UNITED STATES STEEL CORP - 10-K Annual Report

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FORM 10-K 2001

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____to ____

Commission file number 1-16811

UNITED STATES STEEL CORPORATION
(Exact name of registrant as specified in its charter)

Delaware 25-1897152
(State of Incorporation) (I.R.S. Employer Identification No.)

600 Grant Street, Pittsburgh, PA 15219-2800
(Address of principal executive offices)
Tel. No. (412) 433-1121
Securities registered pursuant to Section 12 (b) of the Act:*

================================================================================
Title of Each Class
- --------------------------------------------------------------------------------
United States Steel Corporation 10% Senior Quarterly Income Debt Securities
Common Stock, par value $1.00

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months and (2) has been subject to such filing
requirements for at least the past 90 days. Yes X ** NO ___
---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K ((S)229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]

Aggregate market value of Common Stock held by non-affiliates as of February 28,
2002: $1.5 billion. The amount shown is based on the closing price of the
registrant's Common Stock on the New York Stock Exchange composite tape on that
date. Shares of Common Stock held by executive officers and directors of the
registrant are not included in the computation. However, the registrant has
made no determination that such individuals are "affiliates" within the meaning
of Rule 405 under the Securities Act of 1933.

There were 89,629,108 shares of United States Steel Corporation Common Stock
outstanding as of February 28, 2002.

Documents Incorporated By Reference:
Proxy Statement dated March 11, 2002 is incorporated in Part III.

- ---------
* These securities are listed on the New York Stock Exchange. In addition,
the Common Stock is listed on The Chicago Stock Exchange and the Pacific
Exchange.
** The registrant relies on the reporting history of USX Corporation for
reports filed prior to January 1, 2002.

INDEX

PART I
NOTE ON PRESENTATION.................................................. 2
FORWARD-LOOKING STATEMENTS............................................ 2

Item 1. BUSINESS.............................................................. 3
Item 2. PROPERTIES............................................................ 17
Item 3. LEGAL PROCEEDINGS..................................................... 17
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................... 21

PART II
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS............................................... 21
Item 6. SELECTED FINANCIAL DATA............................................... 22
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............................... 23
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK............ 42
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA........................... F-1
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE............................... 45

PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.................... 45
Item 11. EXECUTIVE COMPENSATION................................................ 46
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.................................................... 46
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................ 46

PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K....................................................... 47

SIGNATURES........................................................................... 54

GLOSSARY OF CERTAIN DEFINED TERMS.................................................... 55

SUPPLEMENTARY DATA

DISCLOSURES ABOUT FORWARD-LOOKING STATEMENTS....................................... 56

The Management's Discussion and Analysis of Financial Condition and Results
of Operations, the Financial Statements, the Selected Quarterly Financial Data
and the Five-Year Financial Summary contained in this Annual Report on Form 10-K
have been updated from the corresponding sections of the Current Report on Form
8-K dated March 1, 2002 and in the Annual Report to Shareholders that
accompanied the Proxy Statement dated March 11, 2002 to make immaterial
corrections and to reflect developments since March 1, most notably the
imposition of tariffs and quotas on imports of steel products under Section 201
of the Trade Relief Act of 1974.

NOTE ON PRESENTATION

United States Steel Corporation ("United States Steel" or the
"Corporation") owns and operates the former steel businesses of USX Corporation,
now named Marathon Oil Corporation ("Marathon"). Prior to December 31, 2001, the
businesses of United States Steel comprised an operating unit of Marathon.
Marathon had two outstanding classes of common stock: USX-Marathon Group common
stock, which was intended to reflect the performance of Marathon's energy
business, and USX- U. S. Steel Group common stock ("Steel Stock"), which was
intended to reflect the performance of Marathon's steel business. On December
31, 2001, United States Steel was capitalized through the issuance of 89.2
million shares of common stock to holders of Steel Stock in exchange for all
outstanding shares of Steel Stock on a one-for-one basis (the "Separation").

The accompanying consolidated balance sheet as of December 31, 2001
reflects the financial position of United States Steel as a separate, stand-
alone entity. The combined balance sheet as of December 31, 2000 and the
combined statements of operations and of cash flows for each of the three years
in the period ended December 31, 2001 represent a carve-out presentation of the
businesses comprising United States Steel, owned and operated by Marathon, and
are not intended to be a complete presentation of the financial position,
results of operations and cash flows of United States Steel on a stand-alone
basis. Marathon's net investment in United States Steel represents the combined
net assets of the businesses comprising United States Steel and is presented in
lieu of common stockholders' equity in the combined balance sheet as of December
31, 2000. The allocations and estimates included in these combined financial
statements are determined using methodologies described in United States Steel's
Notes to Financial Statements.

For information regarding accounting matters and policies affecting United
States Steel's financial statements, see "Financial Statements and Supplementary
Data - Notes to Financial Statements - 1. Basis of Presentation and - 3. Summary
of Principal Accounting Policies" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Critical Accounting Policies and
Estimates". For information regarding dividend limitations and dividend policies
affecting holders of United States Steel common stock, see "Market for
Registrant's Common Equity and Related Stockholder Matters."

For a Glossary of Certain Defined Terms used in this document, see page 55.

FORWARD-LOOKING STATEMENTS

Certain sections of United States Steel's Form 10-K, particularly Item 1.
Business, Item 3. Legal Proceedings, Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations and Item 7A.
Quantitative and Qualitative Disclosures About Market Risk, include forward-
looking statements concerning trends or events potentially affecting United
States Steel. These statements typically contain words such as "anticipates",
"believes", "estimates", "expects" or similar words indicating that future
outcomes are uncertain. In accordance with "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995, these statements are
accompanied by cautionary language identifying important factors, though not
necessarily all such factors, that could cause future outcomes to differ
materially from those set forth in forward-looking statements. For additional
factors affecting the businesses of United States Steel, "see Supplementary
Data-Disclosures About Forward-Looking Statements".

2

PART I

Item 1. BUSINESS

United States Steel Corporation owns and operates the former steel
businesses of USX Corporation, now named and referred to herein as Marathon Oil
Corporation ("Marathon"). Prior to December 31, 2001, Marathon had two
outstanding classes of common stock: USX-Marathon Group common stock, which was
intended to reflect the performance of Marathon's energy business, and USX-U. S.
Steel Group common stock ("Steel Stock"), which was intended to reflect the
performance of Marathon's steel business. On December 31, 2001, Marathon
converted each share of Steel Stock into the right to receive one share of
United States Steel Corporation common stock (the "Separation"). United States
Steel Corporation was subsequently capitalized through the issuance of 89.2
million shares of common stock to the holders of Steel Stock. The net assets of
United States Steel Corporation on December 31, 2001 were approximately the same
as the net assets attributed to Steel Stock at the time of the Separation,
except for a $900 million value transfer in the form of additional net debt and
other obligations retained by Marathon. The terms "United States Steel" and
"Corporation" when used herein refer to United States Steel Corporation or
United States Steel Corporation and its subsidiaries, as required by the
context. For more information regarding the Separation and the ongoing
relationship with Marathon, see Note 2 to the Financial Statements.
United States Steel, through its Domestic Steel segment, is engaged in the
production, sale and transportation of steel mill products, coke, taconite
pellets and coal; the management of mineral resources; real estate development;
and engineering and consulting services. Its U. S. Steel Kosice ("USSK")
segment, primarily located in the Slovak Republic, produces and sells steel mill
products and coke primarily for the Central European market. Certain business
activities are conducted through joint ventures and partially-owned companies,
such as USS-POSCO Industries ("USS-POSCO"), PRO-TEC Coating Company ("PRO-TEC"),
Clairton 1314B Partnership and Rannila Kosice, s.r.o.

The following table sets forth the total revenues of United States Steel
for each of the last three years.

Revenues and other income
(Millions) 2001 2000 1999
- -----------------------------------------------------------------------

Revenues by product:
Sheet and semi-finished steel products... $3,163 $3,288 $3,433
Tubular products......................... 755 754 221
Plate and tin mill products.............. 1,273 977 919
Raw materials (coal, coke and iron ore).. 485 626 549
Other/(a)/............................... 610 445 414
Income (loss) from investees.............. 64 (8) (89)
Net gains on disposal of assets........... 22 46 21
Other income.............................. 3 4 2
-----------------------
Total revenues and other income.......... $6,375 $6,132 $5,470
- ------------------------------------------------------------------------

/(a)/ Includes revenue from the sale of steel production by-products, real
estate development, resource management, engineering and consulting
services and, beginning in 2001, transportation services.

Steel Industry Background and Competition

The steel industry is cyclical and highly competitive and is affected by
excess world capacity, which has restricted price increases during periods of
economic growth and led to price decreases during economic contraction. In
addition, the domestic and international steel industries face competition from
producers of materials such as aluminum, cement, composites, glass, plastics and
wood in many markets.

3

United States Steel is the largest integrated steel producer in North
America and, through its subsidiary USSK, the largest integrated flat-rolled
producer in Central Europe. United States Steel competes with many domestic and
foreign steel producers. Competitors include integrated producers which, like
United States Steel, use iron ore and coke as primary raw materials for steel
production, and mini-mills, which primarily use steel scrap and, increasingly,
iron bearing feedstocks as raw materials. Mini-mills generally produce a
narrower range of steel products than integrated producers, but typically enjoy
certain competitive advantages in the markets in which they compete through
lower capital expenditures for construction of facilities and non-unionized work
forces with lower employment costs and more flexible work rules. An increasing
number of mini-mills utilize thin slab casting technology to produce flat-rolled
products. Through the use of thin slab casting, mini-mill competitors are
increasingly able to compete directly with integrated producers of flat-rolled
products. Depending on market conditions, the additional production generated by
flat-rolled mini-mills could have an adverse effect on United States Steel's
selling prices and shipment levels.

Steel imports to the United States accounted for an estimated 24%, 27% and
26% of the domestic steel market demand for 2001, 2000 and 1999, respectively.
In 2001, imports of steel pipe increased 9% and imports of hot rolled sheets
decreased 59%, compared to 2000.

The recent combination of high import levels, increased domestic mini-mill
capability and reduced domestic economic activity has resulted in dramatically
reduced domestic prices for most products and extreme financial distress in the
domestic steel industry. Since January 1998, a total of 32 steel companies have
filed for protection under Chapter 11 of the U.S. Bankruptcy Code.

On November 13, 2000, United States Steel joined with eight other producers
and the Independent Steelworkers Union to file trade cases against hot-rolled
carbon steel flat products from 11 countries (Argentina, India, Indonesia,
Kazakhstan, the Netherlands, the People's Republic of China, Romania, South
Africa, Taiwan, Thailand and Ukraine). Three days later, the United Steelworkers
of America ("USWA") also entered the cases as a petitioner. Antidumping ("AD")
cases were filed against all the countries and countervailing duty ("CVD") cases
were filed against Argentina, India, Indonesia, South Africa and Thailand. The
U.S. Department of Commerce ("Commerce") has found margins in all of the cases.
The International Trade Commission ("ITC") had previously found material injury
to the domestic industry in the cases against Argentina and South Africa, and,
on November 2, 2001, the ITC found material injury to the domestic industry in
the cases against the remaining countries.

On September 28, 2001, United States Steel joined with seven other
producers to file trade cases against cold-rolled carbon steel flat products
from 20 countries (Argentina, Australia, Belgium, Brazil, China, France,
Germany, India, Japan, Korea, the Netherlands, New Zealand, Russia, South
Africa, Spain, Sweden, Taiwan, Thailand, Turkey, and Venezuela). AD cases were
filed against all the countries and CVD cases were filed against Argentina,
Brazil, France, and Korea. On November 13, 2001, the ITC determined that there
is a reasonable indication that the U.S. industry is materially injured or
threatened with material injury by reason of the imports in question. These
cases will be the subject of continuing investigations at both Commerce and the
ITC.

