United States Steel Corp. reported fourth quarter net income of $462 million on revenues of $3890 million, and full year net income of $1085 million on revenues of $13,969 million.

Fourth Quarter Results—Net income of $462 million ($3.55 per diluted share) compares to third quarter 2004 net income of $354 million ($2.72 per diluted share) and a fourth quarter 2003 net loss of $22 million (26 cents per diluted share).

Net income included previously disclosed tax benefits totaling $30 million related to prior year research and development credits and U. S. Steel Kosice 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). Net income in third quarter 2004 included a $24 million favorable effect related to the settlements of prior years' income tax audits. These settlements and other items not allocated to segments increased third quarter 2004 net income by $21 million (16 cents per diluted share). Other items not allocated to segments reduced fourth quarter 2003 net income by $23 million (23 cents per diluted share).

Revenues of $3890 million compare to revenues of $3707 million in the previous quarter, and revenues of $2613 in the fourth quarter of 2003. Net interest and other financial income of $23 million included a foreign currency translation gain of $46 million, which exceeded ongoing interest expense. The foreign currency translation gain included a $16 million favorable effect, which was offset in cost of revenues. This reclassification related to a refinement of inventory accounting policies for European operations.

Income from operations was $551 million, which compares with income from operations of $494 million in the third quarter of 2004 and a loss from operations of $34 million in the fourth quarter of 2003.

Full Year Results—Net income of $1,085 million ($8.44 per diluted share) compares to a 2003 net loss of $463 million ($4.64 per diluted share) which included after-tax workforce reduction charges of $404 million. Revenues of $13,969 million compare to 2003 revenues of $9328 million.

Income from operations was $1,584 million versus a full-year 2003 loss from operations of $730 million.

Comments—Commenting on results, U. S. Steel President and CEO John P. Surma said, "Favorable global steel markets coupled with our acquisitions and ongoing cost reduction efforts resulted in record income for U. S. Steel for both the fourth quarter and full year. Noteworthy accomplishments during 2004 included successful integration of the National and Serbian facilities we acquired in 2003, and substantial cash generation, which enabled us to strengthen our balance sheet and our financial capability to support future growth initiatives."

Reportable Segments and Other Businesses—U. S. Steel's reportable segments and Other Businesses reported segment income from operations of $652 million ($121 per ton) in the fourth quarter of 2004, compared with $570 million ($108 per ton) in the third quarter of 2004 and $49 million ($9 per ton) in the fourth quarter of 2003. Increased income is attributed to increased domestic prices for tubular products and lower purchased coke costs, offset by increased costs for natural gas, scrap and coal. European operating results reflected improved prices and volumes, as well as unfavorable effects resulting from a refinement of inventory accounting policies for these operations.

Segment income from operations for full-year 2004 was $1,838 million ($84 per ton) compared with $69 million ($4 per ton) for 2003.

Outlook—First quarter 2005 average realized prices for the Flat-rolled segment are expected to remain in line with fourth quarter levels; however, results will be negatively affected by higher costs for raw materials and natural gas, as well as slightly lower shipments. For full-year 2005, Flat-rolled shipments are expected to be about 15.4 million tons, reflecting the planned outage at the Gary No. 13 Blast Furnace.

For U. S. Steel Europe (USSE), first quarter average realized prices are expected to be moderately higher than in the fourth quarter of 2004, with shipments remaining about the same and costs for raw materials increasing significantly. USSE shipments for full-year 2005 are projected to increase by about 15% to approximately 5.8 million net tons due mainly to higher operating levels at the Serbian facilities following the planned mid-year startup of a second blast furnace.

Shipments for the Tubular segment in the first quarter of 2005 are expected to be at about the same level as in 2004's fourth quarter, while average realized prices are expected to continue to increase. Tubular announced price increases for certain products ranging from $50 to $250 per ton effective in January 2005. Full-year shipments are expected to increase to 1.2 million tons. Costs will increase as a result of annual transfer price adjustments for semi-finished steel, which comprehend raw material cost escalation, and higher costs for purchased rounds.

First quarter 2005 results for Other Businesses will decline compared to the fourth quarter of 2004 due to normal seasonal effects at iron ore operations in Minnesota.

Capital expenditures for 2005 are expected to total approximately $755 million, reflecting domestic spending of approximately $475 million and European spending of approximately $280 million. Domestic expenditures include the rebuild of the Gary No. 13 Blast Furnace, scheduled for the third quarter. European expenditures include initial outlays for a new hot-dip galvanizing line to support U. S. Steel's European automotive strategy.

Settlement Agreement—A Lake County appeals board is expected to consider a motion to resolve appeals in accordance with the previously announced settlement agreement with the City of Gary, Lake County and the state of Indiana regarding past years' Gary Works personal property taxes. If the settlement is approved and becomes final as submitted, U. S. Steel would pay $44 million and would recognize a favorable income effect reflecting liabilities accrued in excess of the settlement amount. In the event the settlement is approved and becomes final as submitted before the 2004 financial statements are filed, the settlement would be recorded as an adjustment to 2004 results.

Pensions and Benefits—During 2004, U. S. Steel contributed $295 million ($175 million in the fourth quarter) to its main defined benefit pension plan and $30 million (all in the fourth quarter) to a Voluntary Employee Benefit Association trust.

At year-end 2004, U. S. Steel's main defined benefit pension plan was measured and it was determined that an additional minimum liability is no longer necessary for this plan. The reversal of this liability net of associated tax effects resulted in a net credit to equity of approximately $1.45 billion and had no effect on income or cash flow. Total costs in 2005 for domestic defined benefit pension plans and other postretirement benefits are expected to be approximately the same as in 2004.