United States Steel Corp. reported record net income of $354 million on total revenues of $3729 million for the third quarter, and net income of $623 million on total revenues of $10,176 million for the first nine months of 2004.

Third Quarter Results—Record net income of $354 million ($2.72 per diluted share) compares to net income of $211 million ($1.62 per diluted share) in 2004's second quarter, and a net loss of $354 million ($(3.47) per diluted share (after preferred stock dividends)) in the third quarter of 2003. Diluted earnings per share for both 2004 quarters reflect the assumed conversion of the company's convertible preferred shares into approximately 16 million common shares.

Net income included a $24 million net favorable effect related to the settlements of prior years' income tax audits. This amount consisted of a favorable interest adjustment of $31 million, net of additional tax expense of $7 million. These settlements and other items not allocated to segments increased net income by $21 million (16 cents per diluted share). Net interest and other financial costs in second quarter 2004 included a $33 million charge resulting from the early redemption of senior debt. This charge and a small other item not allocated to segments reduced second quarter 2004 net income by $22 million (17 cents per diluted share). Other items not allocated to segments decreased net income by $433 million ($4.19 per diluted share) in third quarter 2003.

Income from operations was $494 million, $106 million higher than in the second quarter of 2004, and dramatically improved from the large loss in the third quarter of 2003, which included workforce reduction charges of $618 million.

Comments—Commenting on the quarter's results, U. S. Steel President and CEO John P. Surma said, "These excellent results reflect robust steel markets and continuing benefits from ongoing cost reduction efforts."

Reportable Segments and Other Businesses—U. S. Steel's reportable segments and Other Businesses generated segment income from operations of $570 million ($108 per ton) in the third quarter of 2004, compared with $454 million ($82 per ton) in the second quarter of 2004 and a loss of $9 million ($(2) per ton) in the third quarter of 2003.

Results for Flat-rolled, Tubular and European operations continued to benefit from improving prices and expanding margins. Compared to 2004's second quarter, domestic results reflected higher raw materials costs, principally for scrap; higher costs for profit-based payments under the labor agreement with the United Steelworkers of America; and higher costs for repair outages, as blast furnace repairs at Gary Works and Granite City Works were both completed during the third quarter.

Cash and Liquidity—U. S. Steel contributed $70 million to its main defined benefit pension plan during the third quarter, and ended the quarter with over $1 billion in cash and cash equivalents and about $2 billion of total liquidity.

Outlook—Looking ahead to the fourth quarter, Surma stated, "We expect continued strong results for each of our major business units."

In the Flat-rolled segment, total shipments should increase slightly compared to the third quarter, and margins should remain at high levels. Some markets are being affected by seasonal softness and efforts to control inventory. Seasonal patterns suggest that these markets will rebound in the first quarter of 2005. Average realized prices are expected to be comparable to or slightly below the third quarter, reflecting some differences in product mix as well as flattening in spot prices. Scrap and energy costs remain volatile and planned outage costs will remain comparable to third quarter levels. U. S. Steel currently expects coke costs to decline. For full-year 2004, Flat-rolled segment shipments are expected to be 15.8 million tons.

For U. S. Steel Europe (USSE), fourth quarter 2004 average realized prices are expected to increase from the third quarter reflecting the announced October 1 price increase for flat-rolled products, more than offsetting higher raw materials costs. Shipments for the quarter are expected to increase by about 150,000 tons compared to the third quarter and estimated full-year 2004 shipments remain at 5.1 million net tons.

For the Tubular segment, margins are expected to continue to increase, reflecting full-quarter realization of a series of third quarter price increases and additional fourth quarter price increases. Margins will reflect stable costs for the significant portion of tube rounds supplied by the Flat-rolled segment, which are transferred at a cost-based annual price. Tubular segment shipments for the total year are expected to be about 1.1 million tons.

U. S. Steel Kosice has given irrevocable notice to repay its $272 million of long-term debt at face amount on November 24, 2004. Only $20 million of this debt was due in 2004. Annualized interest expense on this debt is approximately $23 million.