United States Steel believes that the remedies provided by AD and CVD cases
are insufficient to correct the widespread dumping and subsidy abuses that
currently characterize steel imports into our country and has, therefore, urged
the U.S. government to take actions such as those in President Bush's three-part
program to address the excessive imports of steel that have been depressing
markets in the United States. The program involves: (1) negotiations with
foreign governments to eliminate inefficient excess capacity; (2) negotiations
with foreign governments to establish rules that will govern steel trade in the
future and eliminate subsidies; and (3) an investigation by the ITC under
Section 201 of the Trade Act of 1974 to determine whether steel is being
imported into the U.S. in such quantities as to be a substantial cause of
serious injury to the U.S. steel industry. United States Steel, nevertheless,
intends to file additional AD and CVD petitions against unfairly traded imports
that adversely impact, or threaten to adversely impact, the results of United
States Steel.

4

On March 5, 2002, President Bush announced his decision in response to the
prior finding of the ITC under Section 201 that imports were a substantial cause
of injury to the domestic steel industry. Slab imports will be subject to a
quota of 5.4 million metric tons in the first year on product shipped from
countries other than Canada and Mexico, with excess imports subject to a tariff
of 30%. The annual quota increases to 5.9 million metric tons in the second year
and 6.4 million metric tons in the third year. Imports of finished carbon and
alloy steel products (hot-rolled, cold-rolled, coated, plate and tin mill
products) from developed countries will be subject to a 30% tariff in the first
year, decreasing to 24% and 18% in the second and third years, respectively.
Imports of these finished products from developing countries will be subject to
an anti-surge mechanism to ensure they do not substantially increase their
shipments from historic levels. Imports of finished flat-rolled products from
Canada and Mexico are not subject to the import remedies announced by the
President. The tariffs and quotas are effective as of March 20, 2002. An import
licensing program applicable to imports covered by the above remedies will be
implemented. The application of the remedies is subject to various specific
product exclusions. The People's Republic of China has filed a challenge to
President Bush's action with the World Trade Organization and other nations have
indicated that they also intend to do so or to take other actions responding to
the Section 201 remedies.

United States Steel's domestic businesses are subject to numerous federal,
state and local laws and regulations relating to the storage, handling, emission
and discharge of environmentally sensitive materials. United States Steel
believes that its major domestic integrated steel competitors are confronted by
substantially similar conditions and thus does not believe that its relative
position with regard to such other competitors is materially affected by the
impact of environmental laws and regulations. However, the costs and operating
restrictions necessary for compliance with environmental laws and regulations
may have an adverse effect on United States Steel's competitive position with
regard to domestic mini-mills and some foreign steel producers and producers of
materials which compete with steel, which may not be required to undertake
equivalent costs in their operations. For further information, see Environmental
Proceedings on page 18 and Management's Discussion and Analysis of Environmental
Matters, Litigation and Contingencies on page 35.

USSK does business primarily in Central Europe and is subject to market
conditions in that area which are similar to domestic factors and also can be
influenced by matters peculiar to international marketing such as tariffs. USSK
is affected by the worldwide overcapacity in the steel industry and the cyclical
nature of demand for steel products and the sensitivity of that demand to
worldwide general economic conditions. In particular, USSK is subject to
economic conditions and political factors in Europe, which if changed could
negatively affect its results of operations and cash flow. Political factors
include, but are not limited to, taxation, nationalization, inflation, currency
fluctuations, increased regulation, and quotas, tariffs and other protectionist
measures. USSK is also subject to foreign currency exchange risks because its
revenues are primarily in euros and its costs are primarily in Slovak crowns and
U. S. dollars. On December 20, 2001, the European Commission commenced an anti-
dumping investigation concerning the import of hot-rolled coils and hot-rolled
pickled and oiled coils from Slovakia and five other countries. In mid-February,
USSK submitted a response to the anti-dumping questionnaire and an injury
submission. The legislature of the European Union provides that the
investigation should be concluded within one year from the date of initiation,
but provisional measures may be imposed earlier.

Business Strategy

United States Steel produces raw steel at Gary Works in Indiana, Mon Valley
Works in Pennsylvania, Fairfield Works in Alabama, and, through USSK, in Kosice,
Slovak Republic.

United States Steel has responded to domestic competition resulting from
excess steel industry capability by eliminating less efficient facilities,
modernizing those that remain and entering into joint ventures, all with the
objective of focusing production on higher value-added products, where superior
quality and special characteristics are of critical importance. These products
include bake hardenable steels and coated sheets for the automobile and
appliance industries, laminated sheets for the manufacture of motors and
electrical equipment, higher strength plate products, improved tin mill products
for the container industry and oil country tubular goods. Several recent
modernization projects support United States Steel's objectives of providing
value-added products and services to customers. These projects include, for the
automotive industry - the degasser facilities at Mon Valley Works and USSK, the
second hot-dip galvanized line at PRO-TEC, the Fairless Works galvanizing line
upgrade and the cold reduction mill upgrades at Gary Works and Mon Valley Works;
for the construction industry - the dual coating lines at Fairfield Works and
Mon Valley Works; for the tubular market - the Fairfield Works pipemill upgrade
and acquiring full ownership of Lorain Tubular; and for the plate market - the
heat treat facility at the Gary Works plate mill. Also, a new pickle line was
built at the Mon Valley Works which replaced three older and less efficient
facilities. Our business strategy is to maximize our investment in high-end
finishing assets and to minimize or redeploy our investment in domestic raw
materials and hot-ends.

5

Through its November 2000 purchase of USSK, which owns the steel producing
operations and related assets formerly held by VSZ, a.s. in the Slovak Republic,
United States Steel initiated a major offshore expansion and followed many of
its customers into the European market. Our objective is to advance USSK to
become a leader among European steel producers and the prime supplier of flat-
rolled steel to the growing Central European market. We are also pursuing our
globalization strategy through our Acero Prime joint venture in Mexico. This
joint venture's facility locations allow for easy servicing and just-in-time
delivery to customers throughout Mexico.

Effective March 1, 2001, United States Steel acquired the tin mill products
business from LTV Corporation ("LTV") for the assumption of $66 million of
employee-related liabilities. United States Steel is leasing the land and
acquired title to the buildings, facilities and inventory at LTV's former tin
mill operation in Indiana which we are operating as East Chicago Tin. United
States Steel is operating these facilities as an ongoing business and East
Chicago Tin mill employees have become United States Steel employees.

In 2001, we permanently closed the cold rolling and tin mill operations at
Fairless Works, with a combined annual finishing capability of 1.5 million tons.
Subject to market conditions, we intend to continue operating the hot dip
galvanizing line at Fairless Works. A pretax charge of $38 million was recorded
in 2001 related to this shutdown.

On October 30, 2001, United States Steel announced the launch of
Straightline Source, the first steel distribution business created to serve
customers of all sizes who do not typically buy directly from steel producers.
Straightline's fully integrated order input system, advanced inventory
management and progressive logistics technology are networked to create a direct
buying option for processed steel products. While managing the customer
relationship, Straightline makes use of the processing capacity of a network of
qualified strategic business alliances. In the fourth quarter, Straightline
began offering processed steel products in North Carolina, South Carolina and
portions of Florida, Tennessee, Illinois, Indiana, Michigan and Wisconsin.
Additional regional launches will continue throughout 2002.

On December 4, 2001, United States Steel announced its support for
significant consolidation in the domestic integrated steel industry. Barriers to
consolidation need to be addressed and that requires the participation of the
U.S. government, the USWA and domestic steel companies and their stakeholders.
Industry consolidation involves several key elements. First, it requires the
implementation of President Bush's three-part program to address the excessive
imports of steel that have been depressing markets in the U.S. On March 5, 2002,
President Bush announced a Section 201 trade remedy as discussed previously.
Second, it calls for the creation of a government-sponsored program that would
provide relief from the industry's retiree legacy cost burden - primarily
pension and retiree health care costs - thereby removing the most significant
barrier to consolidation of a highly fragmented industry. Third, it requires a
progressive new labor agreement that would provide for meaningful reductions in
operating costs.

On January 17, 2002, United States Steel announced that it had entered into
an Option Agreement with NKK Corporation ("NKK") of Japan. The agreement grants
United States Steel an option to purchase, either directly or through a
subsidiary, all of NKK's National Steel Corporation common stock and to
restructure a $100 million loan previously made to National Steel by an NKK
subsidiary. NKK's ownership of National Steel's common stock represents
approximately 53% of National Steels's outstanding shares. The option expires on
June 15, 2002.

Although United States Steel has the ability to exercise the option at any
time during its term, it is United States Steel's current intent not to exercise
the option or to consummate a merger with National Steel unless a number of
significant conditions are satisfied, including a substantial restructuring of
National Steel's debt and other obligations. Other significant conditions
include the resolution of key contingencies related to the consolidation of the
domestic steel industry, the financial viability of National Steel and
satisfactory general market conditions. On March 6, 2002, National Steel filed
voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code.
Any agreement with National Steel will be subject to the approval of the
bankruptcy court.

6

In addition to the modernization of its production facilities, United
States Steel has entered into a number of joint ventures with domestic and
foreign partners to take advantage of market or manufacturing opportunities in
the sheet, tin mill, tubular, bar and plate consuming industries.

The following table lists products and services by facility or business
unit:

Domestic Steel
--------------

Gary....................................... Sheets; Tin Mill; Plates; Coke
Mon Valley/Fairless........................ Sheets;
Fairfield.................................. Sheets; Tubular
USS-POSCO/(a)/............................. Sheets; Tin Mill
East Chicago Tin........................... Tin Mill
Lorain Tubular............................. Tubular
PRO-TEC/(a)/............................... Galvanized Sheet
Double Eagle Steel Coating Co. /(a)/....... Electrogalvanized Sheet
Clairton................................... Coke
Clairton 1314B Partnership/(a)/............ Coke
Transtar................................... Transportation
Minntac.................................... Taconite Pellets
U. S. Steel Mining......................... Coal
Real Estate................................ Real estate sales, leasing and management; Administration of
Mineral, Coal and Timber Properties
Engineers and Consultants.................. Engineering and Consulting Services
Straightline............................... Steel Distribution

USSK
----
U. S. Steel Kosice.......................... Sheets; Tin Mill; Plates; Coke
Walzwerke Finow............................. Precision steel tubes; specialty shaped sections
Rannila Kosice /(a)/........................ Polor coated profile and construction products
----------------------------------------------------------------------------------------------

/(a)/ Equity investee

United States Steel reports segment results consistent with the way the
chief operating decision maker allocates resources and assesses performance. It
is possible that the chief operating decision maker may change the basis on
which these decisions and assessments are made.

Domestic Steel

Our domestic operations include plants that produce steel products in a
variety of forms and grades. Raw steel production was 10.1 million tons in 2001,
compared with 11.4 million tons in 2000 and 12.0 million tons in 1999. Raw steel
production averaged 79% of capability in 2001, compared with 89% of capability
in 2000 and 94% of capability in 1999. United States Steel's stated annual raw
steel production capability for Domestic Steel was 12.8 millions tons for 2001
(7.5 million at Gary Works, 2.9 million at Mon Valley Works, and 2.4 million at
Fairfield Works).

Steel shipments were 9.8 million tons in 2001, 10.8 million tons in 2000
and 10.6 million tons in 1999. United States Steel's shipments comprised
approximately 9.9% of domestic steel shipments in 2001. Exports accounted for
approximately 5% of United States Steel's domestic shipments in 2001 and 2000,
and 3% in 1999.

