provision                 91              90            92
  =======================================================================
  Net income                         $404            $256          $249
  -----------------------------------------------------------------------
    - Per basic share               $3.60           $2.31         $2.14
    - Per diluted share             $3.22           $2.04         $1.91
  =======================================================================

United States Steel Corporation (NYSE: X) reported second quarter 2006 net income of $404 million, or $3.22 per diluted share, compared to first quarter 2006 net income of $256 million, or $2.04 per diluted share, and second quarter 2005 net income of $249 million, or $1.91 per diluted share.

Commenting on results, U. S. Steel Chairman and CEO John P. Surma said, "Solid demand in our key end markets, outstanding operating performance, strong shipments and firming prices, particularly in spot markets, resulted in an excellent second quarter with earnings significantly higher than both the previous quarter and the same quarter last year. We operated at high rates of production capability in the U.S. and Europe, reflecting an outstanding performance by our people and the benefits of our recent capital programs."

The company reported second quarter 2006 income from operations of $514 million, compared with income from operations of $369 million in the first quarter of 2006 and $421 million in the second quarter of 2005.

The income tax provision in the second quarter of 2006 included a favorable adjustment of $15 million, or 12 cents per diluted share, related to the 2005 estimated tax accrual.

During the second quarter of 2006, our 7.00% Series B Mandatory Convertible Preferred Shares automatically converted into common stock, increasing our common stock outstanding by approximately 16 million shares. We repurchased 1.9 million shares of common stock for $117 million during the second quarter, bringing the total shares repurchased to 7.7 million for $371 million since our repurchase program was 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 $579 million, or $99 per ton, in the second quarter of 2006, compared with $429 million, or $80 per ton, in the first quarter of 2006 and $495 million, or $102 per ton, in the second quarter of 2005.

The increase in second quarter 2006 Flat-rolled income from operations compared to the first quarter mainly resulted from higher average realized prices and shipment volumes. Costs remained in line with first quarter levels as lower energy and outage costs were offset by higher raw material and profit-based costs. The improvement in European operating results was due primarily to higher prices and record shipments. Tubular operating results remained strong, but declined as expected from the first quarter due to scheduled maintenance outages, which were completed as planned.

Outlook

Commenting on U. S. Steel's outlook, Surma said, "We expect continued strong operating results for our three reportable segments in the third quarter of 2006. Healthy steel consumption levels are expected during the quarter along with further increases in flat-rolled prices in the U.S. and in Europe."

For Flat-rolled, we expect increased third quarter 2006 average realized prices, partially offset by increased costs for raw materials and outages, and shipments are expected to be comparable to second quarter levels.

Third quarter average realized prices are also expected to improve for U. S. Steel Europe (USSE), partially offset by higher costs, primarily for raw materials. Shipments are expected to remain at second quarter levels. In Serbia, we are currently involved in discussions with our employees, unions and government agencies regarding a workforce reduction plan that may be initiated as early as the third quarter.

Shipments and average realized prices for the Tubular segment in the third quarter of 2006 are expected to be in line with second quarter levels, and costs are expected to improve due mainly to lower outage 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 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 second quarter earnings on Tuesday, July 25, at 2 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)    2006       2006        2005       2006      2005
  --------------------------------------------------------------------------

  NET SALES               $4,107     $3,728      $3,582    $7,835    $7,369

  OPERATING EXPENSES
   (INCOME):
    Cost of sales (excludes
    items shown below)     3,339      3,098       2,927     6,437     5,830
    Selling, general and
     administrative expenses 156        158         166       314       323
    Depreciation, depletion
     and amortization        114        112          88       226       186
    Income from investees    (13)        (7)        (13)      (20)      (26)
    Net gains on disposal
     of assets                (1)        (1)         (6)       (2)      (10)
    Other income, net         (2)        (1)         (1)       (3)       (3)
                           -----      -----       -----     -----     -----
       Total operating
        expenses           3,593      3,359       3,161     6,952     6,300
                           -----      -----       -----     -----     -----
  INCOME FROM OPERATIONS     514        369         421       883     1,069
  Net interest and other
   financial costs            14         16          68        30        93
                           -----      -----       -----     -----     -----
  INCOME BEFORE INCOME
   TAXES AND MINORITY
   INTERESTS                 500        353         353       853       976
  Income tax provision        91         90          92       181       248
  Minority interests           5          7          12        12        20
                           -----      -----       -----     -----     -----
  NET INCOME                 404        256         249       660       708
  Dividends on preferred
   stock                      (4)        (4)         (5)       (8)       (9)
                           -----      -----       -----     -----     -----

  NET INCOME APPLICABLE
   TO COMMON STOCK          $400       $252        $244      $652      $699
                           =====      =====       =====     =====     =====

  COMMON STOCK DATA:
  --------------------------------------------------------------------------
  Net income per share:
     - Basic               $3.60      $2.31       $2.14     $5.93     $6.13
     - Diluted             $3.22      $2.04       $1.91     $5.26     $5.42

  Weighted average
   shares, in thousands
     - Basic             111,129    108,809     114,222   109,949   114,196
     - Diluted           125,242    125,559     130,646   125,371   130,757

  Dividends paid per
   common share             $.15       $.10        $.10      $.25      $.18



