Jan. 31, 2006 — United States Steel Corp. reported fourth quarter 2005 net income of $109 million on net sales of $3470 million for the fourth quarter, and net income of $910 million on net sales of 14,039 million for the full year 2005.

Fourth Quarter Results—The $109 million net income ($0.85 per diluted share) compares to third quarter 2005 adjusted net income of $93 million ($0.71 per diluted share) and fourth quarter 2004 adjusted net income of $451 million ($3.46 per diluted share). The $3470 million net sales compares to net sales of $3890 in the fourth quarter of 2004.

Income from operations was $222 million, which compares with adjusted income from operations of $148 million in the third quarter of 2005 and $543 million in the fourth quarter of 2004.

Results included an income tax charge of $16 million resulting from the repatriation of $300 million of foreign earnings pursuant to the American Jobs Creation Act of 2004, a pre-tax charge of $20 million for environmental remediation related to a former steel production site that was sold years ago, and a pre-tax charge of $11 million for special termination benefits under the voluntary early retirement program at USSK. These items and another small item not allocated to segments reduced fourth quarter 2005 net income by $39 million, or (30 cents per diluted share). Other items not allocated to segments reduced third quarter 2005 net income by $4 million (3 cents per diluted share). Fourth quarter 2004 net income included tax benefits totaling $30 million related to prior year research and development credits and USSK debt repayment. These benefits and other items not allocated to segments increased fourth quarter 2004 net income by $14 million (11 cents per diluted share).

Full-Year Results—The $910 million net income ($7.00 per diluted share) compares to 2004 adjusted net income of $1,135 million ($8.83 per diluted share). Prior period results have been adjusted retrospectively for a change in the method of accounting for inventories at U. S. Steel Kosice (USSK). The $14,039 million net sales compares to net sales of $13,975 in the fourth quarter of 2004.

Income from operations was $1,439 million versus adjusted income from operations of $1,625 million for the year 2004.

Comments—Commenting on results, U. S. Steel President and CEO John P. Surma said, "A strong fourth quarter operating performance contributed to making 2005 a very good year. Our annual earnings were the second highest on record and we had another year of solid return on capital employed. Importantly, our safety performance improved substantially, thanks to the outstanding efforts of our employees. Capital spending and repair and maintenance expenses were higher than anticipated primarily because we expanded the scope of work and experienced several delays related to the Gary No. 14 blast furnace project. We are proceeding through the start-up process and expect to be producing at full capacity of 9,200 tons of hot metal per day in a relatively short time."

Currency Gains—Foreign currency gains in the fourth quarter of 2005 were $1 million, compared to losses of $3 million in the third quarter of 2005 and gains of $36 million in the fourth quarter of 2004. The losses for the full-year 2005 primarily reflect accounting remeasurement losses from the appreciation of the U.S. dollar functional currency versus the euro and other local currencies. Effective January 1, 2006, the functional currency for the company’s European operations was changed to the euro, which should reduce future period remeasurement gains and losses.

Reportable Segments and Other Businesses—U. S. Steel's reportable segments and Other Businesses reported segment income from operations of $313 million ($63 per ton) in the fourth quarter of 2005, compared with $207 million ($44 per ton) in the third quarter of 2005 and $644 million ($120 per ton) in the fourth quarter of 2004.

Segment income from operations for full-year 2005 was $1,675 million ($85 per ton) compared with $1,879 million ($86 per ton) for 2004.

The increase in 2005 European income from operations (compared to the third quarter) primarily reflected lower raw material and outage costs and operating efficiencies due to higher operating levels. The improvement in Tubular results (versus third quarter) was largely due to higher prices and shipment volumes. Flat-rolled's fourth quarter results were in line with the third quarter as higher prices and shipment volumes were offset by increased costs for natural gas and electricity and higher project costs related to the Gary No. 14 blast furnace.

Outlook—Commenting on U. S. Steel's outlook, Surma said, "The first quarter of 2006 looks good for our domestic and European markets. Service center and end customer inventories are balanced and we expect continued strength in the energy markets served by our Tubular segment."

For Flat-rolled, the company expects first quarter 2006 shipments to improve compared to the fourth quarter of 2005 due to the restart of the Gary No. 14 blast furnace, and prices to remain at about the fourth quarter level. The company expects higher raw material costs to be partially offset by reduced outage costs.

For U. S. Steel Europe (USSE), first quarter shipments are expected to increase and average realized prices and costs should be consistent with fourth quarter levels. The effect of natural gas supply disruptions (which have recently resulted in curtailments for Serbian operations) is uncertain.

First quarter 2006 shipments and average realized prices for the Tubular segment are expected to be in line with the fourth quarter. U. S. Steel says that first quarter 2006 results for Other Businesses should decline from the fourth quarter, due primarily to normal seasonal variations at the company's iron ore operations in Minnesota.

The company expects capital expenditures for 2006 to total approximately $700 million, reflecting domestic spending of approximately $440 million and European spending of approximately $260 million.

Pensions and Benefits—U. S. Steel made a first quarter 2005 voluntary cash contribution of $130 million to its main defined benefit pension plan and a fourth quarter 2005 voluntary cash contribution of $50 million to a qualified trust for payment of future retiree medical expenses.

At year-end 2005, U. S. Steel's main defined benefit pension plan was measured and it was again determined that an additional minimum liability is required for this plan. Reestablishment of this liability (net of associated tax effects) resulted in a net charge to equity of approximately $1.4 billion and had no effect on income or cash flow.

Total costs for pension plans and other postretirement benefits are expected to be approximately $300 million in 2006, compared to $390 million in 2005.

Common Stock Repurchase Program—On July 26, 2005, U. S. Steel announced that its Board of Directors had approved the repurchase of up to eight million shares of its common stock. During 2005, 5.8 million shares were repurchased under this program for a total cost of $254 million, including 4.6 million shares repurchased in the fourth quarter for a total cost of $202 million.

Change to FIFO Method for USSK—During the fourth quarter of 2005, U. S. Steel changed its method of determining the cost of USSK inventories from the last-in, first-out (LIFO) method to the first-in, first-out (FIFO) method. In accordance with Statement of Financial Accounting Standards No. 154, prior period results have been adjusted to apply the new method retrospectively. After including effects of foreign currency remeasurement and tax provisions, the unfavorable net income effect of this change on U. S. Steel's fourth quarter and full-year 2005 results was $35 million and $41 million, respectively.