7

The following tables set forth significant United States Steel domestic
operations shipment data by major markets and products for each of the last
three years. Such data does not include shipments by joint ventures and other
investees of United States Steel accounted for by the equity method.

Steel Shipments By Market and Product (Domestic Steel production only)

Sheets & Plate &
Semi-finished Tubular Tin Mill
Major Market - 2001 Steel Products Products Total
- ------------------------------------------------------------------------------------

(Thousands of Net Tons)
Steel Service Centers................... 1,649 11 761 2,421
Further Conversion:
Trade Customers....................... 718 6 429 1,153
Joint Ventures........................ 1,328 - - 1,328
Transportation (Including Automotive)... 964 3 176 1,143
Containers.............................. 154 - 625 779
Construction and Construction Products.. 626 - 168 794
Oil, Gas and Petrochemicals............. - 830 65 895
Export.................................. 316 171 35 522
All Other............................... 656 1 109 766
----- ----- ----- ------
TOTAL............................... 6,411 1,022 2,368 9,801
===== ===== ===== ======

Major Market - 2000
- -------------------
(Thousands of Net Tons)
Steel Service Centers................... 1,636 33 646 2,315
Further Conversion:
Trade Customers....................... 742 4 428 1,174
Joint Ventures........................ 1,771 - - 1,771
Transportation (Including Automotive)... 1,206 12 248 1,466
Containers.............................. 182 - 520 702
Construction and Construction Products.. 778 - 158 936
Oil, Gas and Petrochemicals............. - 938 35 973
Export.................................. 346 157 41 544
All Other............................... 748 1 126 875
----- ----- ----- ------
TOTAL................................. 7,409 1,145 2,202 10,756
===== ===== ===== ======

Major Market - 1999
- -------------------
(Thousands of Net Tons)
Steel Service Centers................... 1,867 31 558 2,456
Further Conversion:
Trade Customers....................... 1,257 1 375 1,633
Joint Ventures........................ 1,818 - - 1,818
Transportation (Including Automotive)... 1,280 13 212 1,505
Containers.............................. 167 - 571 738
Construction and Construction Products.. 660 - 184 844
Oil, Gas and Petrochemicals............. - 333 30 363
Export.................................. 246 32 43 321
All Other............................... 819 - 132 951
----- ----- ----- ------
TOTAL................................. 8,114 410 2,105 10,629
===== ===== ===== ======

8

Our sheet business produces hot-rolled, cold-rolled and galvanized
products. Value-added cold-rolled and galvanized products comprised 71% of our
domestic sheet shipments in 2001, including finishing performed by joint
ventures. Our sheet customer base includes automotive, appliance, service
center, industrial and construction customers. We have long standing
relationships with many of them, as do our USS-POSCO, PRO-TEC and Acero Prime
joint ventures.

In recent years, United States Steel has made a number of key investments
directed toward the automotive industry, including upgrades to our steel making
facilities to increase our capacity for both high strength and highly formable
steels, upgrades to our Fairless galvanizing line to produce automotive quality
product and construction of an automotive technical center in Michigan. In
addition, a number of our joint ventures expanded their automotive supply
capability, most notably PRO-TEC, which, in November 1998, added 400,000 tons of
annual hot-dipped galvanized capability to bring its total to 1.0 million tons
per year.

The tubular, tin mill products and plate businesses complement the larger
steel sheet business by producing specialized products for specific markets.

Our tubular production facilities are located at Fairfield, Alabama;
Lorain, Ohio; and McKeesport, Pennsylvania and produce both seamless and
electric resistance weld ("ERW") tubular products. We enjoy over a 50% share of
the domestic market for seamless standard and line pipe and a 25% share of the
domestic market for oil country tubular goods ("OCTG"). With the successful
conversion in 1999 of the Fairfield piercing mill to process rounds plus the
acquisition of the remaining 50% interest in Lorain Tubular, we have the
capability to produce 1.6 million tons of tubular products in the 5 million ton
tubular markets we serve.

With the recent acquisition of East Chicago Tin, we are one of the two
largest tin mill products producers in North America. We supply a full line of
tin plate and tin-free steel ("TFS") products, primarily used in the container
industry. We believe our reputation in the marketplace is enhanced through our
attention to quality and customer service reliability. We expect our acquisition
of East Chicago Tin will provide operating synergies while giving us the
opportunity to better serve our customers. We currently supply over 25% of the
domestic market, and, coupled with USSK's tin capability, we anticipate being in
a prime position to service customers who have a global presence. In the fourth
quarter of 2001, United States Steel recorded an intangible asset impairment of
$20 million, related to the five-year agreement for LTV to supply United States
Steel with pickled hot bands entered into in conjunction with the acquisition of
LTV's tin mill products business. This impairment was recorded because LTV
permanently ceased operations at their plants during the quarter pursuant to a
bankruptcy court order.

Our plate business is located within the Gary Works complex and is a major
supplier to the automotive market, and to the industrial, agricultural, and
construction equipment markets. Our modern plate heat-treating facilities
provide customers with specialized plates for critical applications.

United States Steel and its wholly owned subsidiary, U. S. Steel Mining
LLC, have domestic coal properties with proven and probable bituminous coal
reserves of approximately 775 million short tons at year-end 2001. The reserves
are of metallurgical and steam quality in approximately equal proportions. They
are located in Alabama, Illinois, Indiana, Pennsylvania, Tennessee and West
Virginia. Approximately 94% of the reserves are owned, and the balance are
leased. The leased properties are covered by leases which expire in 2005 and
2012. During 2000, United States Steel recorded $71 million of impairments
relating to coal assets located in West Virginia and Alabama. The impairment was
recorded as a result of a reassessment of long-term prospects after adverse
geological conditions were encountered. U. S. Steel Mining's coal production was
5.0 million tons in 2001, compared with 5.5 million tons in 2000 and 6.2 million
tons in 1999.

9

United States Steel controls domestic iron ore properties having proven and
probable iron ore reserves in grades subject to beneficiation processes in
commercial use by United States Steel domestic operations of approximately 695
million short tons at year-end 2001, substantially all of which are iron ore
concentrate equivalents available from low-grade iron-bearing materials. All
reserves are located in Minnesota. Approximately 31 percent of these reserves
are owned and the remaining 69 percent are leased. Most of the leased reserves
are covered by a lease expiring in 2058 and the remaining leases have expiration
dates ranging from 2021 to 2026. United States Steel's iron ore operations at
Mt. Iron, Minnesota ("Minntac") produced 14.5 million net tons of taconite
pellets in 2001, 16.3 million net tons in 2000 and 14.3 million net tons in
1999. Taconite pellet shipments were 14.9 million tons in 2001, compared with
15.0 million tons in 2000 and 15.0 million tons in 1999.

On March 23, 2001, Transtar, Inc. ("Transtar") completed a reorganization
with its two voting shareholders, United States Steel and Transtar Holdings,
L.P. ("Holdings"), an affiliate of Blackstone Capital Partners L.P. As a result
of this transaction, United States Steel became sole owner of Transtar and
certain of its subsidiaries, including several rail and barge operations.
Holdings became owner of the other operating subsidiaries of Transtar. Transtar
provides rail and barge transportation services to a number of United States
Steel's facilities as well as other customers in the steel, chemicals, and
forest products industries.

A subsidiary of United States Steel sells technical services worldwide to
the steel, mining, chemical and related industries. Together with its subsidiary
companies, it provides engineering and consulting services for facility
expansions and modernizations, operating improvement projects, integrated
computer systems, coal and lubrication testing and environmental projects.

United States Steel develops real estate for sale or lease and manages
retail and office space, business and industrial parks and residential and
recreational properties. United States Steel also administers the remaining
mineral lands and timber lands of United States Steel's domestic operations and
is responsible for the lease or sale of these lands and their associated
resources, which encompass approximately 270,000 acres of surface rights and
1,500,000 acres of mineral rights in 13 states. Prior to 2002, two separate
United States Steel divisions existed for these operations. They have been
combined into one division, named USS Real Estate.

For significant operating data for United States Steel for each of the last
five years, see "Five-Year Operating Summary" on page F-30 and F-31.

United States Steel participates directly and through subsidiaries in a
number of joint ventures included in the Domestic Steel segment. All of the
joint ventures are accounted for under the equity method. Certain of the joint
ventures and other investments are described below, all of which are 50% owned
except Republic Technologies International LLC ("Republic"), Acero Prime and the
Clairton 1314B Partnership. For financial information regarding joint ventures
and other investments, see "Notes to Financial Statements - 16. Investments and
Long-Term Receivables".

United States Steel and Pohang Iron & Steel Co., Ltd. ("POSCO") of South
Korea participate in a joint venture, USS-POSCO, which owns and operates the
former United States Steel plant in Pittsburg, California. The joint venture
markets high quality sheet and tin products, principally in the western United
States. USS-POSCO produces cold-rolled sheets, galvanized sheets, tin plate and
tin-free steel, with hot bands principally provided by United States Steel and
POSCO. Total shipments by USS-POSCO were 836 thousand tons in 2001. On May 31,
2001, a fire damaged USS-POSCO's facilities. Damage was predominantly limited to
the cold-rolling mill. USS-POSCO maintains insurance coverage against such
losses, including coverage for business interruption. The mill resumed
production in the first quarter of 2002. Until that time, the plant used cold-
rolled coils from United States Steel and POSCO as substitute feedstock to
support customer shipments.

United States Steel is the sole general partner of and owns a 10 percent
equity interest in Clairton 1314B Partnership, L.P. As general partner, United
States Steel is responsible for operating and selling coke and by-products from
the partnership's three coke batteries located at United States Steel's Clairton
Works. United States Steel's share of profits and losses is currently 1.75%,
which will increase to 45.75% when the limited partners achieve a specified
return, which is currently expected to occur during 2002. The partnership at
times had operating cash shortfalls after payment of distributions to the
partners in 2001 that were funded with loans from United States Steel. As of
December 31, 2001, the partnership owed United States Steel $3 million, which
was repaid in January 2002. United States Steel may dissolve the partnership
under certain circumstances including if it is required to make equity
investments or loans in excess of $150 million to fund such shortfalls.

10

United States Steel owns a 16% investment in Republic, through United
States Steel's ownership in Republic Technologies International Holdings, LLC,
which is the sole owner of Republic. Republic is a major purchaser of raw
materials from United States Steel and the primary supplier of rounds for our
tubular facility in Lorain, Ohio. During the first quarter of 2001,United States
Steel discontinued applying the equity method of accounting since investments in
and advances to Republic had been reduced to zero. United States Steel now
accounts for this investment under the cost method. On April 2, 2001, Republic
filed to reorganize under Chapter 11 of the U.S. Bankruptcy Code. Republic has
continued to supply the Lorain mill since filing for bankruptcy. During the
first quarter of 2001, as a result of Republic's action, United States Steel
recorded a pretax charge of $74 million for potentially uncollectible
receivables from Republic and certain debt obligations of $14 million previously
assumed by Republic. Due to further financial deterioration of Republic during
the balance of 2001, United States Steel recorded a pretax charge of $68 million
in the fourth quarter of 2001 related to a portion of the remaining Republic
trade receivables and retiree medical cost reimbursements owed by Republic. At
December 31, 2001, United States Steel's remaining financial exposure to
Republic was approximately $19 million.

United States Steel and Kobe Steel, Ltd. ("Kobe") participate in a joint
venture, PRO-TEC, which owns and operates two hot-dip galvanizing lines in
Leipsic, Ohio. The first galvanizing line commenced operations in early 1993. In
November 1998, operations commenced on a second hot-dip galvanized sheet line
which expanded PRO-TEC's capability nearly 400,000 tons a year to 1.0 million
tons annually. Total shipments by PRO-TEC were 909 thousand tons in 2001.

