By KEVIN NEVERS

U.S. Steel Corporation (USS) is reporting a net income in the fourth quarter of 2005 of $109 million or 85 cents per diluted share, compared to an adjusted net income in the year-ago period of $451 million or $3.46 per diluted share.

For the full year USS reported a net income of $910 million or $7 per diluted share, compared to an adjusted net income in 2004 of $1.135 billion or $8.83 per diluted share.

“A strong fourth quarter operating performance contributed to making 2005 a very good year,” USS President and CEO John Surma said in a statement released today. “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, thank 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 ton of hot metal per day in a relatively short time.”

Last year saw the average realized price per net ton of flat-rolled actually increased, from $574 in 2004 to $617. U.S. Steel Europe (USSE) benefitted from a similar rise, from $529 in 2004 to $610, as did tubular products, from $863 to $1,326.

Yet USS shipped markedly fewer net tons of product. Flat-rolled shipments declined from 15,635 net tons in 2004 to 13,296, a decrease of nearly 15 percent. USSE, on the other hand, shipped 5,211 net tons in 2005, compared to 5,040 in 2004, an increase of slightly better than 3 percent. Tubular products also saw an increase of shipments, from 1,092 in 2004 to 1,156 in 2005, an improvement of almost 6 percent.

Income from Operations

by Reportable Segment

•Flat-rolled reported $36 million in the fourth quarter ($41 million in the third quarter, $375 million year-ago) and $602 million for the year ($1.185 billion in 2004). “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,” USS said.

•USSE reported $112 million in the fourth quarter ($21 million in the third quarter, $128 million year-ago) and $502 million for the year ($439 million in 2004). “The increase in fourth quarter 2005 European income from operation compared to the third quarter primarily reflected lower raw materials and outage costs and operating efficiencies due to higher operating levels,” USS said.

•Tubular products reported $149 million in the fourth quarter ($21 million in the third quarter, $114 million year-ago) and $528 million for the year ($197 million in 2004). “The improvement in fourth quarter versus third quarter tubular results was largely due to higher prices and shipment volumes,” USS said.

•Other businesses reported $16 million in the fourth quarter ($21 million in the third quarter, $27 million year-ago) and $43 million for the year ($58 million in 2004).

•Total segment income from operations for the fourth quarter was $313 million ($207 million in the third quarter, $644 million year-ago) and $1.675 billion or $85 per ton for the year ($1.879 billion or $86 per ton in 2004).

•Total income from operations in the fourth quarter—after deducting $59 million for retiree benefit expenses and $32 million for other items—was $222 million ($148 million in the third quarter, $543 million year-ago) and $1.439 billion for the year ($1.625 billion in 2004).

More Numbers

•USS and USSE shipped a total of 4,997 net tons in the fourth quarter (4,685 in the third quarter, 5,379 year-ago) and 19,663 for the year (25,715 in 2004).

•The company’s domestic facilities utilized 80.3 percent of their raw steel capability in the fourth quarter (71.9 percent in the third quarter, 87.2 percent year-ago) and 79.1 percent for the year (89.0 percent in 2004). USSE utilized 88.2 percent of its raw steel capability in the fourth quarter (64.17 percent in the third quarter, 79.0 percent year-ago) and 79.2 percent for the year (76.8 percent in 2004).

•During 2005, USS made a first-quarter voluntary cash contribution of $130 million to its main defined benefit pension plan and a fourth quarter voluntary cash contribution of $50 million to a qualified trust for payment of future retiree medical expenses. Total costs for pension plans and other post-retirement benefits are expected to be approximately $300 million in 2006, compared to $390 million in 2005.

Outlook

“The first quarter of 2005 looks good for our domestic and European markets,” Surma said. “Service center and end customer inventories are balanced and we expected continued strength in the energy markets served by our tubular segment.”

For flat-rolled, the company said, first-quarter shipments compared to fourth-quarter should improve, due to the restart of Gary No. 14 blast furnace. Prices should remain at the fourth-quarter level. Higher raw material costs should be partially offset by reduced outage costs.

For USSE, first-quarter shipments should increase and average realized prices and costs should be consistent with fourth-quarter levels. But the effect of natural-gas supply disruptions which have recently curtailed Serbian operations is uncertain, the company said.

For tubular, first-quarter shipments and average realized prices should be in line with fourth-quarter levels.

Capital expenditures for 2005 are expected to total approximately $700 million, with $440 million spent domestically and $260 million spent in Europe.

Posted 1/31/2006