United States Steel Corporation Reports 2006 Third Quarter Results

PITTSBURGH, Oct. 31 /PRNewswire-FirstCall/ --

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 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.