United States Steel and Worthington Industries, Inc. participate in a joint
venture known as Worthington Specialty Processing which operates a steel
processing facility in Jackson, Michigan. The plant is operated by Worthington
Industries, Inc. The facility contains state-of-the-art technology capable of
processing master steel coils into both slit coils and sheared first operation
blanks including rectangles, trapezoids, parallelograms and chevrons. It is
designed to meet specifications for the automotive, appliance, furniture and
metal door industries. In 2001, Worthington Specialty Processing shipments were
241 thousand tons.

United States Steel and Rouge Steel Company ("Rouge") participate in Double
Eagle Steel Coating Company ("DESCO"), a joint venture which operates an
electrogalvanizing facility located in Dearborn, Michigan. This facility enables
United States Steel to supply the automotive demand for steel with corrosion
resistant properties. The facility can coat both sides of sheet steel with zinc
or alloy coatings and has the capability to coat one side with zinc and the
other side with alloy. Availability of the facility is shared equally by the
partners. In 2001, DESCO produced 636 thousand tons of electrogalvanized steel.
On December 15, 2001, production was halted due to a fire at DESCO. The fire
started in the facility's strip cleaning operation. United States Steel
reallocated substantially all of its portion of DESCO's normal production to
other United States Steel facilities. United States Steel and Rouge plan to
return DESCO to full production by the fourth quarter of 2002.

United States Steel and Olympic Steel, Inc. participate in a 50-50 joint
venture to process laser welded sheet steel blanks at a facility in Van Buren,
Michigan. The joint venture conducts business as Olympic Laser Processing. Laser
welded blanks are used in the automotive industry for an increasing number of
body fabrication applications. United States Steel is the venture's primary
customer and is responsible for marketing the laser-welded blanks. In 2001,
Olympic Laser Processing shipped 1,251 thousand parts.

United States Steel, through its wholly owned subsidiary, United States
Steel Export Company de Mexico, along with Feralloy Mexico, S.R.L. de C.V., and
Intacero de Mexico, S.A. de C.V., participate in a joint venture, Acero Prime,
which operates a slitting and warehousing facility in San Luis Potosi, Mexico.
In 2001, an expansion project was completed which involved the construction of a
60,000 square-foot addition that doubled the facility's size and total
warehousing capacity. A second slitting line and an automatic packaging system
were installed as part of the project. Also, a new 70,000 square-foot, in-bond
warehouse facility was built in Coahuilla state in Ramos Arizpe. The warehouse
stores and manages coil inventories. Startup began in the first quarter of 2001.

11

United States Steel's purchases of transportation services from Transtar
and its subsidiaries, prior to the March 23, 2001 reorganization, and semi-
finished steel from equity investees, primarily Republic, totaled $261 million,
$566 million and $361 million in 2001, 2000 and 1999, respectively. At December
31, 2001 and 2000, United States Steel's payables to these investees totaled $31
million and $66 million, respectively. United States Steel's revenues for steel
and raw material sales to equity investees, primarily PRO-TEC and USS-POSCO,
totaled $852 million, $958 million and $831 million in 2001, 2000 and 1999,
respectively. At December 31, 2001 and 2000, United States Steel's receivables
from these investees were $228 million and $177 million, respectively.
Generally, these transactions were conducted under long-term, market-based
contractual arrangements.

U. S. Steel Kosice

In November 2000, we acquired USSK, headquartered in Kosice in the Slovak
Republic, which owns the steel-making operations and related assets formerly
held by VSZ, a.s., making us the largest flat-rolled producer in Central Europe.
Currently, USSK has annual steel-making capability of 5.0 million net tons and
produces and sells sheet, tin, plate, precision tube and specialty products, as
well as coke. Our strategy is to serve existing United States Steel customers in
Central Europe, grow our customer base in this region, and advance USSK to be a
leading European steel producer and the prime supplier of flat-rolled steel to
the growing Central European market.

USSK produces steel products in a variety of forms and grades. In 2001,
USSK raw steel production was 4.1 million tons. USSK has three blast furnaces,
two steel shops with two vessels each, a dual strand caster attached to each
steel shop, a hot strip mill, a cold rolling mill, two pickling lines, two
galvanizing lines, a tin coating line, two dynamo lines, a color coating line
and two coke batteries. USSK has recently completed construction and is
beginning startup of a vacuum degassing facility to increase its capability to
produce steel grades required for high-value applications, and is currently
constructing a continuous annealing line and a second tin coating line to expand
its supply of tin mill products. USSK shipped 3.7 million net tons in 2001.

In addition, USSK owns 100% of Walzwerk Finow GmbH, located in eastern
Germany, which produces and ships about 90,000 tons per year of welded precision
steel tubes and cold-rolled specialty shaped sections from both cold-rolled and
hot-rolled product supplied primarily by USSK. USSK also has facilities for
manufacturing heating radiators and spiral weld pipe.

A majority of product sales by USSK are denominated in euros while only a
small percentage of expenditures are in euros. In addition, most interest and
debt payments are in U.S. dollars and the majority of other spending is in U.S.
dollars and Slovak crowns. This results in exposure to currency fluctuations. We
are currently evaluating the evolving currency mix of USSK's cash flows which
may result in a change in the functional currency from U.S. dollars to euros or
Slovak crowns in the future.

Ranilla Kosice, s.r.o., which is 49% owned by USSK and 51% owned by
Rautaruukki Oyj, processes coated sheets, both galvanized and painted, into
various forms which are primarily used in the construction industry. USSK
supplies most of Rannila Kosice's raw materials; however, Rannila Kosice markets
their own finished products.

On March 8, 2002, USSK announced that it had entered into a conversion and
tolling agreement and a facility management agreement with Sartid a.d.
("Sartid"), an integrated steel company with facilities located in Smederevo and
Sabac in the Republic of Serbia. The tolling agreement provides for the
conversion of slabs into hot-roll bands and cold-roll full hard into tin-coated
products. The slabs and cold-roll full hard will be supplied by USSK. USSK will
retain ownership of these materials and will market the hot-roll bands and
finished tin products. The facility management agreement permits USSK, or an
affiliated company, to have management oversight of Sartid's tin processing
facilities at Sabac. In addition, USSK, the Government of the Republic of Serbia
and Sartid have signed a letter of intent that provides USSK with the
opportunity to explore possibilities for involvement in the restructuring of
Sartid, including a possible strategic partnership with Sartid.

12

The following tables set forth significant USSK operations shipment data by
major markets and products for 2001 and the period following the acquisition in
November 2000.

Steel Shipments By Market and Product (USSK production only - excludes Rannila
Kosice)

Sheets & Plate &
Semi-finished Tubular Tin Mill
Major Market - 2001 Steel Products Products Total
- ------------------------------------------------------------------------------------------------

(Thousands of Net Tons)
Steel Service Centers......................... 398 - 94 492
Further Conversion:
Trade Customers............................. 944 - 14 958
Joint Ventures.............................. - - 30 30
Transportation (Including Automotive)......... 165 29 - 194
Containers.................................... 93 - 141 234
Construction and Construction Products........ 904 71 59 1,034
Oil, Gas and Petrochemicals................... 1 33 134 168
All Other..................................... 432 5 167 604
----- --- --- -----
TOTAL..................................... 2,937 138 639 3,714
===== === === =====

Major Market - 2000 (From November 24, 2000)
- --------------------------------------------
(Thousands of Net Tons)
Steel Service Centers......................... 33 - 20 53
Further Conversion:
Trade Customers............................. 64 - 6 70
Joint Ventures.............................. - - 2 2
Transportation (Including Automotive)......... 10 3 - 13
Containers.................................... 6 - 11 17
Construction and Construction Products........ 66 6 10 82
Oil, Gas and Petrochemicals................... - 2 22 24
All Other..................................... 27 1 28 56
----- --- --- -----
TOTAL....................................... 206 12 99 317
===== === === =====

Information on revenues and income (loss) of the Domestic Steel segment and
USSK and on revenues and other income and assets by geographic area are set
forth in "Financial Statements and Supplementary Data - Notes to Financial
Statements - 8. Segment Information".

Property, Plant And Equipment Additions

For property, plant and equipment additions, including capital leases, see
"Management's Discussion and Analysis of Financial Condition, Cash Flows and
Liquidity - Capital Expenditures" on page 31.

Employees

The average number of active United States Steel domestic employees during
2001 was 21,078. The average number of active USSK employees during 2001 was
16,083. Currently, substantially all domestic hourly employees of our steel,
coke and taconite pellet facilities are covered by a collective bargaining
agreement with the USWA which expires in August 2004 and includes a no-strike
provision. Other domestic hourly employees (for example, those engaged in coal
mining and transportation activities) are represented by the United Mine Workers
of America, USWA and other unions. In addition, most employees of USSK are
represented by the union OZ Metalurg under a collective bargaining agreement
expiring February 2004 , which is subject to annual wage negotiations.

13

Environmental Matters

United States Steel maintains a comprehensive environmental policy overseen
by the Corporate Governance and Public Policy Committee of the United States
Steel Board of Directors. The Environmental Affairs organization has the
responsibility to ensure that United States Steel's operating organizations
maintain environmental compliance systems that are in accordance with applicable
laws and regulations. The Executive Environmental Committee, which is comprised
of officers of United States Steel, is charged with reviewing its overall
performance with various environmental compliance programs. Also, United States
Steel, largely through the American Iron and Steel Institute, continues its
involvement in the development of various air, water, and waste regulations with
federal, state and local governments concerning the implementation of cost
effective pollution reduction strategies.

The domestic businesses of United States Steel are subject to numerous
federal, state and local laws and regulations relating to the protection of the
environment. These environmental laws and regulations include the Clean Air Act
("CAA") with respect to air emissions; the Clean Water Act ("CWA") with respect
to water discharges; the Resource Conservation and Recovery Act ("RCRA") with
respect to solid and hazardous waste treatment, storage and disposal; and the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA")
with respect to releases and remediation of hazardous substances. In addition,
all states where United States Steel operates have similar laws dealing with the
same matters. These laws are constantly evolving and becoming increasingly
stringent. The ultimate impact of complying with existing laws and regulations
is not always clearly known or determinable due in part to the fact that certain
implementing regulations for laws such as RCRA and the CAA have not yet been
promulgated or in certain instances are undergoing revision. These environmental
laws and regulations, particularly the CAA, could result in substantially
increased capital, operating and compliance costs.

For a discussion of environmental capital expenditures and the cost of
compliance for air, water, solid waste and remediation, see "Management's
Discussion and Analysis of Environmental Matters, Litigation and Contingencies"
on page 35 and "Legal Proceedings" on page 17.

United States Steel has incurred and will continue to incur substantial
capital, operating and maintenance, and remediation expenditures as a result of
environmental laws and regulations. In recent years, these expenditures have
been mainly for process changes in order to meet CAA obligations, although
ongoing compliance costs have also been significant. To the extent these
expenditures, as with all costs, are not ultimately reflected in the prices of
United States Steel's products and services, operating results will be adversely
affected. United States Steel believes that its major domestic integrated steel
competitors are confronted by substantially similar conditions and thus does not
believe that its relative position with regard to such competitors is materially
affected by the impact of environmental laws and regulations. However, the costs
and operating restrictions necessary for compliance with environmental laws and
regulations may have an adverse effect on United States Steel's competitive
position with regard to domestic mini-mills and some foreign steel producers and
producers of materials which compete with steel, which may not be required to
undertake equivalent costs in their operations. In addition, the specific impact
on each competitor may vary depending on a number of factors, including the age
and location of its operating facilities and its production methods. For further
information, see "Legal Proceedings" on page 17, and "Management's Discussion
and Analysis of Environmental Matters, Litigation and Contingencies" on page 35.