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

                                                        Six Months Ended
                                                       -----------------
                                                            June 30
  Cash Flow Data       (In millions)                  2006           2005
  --------------------------------------------------------------------------
  Cash provided from operating activities:
    Net income                                        $660           $708
    Depreciation, depletion and amortization           226            186
    Pensions and other postretirement benefits         (50)           (81)
    Property tax settlement gain                        --            (95)
    Deferred income taxes                               43            158
    Net gains on disposal of assets                     (2)           (10)
    Changes in: Current receivables                   (365)            58
                Inventories                            (30)          (239)
                Current accounts payable and
                 accrued expenses                      115           (193)
    Other operating activities                         (29)            11
                                                     ------         ------
        Total                                          568            503
                                                     ------         ------
  Cash used in investing activities:
    Capital expenditures                              (251)          (279)
    Disposal of assets                                   6             10
    Other investing activities                          --             (5)
                                                     ------         ------
       Total                                          (245)          (274)
                                                     ------         ------
  Cash (used in) provided from financing activities:
    Repayment of long-term debt                       (156)            (6)
    Common stock issued                                 10              7
    Common stock repurchased                          (117)            --
    Dividends paid                                     (36)           (29)
    Change in bank checks outstanding                  (13)            27
    Other financing activities                         (12)           (17)
                                                     ------         ------
       Total                                          (324)           (18)
                                                     ------         ------
  Effect of exchange rate changes on cash               (1)            (6)
                                                     ------         ------
  Net increase (decrease) in cash and cash equivalents  (2)           205
  Cash at beginning of the year                      1,479          1,037
                                                     ------         ------
  Cash at end of the period                         $1,477         $1,242
                                                     ======         ======



                                                   June 30         Dec. 31
  Balance Sheet Data         (In millions)           2006           2005
  --------------------------------------------------------------------------
  Cash and cash equivalents                         $1,477         $1,479
  Inventories                                        1,517          1,466
  Other current assets                               2,285          1,897
  Property, plant and equipment - net                4,212          4,015
  Intangible pension asset                             251            251
  Other assets                                         697            714
                                                    ------         ------
  Total assets                                     $10,439         $9,822
                                                    ======         ======
  Short-term debt and current maturities
   of long-term debt                                  $134           $249
  Other current liabilities                          2,609          2,500
  Long-term debt, less unamortized discount          1,331          1,363
  Employee benefits                                  1,944          2,008
  Other long-term liabilities                          357            346
  Minority interests                                    31             32
   Stockholders' equity                              4,033          3,324
                                                    ------         ------
  Total liabilities and stockholders' equity       $10,439         $9,822
                                                   =======         ======



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

                                   Quarter Ended          Six Months Ended
                               -----------------------   ------------------
                              June 30   Mar. 31 June 30        June 30
  (Dollars in millions)        2006      2006    2005       2006     2005
  -------------------------------------------------------------------------
  INCOME FROM OPERATIONS
  Flat-rolled Products         $212     $127     $190      $339     $525
  U. S. Steel Europe            188      125      149       313      369
  Tubular Products              146      177      133       323      255
  Other Businesses               33        -       23        33        6
                               -----   -----    -----     -----    -----
  Segment Income from
   Operations                   579      429      495     1,008    1,155
  Retiree benefit expenses(a)   (65)     (55)     (70)     (120)    (153)
  Other items not allocated
   to segments:
      Asset impairment charge    --       (5)      --        (5)      --
      Workforce reduction
       charges                   --       --       (6)       --       (6)
      Stock appreciation
       rights                    --       --        2        --        3
      Property tax settlement
       gain                      --       --       --        --       70
                               -----    -----   -----     -----    -----
        Total Income from
         Operations             $514     $369    $421      $883   $1,069

  CAPITAL EXPENDITURES
  Flat-rolled Products           $32      $69     $78      $101     $137
  U. S. Steel Europe              51       44      59        95      108
  Tubular Products                 1       --      --         1        3
  Other Businesses                40       14      20        54       31
                               -----    -----   -----     -----    -----
       Total                    $124     $127    $157      $251     $279

   -----------
   (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         Six Months Ended
                              ------------------------   -------------------
                             June 30   Mar. 31  June 30         June 30
  (Dollars in millions)        2006     2006     2005       2006       2005
  --------------------------------------------------------------------------
  OPERATING STATISTICS
  Average realized price:
   ($/net ton)
     Flat-rolled Products(a)   $624     $616     $633       $620       $642
     U. S. Steel Europe         581      544      643        563        663
     Tubular Products         1,479    1,506    1,302      1,493      1,233
  Steel Shipments:(a)(b)
     Flat-rolled Products     3,878    3,529    3,224      7,407      6,759
     U. S. Steel Europe       1,652    1,508    1,332      3,160      2,622
     Tubular Products           298      319      297        617        600
  Raw Steel-Production:(b)
     Domestic Facilities      4,585    4,141    3,597      8,726      7,900
     U. S. Steel Europe       1,803    1,753    1,486      3,556      3,034
  Raw Steel-Capability
   Utilization:(c)
     Domestic Facilities       94.8%    86.6%    74.4%      90.7%      82.1%
     U. S. Steel Europe        97.4%    95.7%    80.2%      96.6%      82.4%
  Domestic iron ore
   production(b)              5,493    5,473    5,670     10,966     11,052
  Domestic coke
   production(b)(d)           1,485    1,490    1,585      2,975      3,005

   -----------
   (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: 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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