Slovak standards relative to air, water and solid waste pollution are set
by statute and these standards are similar to those in the United States and the
European Union. USSK is in material compliance with these standards. USSK
environmental expenses in 2001 included usage fees, permit fees and/or penalties
totaling approximately $5 million. There are no legal proceedings pending
against USSK involving environmental matters. USSK's capital spending commitment
to the Slovak government includes expenditures sufficient to bring USSK into
compliance with all European Union environmental standards by 2005.

14

The 1997 Kyoto Global Climate Change Agreement ("Kyoto Protocol") produced
by the United Nations Convention on Climate Change, if ratified by the U.S.
Senate, would require restrictions on greenhouse gas emissions in the United
States. Options that could be considered by federal regulators to force the
reductions necessary to meet these restrictions could escalate energy costs and
thereby increase steel production costs. Until action is taken by the U.S.
Senate to ratify the Kyoto Protocol, or to implement some other program to
address greenhouse gas emissions, it is not possible to estimate the effect this
may have on United States Steel.

Air

The CAA imposed more stringent limits on air emissions, established a
federally mandated operating permit program and allowed for enhanced civil and
criminal enforcement sanctions. The principal impact of the CAA on United States
Steel is on the coke-making and primary steel-making operations of United States
Steel, as described in this section. The coal mining operations and sales of U.
S. Steel Mining may also be affected.

The CAA requires the regulation of hazardous air pollutants and development
and promulgation of Maximum Achievable Control Technology ("MACT") Standards.
The amendment to the Chrome Electroplating MACT to include the chrome process at
Gary is expected sometime in the next couple years. The U.S. Environmental
Protection Agency ("EPA") is also promulgating MACT standards for integrated
iron and steel plants and taconite iron ore processing which are expected to be
finalized in 2002. The impact of these new standards could be significant to
United States Steel, but the cost cannot be reasonably estimated until the rules
are finalized.

The CAA specifically addressed the regulation and control of coke oven
batteries. The National Emission Standard for Hazardous Air Pollutants for coke
oven batteries was finalized in October 1993, setting forth the MACT standard
and, as an alternative, a Lowest Achievable Emission Rate ("LAER") standard.
Effective January 1998, United States Steel elected to comply with the LAER
standards. United States Steel believes it will be able to meet the current LAER
standards. The LAER standards will be further revised in 2010 and additional
health risk-based standards are expected to be adopted in 2020. EPA is in the
process of developing the Phase II Coke MACT for pushing, quenching and battery
stacks which is scheduled to be finalized in 2002. This MACT will impact United
States Steel, but the cost cannot be reasonably estimated at this time.

The CAA also mandates the nationwide reduction of emissions of acid rain
precursors (sulfur dioxide and nitrogen oxides) from fossil fuel-fired
electrical utility plants. United States Steel, like all other electricity
consumers, will be impacted by increased electrical energy costs that are
expected as electric utilities seek rate increases to comply with the acid rain
requirements.

In September 1997, the EPA adopted revisions to the National Ambient Air
Quality Standards for ozone and particulate matter which are significantly more
stringent than prior standards. EPA has issued a Nitrogen Oxide ("NOx") State
Implementation Plan ("SIP") call to require certain states to develop plans to
reduce NOx emissions focusing on large utility and industrial boilers. The
impact of these revised standards could be significant to United States Steel,
but the cost cannot be reasonably estimated until the final revised standards
and the NOx SIP call are issued and, more importantly, the states implement
their SIPs covering their standards.

In 2001, all of the coal production of U. S. Steel Mining was metallurgical
coal, which is primarily used in coke production. While United States Steel
believes that the new environmental requirements for coke ovens will not have an
immediate effect on U. S. Steel Mining, the requirements may encourage
development of steelmaking processes that reduce the usage of coke. The new
ozone and particulate matter standards could be significant to U. S. Steel
Mining, but the cost is not capable of being reasonably estimated until rules
are proposed or finalized.

15

Water

United States Steel maintains the necessary discharge permits as required
under the National Pollutant Discharge Elimination System ("NPDES") program of
the CWA, and it is in compliance with such permits. In 1998, United States Steel
entered into a consent decree with the EPA which resolved alleged violations of
the Clean Water Act NPDES permit at Gary Works and provides for a sediment
remediation project for a section of the Grand Calumet River that runs through
Gary Works. Contemporaneously, United States Steel entered into a consent decree
with the public trustees which resolves potential liability for natural resource
damages on the same section of the Grand Calumet River. In 1999, United States
Steel paid civil penalties of $2.9 million for the alleged water act violations
and $0.5 million in natural resource damages assessment costs. In addition,
United States Steel will pay the public trustees $1 million at the end of the
remediation project for future monitoring costs and United States Steel is
obligated to purchase and restore several parcels of property that have been or
will be conveyed to the trustees. During the negotiations leading up to the
settlement with EPA, capital improvements were made to upgrade plant systems to
comply with the NPDES requirements. The sediment remediation project is an
approved final interim measure under the corrective action program for Gary
Works and is expected to cost approximately $35.2 million over the next five
years. Estimated remediation and monitoring costs for this project have been
accrued. In addition, United States Steel was notified by Indiana Department of
Environmental Protection, acting as lead trustee for state and federal agencies,
that United States Steel is a potentially responsible party ("PRP") along with
15 other companies owning property along the Grand Calumet River and Indiana
Harbor Canal in an assessment of Natural Resources Damages downstream of Gary
Works and at the headwaters lagoon. United States Steel and eight other PRPs
formed a joint defense group which proposed terms for the settlement of this
claim, that have been endorsed by representatives for the trustees and the EPA,
to be included in a consent decree presently being negotiated, which United
States Steel expects will resolve this claim.

Solid Waste

United States Steel continues to seek methods to minimize the generation of
hazardous wastes in its operations. RCRA establishes standards for the
management of solid and hazardous wastes. Besides affecting current waste
disposal practices, RCRA also addresses the environmental effects of certain
past waste disposal operations, the recycling of wastes and the regulation of
storage tanks. Corrective action under RCRA related to past waste disposal
activities is discussed below under "Remediation."

Remediation

A significant portion of United States Steel's currently identified
environmental remediation projects relate to the remediation of former and
present operating locations. These projects include the remediation of the Grand
Calumet River (discussed above), and the closure and remediation of permitted
hazardous and non-hazardous waste landfills.

United States Steel is also involved in a number of remedial actions under
CERCLA, RCRA and other federal and state statutes, and it is possible that
additional matters may come to its attention which may require remediation. For
a discussion of remedial actions related to United States Steel, see "Legal
Proceedings - Environmental Proceedings" on page 18.

16

Item 2. PROPERTIES

United States Steel or its predecessors have owned the vast majority of
the domestic properties at least 30 years with no material adverse claim
asserted. In the case of the real property and buildings of USSK, certified
copies of the property registrations were obtained and examined by local counsel
prior to the acquisition.

Several steel production facilities are leased. The caster facility at
Fairfield, Alabama is subject to a lease expiring in 2012 with an option to
purchase or to extend the lease. A coke battery at Clairton, Pennsylvania, which
is subleased to the Clairton 1314B Partnership, is subject to a lease through
2004 with an option to purchase. The office space in Pittsburgh, Pennsylvania
used by United States Steel is leased through 2018.

For property, plant and equipment additions, including capital leases,
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations."

Item 3. LEGAL PROCEEDINGS

United States Steel is the subject of, or a party to, a number of
pending or threatened legal actions, contingencies and commitments involving a
variety of matters, including laws and regulations relating to the environment.
Certain of these matters are included below in this discussion. The ultimate
resolution of these contingencies could, individually or in the aggregate, be
material to the financial statements. However, management believes that United
States Steel will remain a viable and competitive enterprise even though it is
possible that these contingencies could be resolved unfavorably.

Asbestos Litigation

United States Steel has been and is a defendant in a large number of
cases in which plaintiffs allege injury resulting from exposure to asbestos.
Many of these cases involve multiple plaintiffs and most have multiple
defendants. These claims fall into three major groups: (1) claims made under
certain federal and general maritime law by employees of the Great Lakes Fleet
or Intercoastal Fleet, former operations of United States Steel; (2) claims made
by persons who performed work at United States Steel facilities; and (3) claims
made by industrial workers allegedly exposed to an electrical cable product
formerly manufactured by United States Steel. To date all actions resolved have
been either dismissed or settled for immaterial amounts. It is not possible to
predict with certainty the outcome of these matters; however, based upon present
knowledge, management believes that it is unlikely that the resolution of the
remaining actions will have a material adverse effect on our financial
condition. This statement of belief is a forward-looking statement. Predictions
as to the outcome of pending litigation are subject to substantial uncertainties
with respect to (among other things) factual and judicial determinations, and
actual results could differ materially from those expressed in this forward-
looking statement.

Inland Steel Patent Litigation

In July 1991, Inland Steel Company ("Inland") filed an action against
United States Steel and another domestic steel producer alleging defendants had
infringed two of Inland's steel-related patents. Inland sought monetary damages
and an injunction against future infringement. In response to this action,
United States Steel and the other producer challenged the validity of the
patents under United States Patent Office procedures. In this proceeding, the
Patent Office rejected all of Inland's patent claims. Inland appealed the
decision and on September 19, 2001, the Court of Appeals for the Federal Circuit
affirmed the decision of the Patent Office. This decision resolves the matter in
United States Steel's favor.

17

Environmental Proceedings

The following is a summary of the proceedings of United States Steel that
were pending or contemplated as of December 31, 2001, under federal and state
environmental laws. Except as described herein, it is not possible to accurately
predict the ultimate outcome of these matters. Claims under CERCLA and related
state acts have been raised with respect to the cleanup of various waste
disposal and other sites. CERCLA is intended to expedite the cleanup of
hazardous substances without regard to fault. Primary responsible parties
("PRPs") for each site include present and former owners and operators of,
transporters to and generators of the substances at the site. Liability is
strict and can be joint and several. Because of various factors including the
ambiguity of the regulations, the difficulty of identifying the responsible
parties for any particular site, the complexity of determining the relative
liability among them, the uncertainty as to the most desirable remediation
techniques and the amount of damages and cleanup costs and the time period
during which such costs may be incurred, it is impossible to reasonably estimate
United States Steel's ultimate cost of compliance with CERCLA.

Projections, provided in the following paragraphs, of spending for and/or
timing of completion of specific projects are forward-looking statements. These
forward-looking statements are based on certain assumptions including, but not
limited to, the factors provided in the preceding paragraph. To the extent that
these assumptions prove to be inaccurate, future spending for, or timing of
completion of environmental projects may differ materially from those stated in
forward-looking statements.

At December 31, 2001, United States Steel had been identified as a PRP at a
total of 19 CERCLA sites. Based on currently available information, which is in
many cases preliminary and incomplete, management believes that United States
Steel liability for cleanup and remediation costs in connection with 7 of these
sites will be between $100,000 and $1 million per site and 8 will be under
$100,000.

At the remaining 4 sites, management expects that United States Steel's
share in the remaining cleanup costs at any single site will not exceed $5
million, although it is not possible to accurately predict the amount of sharing
in any final allocation of such costs. The following is a summary of the status
of these sites:

1. At the former Duluth, Minnesota Works, United States Steel spent a total
of approximately $11.4 million for cleanup through 2001. The Duluth
Works was listed by the Minnesota Pollution Control Agency under the
Minnesota Environmental Response and Liability Act on its Permanent List
of Priorities. The EPA has consolidated and included the Duluth Works
site with the St. Louis River and Interlake sites on the EPA's National
Priorities List. The Duluth Works cleanup has proceeded since 1989.
United States Steel is conducting an engineering study of the estuary
sediments. Depending upon the method and extent of remediation at this
site, future costs are presently unknown and indeterminable.

2. The D'Imperio/Ewan sites in New Jersey are waste disposal sites where a
former subsidiary allegedly disposed of used paint and solvent wastes.
United States Steel has entered into a settlement agreement with the
major PRPs at the sites which fixes United States Steel's share of
liability at approximately $1.2 million, $624,000 of which has already
paid. The balance, which is expected to be paid over the next several
years, has been accrued.

3. In 1988, United States Steel and three other PRPs agreed to the issuance
of an administrative order by the EPA to undertake emergency removal
work at the Municipal & Industrial Disposal Co. site in Elizabeth, Pa.
The cost of such removal, which has been completed, was approximately
$4.2 million, of which United States Steel paid $3.4 million. The EPA
has indicated that further remediation of this site may be required in
the future, but it has not conducted any assessment or investigation to
support what remediation would be required. In October 1991, the
Pennsylvania Department of Environmental Resources ("PaDER') placed the
site on the Pennsylvania State Superfund list and began a Remedial
Investigation ("RI") which was issued in 1997. It is not possible to
estimate accurately the cost of any remediation or the shares in any
final allocation formula; however, based on presently available
information, United States Steel may have been responsible for as much
as 70% of the waste material deposited at the site. On October 10, 1995,
the U.S. Department of Justice ("DOJ") filed a complaint in the U.S.
District Court for Western Pennsylvania against United States Steel and
other Municipal & Industrial Disposal Co. defendants to recover alleged
costs incurred at

18

the site. In June 1996, United States Steel agreed to pay $245,000 to
settle the government's claims for costs against it, American Recovery,
and Carnegie Natural Gas. In 1996, United States Steel filed a cost
recovery action against parties who did not contribute to the cost of
the removal activity at the site. United States Steel reached a
settlement in principle with all of the parties except the site owner.
PaDER issued its Final Feasibility Study Report for the entire site in
August 2001. The report identifies and evaluates feasible remedial
alternatives and selects three preferred alternatives. These
alternatives are estimated to cost from $17 million to $20 million.
Consultants for United States Steel have concluded that a less costly
alternative should be employed at the site, which is estimated to cost
$5.5 million. Based on the allocation of the liability that has been
recognized for the past site cleanup activities, the United States Steel
share of costs for this remedy would be approximately $3.7 million.
United States Steel is in the process of negotiating a consent decree
with the Pennsylvania Department of Environmental Protection ("PADEP",
formerly PaDER). United States Steel has submitted a conceptual
remediation plan, which PADEP has approved. United States Steel will be
submitting a remedial design plan based on the remediation plan. PADEP
is also seeking reimbursement for approximately $2 million in costs.
United States Steel could potentially be held responsible for an
undetermined share of those costs.

In addition, there are 13 sites related to United States Steel where
information requests have been received or there are other indications that
United States Steel may be a PRP under CERCLA but where sufficient information
is not presently available to confirm the existence of liability or make any
judgment as to the amount thereof.

There are also 34 additional sites related to United States Steel where
remediation is being sought under other environmental statutes, both federal and
state, or where private parties are seeking remediation through discussions or
litigation. Based on currently available information, which is in many cases
preliminary and incomplete, management believes that liability for cleanup and
remediation costs in connection with 5 of these sites will be under $100,000 per
site, another 2 sites have potential costs between $100,000 and $1 million per
site, and 8 sites may involve remediation costs between $1 million and $5
million. Another 3 sites, including the Grand Calumet River remediation at Gary
Works, the Peters Creek Lagoon remediation at Clairton, and the potential claim
for investigation, restoration and compensation of injuries to sediments in the
East Branch of the Grand Calumet River near Gary Works, have or are expected to
have costs for remediation, investigation, restoration or compensation in excess
of $5 million. Potential costs associated with remediation at the remaining 16
sites are not presently determinable.

The following is a discussion of remediation activities at the major
domestic United States Steel facilities:

Gary Works

In 1998, United States Steel entered into a consent decree with the EPA
which resolved alleged violations of the Clean Water Act NPDES permit at Gary
Works and provides for a sediment remediation project for a section of the Grand
Calumet River that runs through Gary Works. Contemporaneously, United States
Steel entered into a consent decree with the public trustees which resolves
potential liability for natural resource damages on the same section of the
Grand Calumet River. United States Steel will pay the public trustees $1 million
at the end of the remediation project for future monitoring costs, and United
States Steel is obligated to purchase and restore several parcels of property
that have been or will be conveyed to the trustees. During the negotiations
leading up to the settlement with the EPA, capital improvements were made to
upgrade plant systems to comply with the NPDES requirements. In 1999, United
States Steel paid civil penalties of $2.9 million for the alleged water act
violations and $0.5 million in natural resource damages assessment costs. In
addition, United States Steel purchased properties which were conveyed to the
trustees. The sediment remediation project is an approved final interim measure
under the corrective action program for Gary Works and is expected to cost
approximately $35.2 million over the next five years. Estimated remediation and
monitoring costs for this project have been accrued.

19

In October 1996, United States Steel was notified by the Indiana Department
of Environmental Management ("IDEM") acting as lead trustee, that IDEM and the
U.S. Department of the Interior had concluded a preliminary investigation of
potential injuries to natural resources related to releases of hazardous
substances from various municipal and industrial sources along the east branch
of the Grand Calumet River and Indiana Harbor Canal. The public trustees
completed a preassessment screen pursuant to federal regulations and have
determined to perform a Natural Resources Damages Assessment. United States
Steel was identified as a PRP along with 15 other companies owning property
along the river and harbor canal. United States Steel and eight other PRPs have
formed a joint defense group. In 2000, the trustees concluded their assessment
of sediment injuries, which includes a technical review of environmental
conditions. The PRP joint defense group has proposed terms for the settlement of
this claim which have been endorsed by representatives of the trustees and the
EPA to be included in a consent decree that United States Steel expects to
resolve this claim.

On October 23, 1998, a final Administrative Order on Consent was issued by
EPA addressing Corrective Action for Solid Waste Management Units throughout
Gary Works. This order requires United States Steel to perform a RCRA Facility
Investigation ("RFI") and a Corrective Measure Study ("CMS") at Gary Works. The
Current Conditions Report, United States Steel's first deliverable, was
submitted to EPA in January 1997 and was approved by EPA in 1998. The First
Phase 1 RFI Work Plan, for facility wide groundwater issues, was approved and
sampling began in 2001. Phase I Sampling and Analysis Plans for the Process
Sewers, Sheet and Tin, East Lake/East End, the West End and the Coke Plant areas
have been submitted to EPA and are expected to be approved by EPA in 2002.

IDEM issued notices of violation ("NOVs") relating to Gary Works in 1994
alleging various violations of air pollution requirements. In early 1996, United
States Steel paid a $6 million penalty and agreed to install additional
pollution control equipment and to implement environmental protection programs
over a period of several years. A substantial portion of these programs has been
implemented, with expenditures through 2001 of approximately $101 million. The
cost to complete these programs is presently indeterminable. In 1999, United
States Steel entered into an agreed order with IDEM to resolve outstanding air
issues. United States Steel paid a penalty of $207,400 and installed equipment
at the No. 8 Blast Furnace and the No. 1 BOP to reduce air emissions. In
November 1999, IDEM issued an NOV alleging various air violations at Gary Works.
An agreed order is being negotiated.

Clairton

In 1987, United States Steel and the PaDER entered into a Consent Order to
resolve an incident in January 1985 involving the alleged unauthorized discharge
of benzene and other organic pollutants from Clairton Works in Clairton, Pa.
That Consent Order required United States Steel to pay a penalty of $50,000 and
a monthly payment of $2,500 for five years. In 1990, United States Steel and the
PaDER reached agreement to amend the Consent Order. Under the amended Order,
United States Steel agreed to remediate the Peters Creek Lagoon (a former coke
plant waste disposal site); to pay a penalty of $300,000; and to pay a monthly
penalty of up to $1,500 each month until the former disposal site is closed.
Remediation costs have amounted to $9.9 million with another $1.1 million
presently projected to complete the project.

Fairless Works

In January 1992, United States Steel commenced negotiations with the EPA
regarding the terms of an Administrative Order on consent, pursuant to the RCRA,
under which United States Steel would perform a RFI and a CMS at Fairless Works.
A Phase I RFI report was submitted during the third quarter of 1997. A Phase
II/III RFI will be submitted following EPA approval of the Phase I report. The
RFI/CMS will determine whether there is a need for, and the scope of, any
remedial activities at Fairless Works.

20

Fairfield Works

In December 1995, United States Steel reached an agreement in principle
with the EPA and the DOJ with respect to alleged RCRA violations at Fairfield
Works. A consent decree was signed by United States Steel, the EPA and the DOJ
and filed with the court on December 11, 1997, under which United States Steel
will pay a civil penalty of $1 million, implement two SEPs costing a total of
$1.75 million and implement a RCRA corrective action at the facility. One SEP
was completed during 1998 at a cost of $250,000. The second SEP is under way. As
of February 22, 2000, the Alabama Department of Environmental Management assumed
primary responsibility for regulation and oversight of the RCRA corrective
action program at Fairfield Works, with the approval of the EPA. The first RFI
work plan for the site was submitted for agency approval in the first quarter of
2001.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

A description of the matters voted upon by the shareholders of USX
Corporation at an October 25, 2001 special meeting was reported in USX
Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30,
2001.

PART II

Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS

The principal market on which United States Steel common stock is traded
is the New York Stock Exchange. United States Steel common stock is also traded
on the Chicago Stock Exchange and the Pacific Exchange. Information concerning
the high and low sales price for the common stock as reported in the
consolidated transaction reporting system and the frequency and amount of
dividends paid during the last two years is set forth in "Selected Quarterly
Financial Data (Unaudited)" on page F-28.

As of January 31, 2002, there were 52,117 registered holders of United
States Steel common stock.

The Board of Directors intends to declare and pay dividends on United
States Steel common stock based on the financial condition and results of
operations of United States Steel, although it has no obligation under Delaware
law or the United States Steel Certificate of Incorporation to do so. After the
Separation, United States Steel established an initial quarterly dividend rate
of $0.05 per share effective with the March 2002 payment. Dividends on United
States Steel common stock are limited to legally available funds.

21

Item 6. SELECTED FINANCIAL DATA/(a)/

Dollars in millions (except per share data) 2001 2000 1999 1998 1997
- --------------------------------------------------------------------------------------------

Statement of Operations Data:
Revenues and other income/(b)(c)/............... $6,375 $6,132 $5,470 $6,477 $7,156
Income (loss) from operations/(d)/.............. (405) 104 150 579 773
Income (loss) before extraordinary losses/(d)/.. (218) (21) 51 364 452
Net income (loss)/(d)/.......................... $ (218) $ (21) $ 44 $ 364 $ 452

- --------------------------------------------------------------------------------------------
Per Common Share Data
Income (loss) before extraordinary losses/(e)/
- basic and diluted........................... $(2.45) $ (.24) $ .57 $ 4.08 $ 5.07
Net income (loss)/(e)/- basic and diluted....... (2.45) (.24) .49 4.08 5.07
Dividends paid/(f)/............................. .55 1.00 1.00 1.00 1.00

- --------------------------------------------------------------------------------------------
Balance Sheet Data - December 31:
Total assets.................................... 8,337 8,711 7,525 6,749 6,694

Capitalization:
Notes payable................................. $ - $ 70 $ - $ 13 $ 13
Long-term debt including amount
due within one year/(g)/.................... 1,466 2,375 915 476 510
Preferred stock of subsidiary/(h)/............ - 66 66 66 66
Trust Preferred Securities/(h)/............... - 183 183 182 182
Stockholders' equity.......................... 2,506 1,919 2,056 2,093 1,782
------ ------ ------ ------ ------
Total capitalization....................... $3,972 $4,613 $3,220 $2,830 $2,553
- --------------------------------------------------------------------------------------------

/(a)/ See Notes 1 and 2 to the Financial Statements for discussion of the Basis
of Presentation and the December 31, 2001 Separation from Marathon.
/(b)/ Consists of revenues, dividend and investee income (loss), net gains on
disposal of assets, gain on investee stock offering and other income
(loss).
/(c)/ For discussion of changes between the years 2001, 2000 and 1999, see
Management's Discussion and Analysis of Financial Condition and Results of
Operations. The decreases in revenues and other income from 1997 to 1998
and 1998 to 1999 were primarily due to decreases in average realized
prices, lower shipment volumes and lower income from equity investees.
/(d)/ For discussion of changes between the years 2001, 2000 and 1999, see
Management's Discussion and Analysis of Financial Condition and Results of
Operations. The decrease from 1998 to 1999 was primarily due to lower
average steel prices, lower income from raw materials operations, an
unfavorable product mix, higher pension costs and unfavorable results from
equity investees. The decrease from 1997 to 1998 was primarily due to
lower average realized prices, lower shipment volumes, less efficient
operating levels at the plants, and lower income from equity investees.
/(e)/ Earnings per share for all years is based on the outstanding common shares
at December 31, 2001. See Note 20 to the Financial Statements.
/(f)/ Represents dividends paid per share on USX-U. S. Steel Group common stock.
/(g)/ The decrease in long-term debt from 2000 to 2001 was primarily due to
transactions related to the Separation, including the $900 million value
transfer. For further discussion, see Note 2 to the Financial Statements.
The increase in long-term debt from 1999 to 2000 was primarily due to cash
used in operating activities of $627 million and the $325 million of debt
included in the acquisition of USSK. For discussion of cash used in
operating activities in 2000, see Management's Discussion and Analysis of
Financial Condition and Results of Operations.
/(h)/ See Note 18 to the Financial Statements.

22

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

On December 31, 2001, in a tax-free transaction, Marathon Oil
Corporation ("Marathon"), formerly USX Corporation, converted each share of its
USX-U. S. Steel Group class of common stock ("Steel Stock") into the right to
receive one share of United States Steel Corporation common stock
("Separation"). The net assets of United States Steel on December 31, 2001 were
approximately the same as the net assets attributable to Steel Stock at the time
of the Separation, except for a value transfer of $900 million in the form of
additional net debt and other financings retained by Marathon. During the last
six months of 2001, United States Steel completed a number of financings so
that, upon the Separation, the net debt and other financings of United States
Steel on a stand-alone basis were approximately equal to the net debt and other
financings attributable to the Steel Stock less the value transfer and the tax
settlement with Marathon. For further information on the Separation, see Notes 1
and 2 of the Financial Statements.

United States Steel's Domestic Steel segment is engaged in the
production, sale and transportation of steel mill products, coke, taconite
pellets and coal; the management of mineral resources; real estate development;
and engineering and consulting services. The U. S. Steel Kosice ("USSK")
segment, primarily located in the Slovak Republic, produces and sells steel mill
products and coke mainly for the Central European market. Certain business
activities are conducted through joint ventures and partially owned companies,
such as USS-POSCO Industries LLC ("USS-POSCO"), PRO-TEC Coating Company ("PRO-
TEC"), Clairton 1314B Partnership L.P., Republic Technologies International, LLC
("Republic") and Rannila Kosice, s.r.o. Management's Discussion and Analysis
should be read in conjunction with United States Steel's Financial Statements
and Notes to Financial Statements.

On March 1, 2001, United States Steel completed the purchase of the tin
mill products business of LTV Corporation ("LTV"), which is now operated as East
Chicago Tin. In this noncash transaction, United States Steel assumed certain
employee-related obligations from LTV. See Note 5 to the Financial Statements.

On March 23, 2001, Transtar, Inc. ("Transtar") completed a
reorganization with its two voting shareholders, United States Steel and
Transtar Holdings, L.P. ("Holdings"), an affiliate of Blackstone Capital
Partners L.P. As a result of this transaction, United States Steel became sole
owner of Transtar and certain of its subsidiaries, including several rail and
barge operations. Holdings became owner of the other operating subsidiaries of
Transtar. Transtar provides rail and barge transportation services to a number
of United States Steel's facilities as well as other customers in the steel,
chemicals, and forest products industries. See Note 5 to the Financial
Statements.

Certain sections of Management's Discussion and Analysis include
forward-looking statements concerning trends or events potentially affecting the
businesses of United States Steel. These statements typically contain words such
as "anticipates," "believes," "estimates," "expects" or similar words indicating
that future outcomes are not known with certainty and are subject to risk
factors that could cause these outcomes to differ significantly from those
projected. In accordance with "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, these statements are accompanied by cautionary
language identifying important factors, though not necessarily all such factors,
that could cause future outcomes to differ materially from those set forth in
forward-looking statements. For additional risk factors affecting the businesses
of United States Steel, see Supplementary Data - Disclosures About Forward-
Looking Information.

Critical Accounting Policies and Estimates

Management's discussion and analysis of its financial condition and
results of operations are based upon United States Steel's financial statements,
which have been prepared in accordance with accounting standards generally
accepted in the United States of America. The preparation of these financial
statements requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at year-end, and the reported amount of revenues and expenses
during the year. Management regularly evaluates these estimates, including those
related to the carrying value of property, plant and equipment, valuation
allowances for receivables, inventories and deferred income tax assets;
liabilities for deferred income taxes, potential tax deficiencies, environmental
obligations, potential litigation claims and settlements; and assets and
obligations related to employee benefits. Management estimates are based on
historical experience and various other assumptions that are believed to be
reasonable

23

under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Accordingly, actual results may differ
materially from current expectations under different assumptions or conditions.

Management believes that the following critical accounting policies affect
the more significant judgments and estimates used in the preparation of the
financial statements.

Depreciation - United States Steel records depreciation primarily using a
modified straight-line method based upon estimated lives of assets and
production levels. The modification factors for domestic steel producing assets
range from a minimum of 85% at a production level below 81% of capability, to a
maximum of 105% for a 100% production level. No modification is made at the 95%
production level, considered the normal long-range level. Depreciation charges
for 2001, 2000 and 1999 were 85%, 94% and 99%, respectively, of straight-line
depreciation based on production levels for each of the years. For certain
equipment related to railroad operations, depreciation is recorded on the
straight-line method, utilizing a composite or grouped approach, based on
estimated lives of assets.

Asset Impairments - United States Steel evaluates the impairment of its
property, plant and equipment on an individual asset basis or by logical
groupings of assets. Asset impairments are recognized when the carrying value of
those productive assets exceed their aggregate projected undiscounted cash
flows. If future demand and market conditions are less favorable than those
projected by management, additional asset write-downs may be required.

Allowances for Doubtful Accounts - United States Steel maintains allowances for
doubtful accounts for estimated losses resulting from the inability of customers
to make required payments. If the financial condition of our customers were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required.

Inventories - United States Steel determines the cost of inventories primarily
under the last-in, first-out ("LIFO") method. Consequently, the overall carrying
value of inventories is significantly less than the replacement cost. United
States Steel writes down inventories for the difference between the carrying
value of the inventories and the estimated market value on a worldwide basis. If
actual market conditions are less favorable than those projected by management,
additional write-downs may be required.

Deferred Taxes - United States Steel records a valuation allowance to reduce
deferred tax assets to the amount that is more likely than not to be realized.
While United States Steel has considered future taxable income and ongoing
prudent and feasible tax planning strategies in assessing the need for the
valuation allowance, in the event that United States Steel were to determine
that it would be able to realize deferred tax assets in the future in excess of
the net recorded amount, an adjustment to the deferred tax assets would increase
income in the period such determination was made. Likewise, should United States
Steel determine that it would not be able to realize all or part of its deferred
tax assets in the future, an adjustment to the valuation allowance for deferred
tax assets would be charged to income in the period such determination was made.

United States Steel makes no provision for deferred U.S. income taxes on
the undistributed earnings of USSK and other consolidated foreign subsidiaries
because management intends to permanently reinvest such earnings in foreign
operations. If circumstances change and it is determined that earnings will be
remitted in the foreseeable future, a charge would be required to record the
U.S. deferred tax liability for the amounts planned to be remitted.

Liabilities for Potential Tax Deficiencies - United States Steel records
liabilities for potential tax deficiencies. These liabilities are based on
management's judgment of the risk of loss should those items be challenged by
taxing authorities. In the event that United States Steel were to determine that
tax-related items would not be considered deficiencies or that items previously
not considered to be potential deficiencies could be considered as potential tax
deficiencies (as a result of an audit, tax ruling or other positions or
authority) an adjustment to the liability would be recorded through income in
the period such determination was made.

24

Environmental Remediation - United States Steel provides for remediation costs
and penalties when the responsibility to remediate is probable and the amount of
associated costs is reasonably determinable. Remediation liabilities are accrued
based on estimates of known environmental exposures and are discounted in
certain instances. United States Steel regularly monitors the progress of
environmental remediation. Should studies indicate that the cost of remediation
is to be more than previously estimated, an additional accrual would be recorded
in the period in which such determination was made.

Accruals for Potential Litigation Claims and Settlements - United States Steel
records accruals for potential litigation claims and settlements when legal
counsel advises that an obligation is probable and reasonably estimable. Changes
in findings and negotiations as the cases progress cause changes in the recorded
accruals.

Pensions and Other Postretirement Benefits ("OPEB") - Net pension and OPEB
expense recorded for pension and other postretirement benefits are based on,
among other things, assumptions of the discount rate, estimated return on plan
assets, salary increases, the mortality of participants and the current level
and escalation of health care costs in the future. Changes in these and other
factors and differences between actual and assumed changes in the present value
of liabilities or assets of United States Steel's plans above certain thresholds
could cause net annual expense to increase or decrease materially from year to
year.

Management's Discussion and Analysis of Income

Due to the capital intensive nature of integrated steel production, the
principal drivers of United States Steel's financial results are price, volume
and mix. To the extent that these factors are affected by industry conditions
and the overall economic climate, revenues and income will reflect such
conditions.

Revenues and Other Income for each of the last three years are summarized
in the following table:

(Dollars in millions) 2001 2000 1999
-------------------------------------------------------------------

Revenues by product:
Sheet and semi-finished steel products... $3,163 $3,288 $3,433
Tubular products......................... 755 754 221
Plate and tin mill products.............. 1,273 977 919
Raw materials (coal, coke and iron ore).. 485 626 549
Other/(a)/............................... 610 445 414
Income (loss) from investees.............. 64 (8) (89)
Net gains on disposal of assets........... 22 46 21
Other income.............................. 3 4 2
------ ------ ------
Total revenues and other income......... $6,375 $6,132 $5,470
-------------------------------------------------------------------

/(a)/ Includes revenue from the sale of steel production by-products, real
estate development, resource management, and engineering and
consulting services and, beginning in 2001, transportation services.

Total revenues and other income increased by $243 million in 2001 from 2000
primarily due to the inclusion of USSK revenues for the full year, the inclusion
of Transtar revenues following the reorganization and higher income from
investees relating to the gain on the Transtar reorganization, partially offset
by lower domestic shipment volumes (domestic steel shipments decreased 955,000
tons) and lower average domestic steel product prices (average prices decreased
$23 per ton). Total revenues and other income in 2000 increased by $662 million
from 1999 primarily due to the consolidation of Lorain Tubular effective January
1, 2000, higher average realized prices, particularly tubular product prices,
and lower losses from investees, which, in 1999, included a $47 million charge
for the impairment of United States Steel's investment in USS/Kobe Steel Company
("USS/Kobe").

25

Income (loss) from operations for United States Steel for the last three
years was/(a)/:

(Dollars in millions) 2001 2000 1999
------------------------------------------------------------------------------------------

Segment income (loss) for Domestic Steel........................ $(461) $ 98 $ 115
Segment income for U. S. Steel Kosice........................... 123 2 -
----- ----- -----
Income (loss) from reportable segments....................... $(338) $ 100 $ 115
Net pension credits............................................. 146 266 193
Costs related to former businesses/(b)/......................... (76) (86) (83)
Administrative expenses......................................... (22) (25) (17)
----- ----- -----
Total........................................................ $(290) $ 255 $ 208
Other items not allocated to segment income:
Gain on Transtar reorganization................................ 68 - -
Insurance recoveries related to USS-POSCO fire/(c)/............ 46 - -
Asset impairments - trade receivables.......................... (100) (8) -
- other receivables.......................... (46) - -
Impairment and other costs related to
investments in equity investees............................... - (36) (54)
Loss on investment used to satisfy indexed
debt obligations/(d)/......................................... - - (22)
Costs related to Fairless shutdown............................. (38) - -
Costs related to Separation.................................... (25) - -
Asset impairments - intangible assets.......................... (20) - -
- coal....................................... - (71) -
Environmental and legal contingencies.......................... - (36) (17)
Voluntary early retirement program
pension settlement............................................ - - 35
----- ----- -----
Total income (loss) from operations.......................... $(405) $ 104 $ 150
------------------------------------------------------------------------------------------

/(a)/ Certain amounts have been removed from segment income and appear in
items not allocated to segments for consistency with current-year
presentation method.
/(b)/ Includes other postretirement benefit costs and certain other
expenses principally attributable to former business units of United
States Steel.
/(c)/ In excess of facility repair costs.
/(d)/ For further details, see Note 6 to the Financial Statements.

Segment income (loss) for Domestic Steel

Domestic Steel operations recorded a segment loss of $461 million in 2001
versus segment income of $98 million in 2000, a decrease of $559 million. The
decrease in segment income was primarily due to lower prices, primarily for
sheet products, lower domestic shipment volumes which resulted in less efficient
operating rates and higher unit costs, lower income from coke and taconite
pellet operations, lower results from tin operations during the phase out of
operations at Fairless and higher than anticipated start-up and operating
expenses associated with the March acquisition of East Chicago Tin, and business
interruption effects at USS-POSCO following the cold mill fire in May, some of
which were offset by insurance recoveries already received in the second half of
2001. Offsetting these decreases were improved results from coal operations due
to improved operating and geological conditions as well as higher tubular prices
during the first half of 2001.

Segment income for Domestic Steel operations in 2000 decreased $17 million
from 1999. The decrease in segment income for Domestic Steel was primarily due
to lower throughput, lower income from raw materials operations, particularly
coal operations, and lower sheet shipments resulting from high levels of
imports.

Segment income for U. S. Steel Kosice

USSK segment income for the full-year 2001 was $123 million compared to $2
million in 2000 for the period following United States Steel's acquisition of
USSK on November 24, 2000. The increase is primarily due to United States
Steel's full year of ownership, changes in commercial strategy, strong customer
focused marketing and a favorable cost structure.

26

Items not allocated to segments:

Net periodic pension credits, which are primarily noncash, totaled $120
million in 2001, $273 million in 2000 and $234 million in 1999. The decrease of
$153 million in the net periodic pension credit from 2000 to 2001 was primarily
due to the $69 million effect of the transition asset being fully amortized in
2000 and an unfavorable change in the amortization of actuarial (gains)/losses.
The increase of $39 million from 1999 to 2000 was primarily due to a favorable
change in the amortization of actuarial (gains)/losses. Net periodic pension
credits in 2001 and 1999 include settlement and termination effects. For
additional information on pensions, see Note 12 to the Financial Statements.

Gain on Transtar reorganization represents United States Steel's share of
the gain in 2001. Because this was a transaction with a noncontrolling
shareholder, Transtar, Inc. recognized a gain by comparing the carrying value of
the businesses sold to their fair value. See Note 5 to Financial Statements.

Insurance recoveries related to USS-POSCO fire represent United States
Steel's share of insurance recoveries in excess of facility repair costs for the
cold-rolling mill fire at USS-POSCO in 2001.

Asset impairments - Trade Receivables were for charges related to
receivables exposure from financially distressed steel companies, primarily
Republic, in 2000 and 2001.

Asset impairments - Other Receivables were for charges related to retiree
medical cost reimbursements owed by Republic in 2001.

In 2000, impairment and other costs related to investments in equity
investees totaled $36 million to establish reserves against notes from Republic
and to represent United States Steel's share of Republic special charges which
resulted from the completion of a financial restructuring of Republic. In 1999,
impairment and other costs related to investments in equity investees totaled
$54 million related to the impairment of United States Steel's investment in
USS/Kobe, costs related to the formation of Republic and other non-recurring
equity investee charges.

Income from operations in 1999 also included a loss on investment used to
satisfy indexed debt obligations of $22 million from the termination of
ownership in RTI International Metals, Inc. ("RTI"). For further discussion, see
Note 6 to the Financial Statements.

Costs related to Fairless shutdown resulted from the permanent shutdown of
the cold rolling and tin mill facilities at Fairless Works in 2001.

Costs related to the Separation were for United States Steel's share of
professional fees and expenses and certain other costs directly attributable to
the Separation in 2001.

Asset impairments - Intangible Asset was for the impairment of an
intangible asset in 2001 related to the five-year agreement for LTV to supply
United States Steel with pickled hot bands entered into in conjunction with the
acquisition of LTV's tin mill products business.

Asset impairments - Coal was for asset impairments at coal mines in Alabama
and West Virginia in 2000 following a reassessment of long-term prospects after
adverse geological conditions were encountered.

Environmental and legal contingencies relate to certain environmental and
legal accruals in 2000 and 1999.

The voluntary early retirement program pension settlement in 1999 relates
to a favorable pension settlement primarily related to salaried employees.

27

Selling, general and administrative expenses increased by $315 million in
2001 as compared to 2000. The increase was due to several factors, including the
$153 million decrease in the net periodic pension credit previously discussed.
Other contributing factors were the increase in costs in 2001 as a result of the
USSK acquisition and the reorganization of Transtar, Separation costs and the
impairment of retiree medical cost reimbursements owed by Republic. The increase
in selling, general and administrative expenses of $60 million from 1999 to 2000
was primarily due to a $42 million decrease in the portion of the net periodic
pension credit recorded in selling, general and administrative expenses, as well
as increased costs following the acquisition of USSK.

Net interest and other financial costs for each of the last three years are
summarized in the following table:

(Dollars in millions) 2001 2000 1999
---------------------------------------------------------------

Net interest and other financial costs.... $ 141 $ 105 $ 74
Plus:
Favorable adjustment to
carrying value of Indexed Debt/(a)/..... - - 13
Favorable adjustment to
interest related to prior years' taxes.. 67 - -
----- ----- -----
Net interest and other financial costs
adjusted to exclude above item........... $ 208 $ 105 $ 87
---------------------------------------------------------------

/(a)/In December 1996, USX issued $117 million of 6-3/4% Exchangeable Notes
Due February 1, 2000 ("Indexed Debt") indexed to the price of RTI
common stock. The carrying value of Indexed Debt was adjusted
quarterly to settlement value, based on changes in the value of RTI
common stock. Any resulting adjustment was credited to income and
included in interest and other financial costs. For further discussion
of Indexed Debt, see Note 6 to the Financial Statements.

Adjusted net interest and other financial costs increased by $103 million
in 2001 as compared with 2000. This increase was largely due to higher average
debt levels, which resulted from negative cash flow and the elective funding for
employee benefits and the acquisition of USSK, both of which occurred in the
fourth quarter of 2000. Adjusted net interest and other financial costs
increased $18 million in 2000 as compared with 1999, primarily due to higher
average debt levels.

The credit for income taxes in 2001 was $328 million primarily as a result
of higher losses from operations. The credit included a $33 million deferred tax
benefit associated with the Transtar reorganization. In addition, as a result of
Slovak Republic laws regarding tax credits and certain tax planning strategies
to permanently reinvest earnings in foreign operations, virtually no income tax
provision is recorded for USSK income. If circumstances change and it is
determined that earnings will be remitted in the foreseeable future, a charge
would be required to record the U.S. deferred tax liability for the amounts
planned to be remitted. The provision for income taxes in 2000 decreased $5
million compared to 1999 primarily due to a decline in income from operations,
partially offset by higher state income taxes as certain previously recorded
state tax benefits will not be utilized. See also Note 14 to the Financial
Statements.

The extraordinary loss on extinguishment of debt of $7 million, net of
income tax benefit, in 1999 included a $5 million loss resulting from the
satisfaction of the indexed debt and a $2 million loss for United States Steel's
share of Republic's extraordinary loss related to the early extinguishment of
debt. See also Note 6 to the Financial Statements.

Management's Discussion and Analysis of Operations

The year 2001 turned out to be an extremely difficult one for the domestic
steel industry. Steel imports to the United States accounted for an estimated
24%, 27% and 26% of the domestic steel market for 2001, 2000 and 1999,
respectively. In 2001, imports of steel pipe increased 9% and imports of hot
rolled sheets decreased 59%, compared to 2000.

Injurious levels of imports continued to disrupt an already weakened market
in which domestic steel consumption plummeted from an annualized rate of 119
million tons in the first half to 98 million tons in the fourth quarter. The 3%
average growth in the domestic economy predicted by economists never
materialized - largely due to a worldwide economic recession in the second half
and the impact of the September 11 tragedies. Contributing to the decline in net
income was a decrease in average realized domestic prices of 5% compared to the
2000 average and higher unit costs due to depressed production levels at all of
our domestic plants.

28

Total shipments from the Domestic Steel segment were 9.8 million tons in
2001, 10.8 million tons in 2000 and 10.6 million tons in 1999, and comprised
approximately 9.9% of the domestic steel market in 2001. Domestic Steel
shipments in 2001 were affected by a weak domestic economy, which reduced demand
for sheet, plate and tubular products. Shipments in 1999 were reduced because of
weak tubular markets. High import levels impacted all three years. Exports
accounted for approximately 5% of our shipments from Domestic Steel in 2001, 5%
in 2000 and 3% in 1999.

USSK shipments were 3.7 million net tons in 2001 and 0.3 million net tons
in 2000 in the short period following the acquisition.

Domestic raw steel production was 10.1 million tons in 2001, compared with
11.4 million tons in 2000 and 12.0 million tons in 1999. Domestic raw steel
production averaged 79% of capability in 2001, compared with 89% of capability
in 2000 and 94% of capability in 1999. In 2001, domestic raw steel production
was negatively impacted by poor economic conditions and the high level of
imports. In 2000, domestic raw steel production was negatively impacted by a
planned reline at the Gary Works No. 4 blast furnace in July 2000. Because of
market conditions, United States Steel limited its domestic production by
keeping the Gary Works No. 4 blast furnace out of service until February 2001.
Because of market conditions, United States Steel curtailed its domestic
production by keeping the Gary Works No. 6 blast furnace out of service until
February 1999, after a scheduled reline was completed in mid-August 1998. United
States Steel's stated annual domestic raw steel production capability was 12.8
million tons in 2001, 2000 and 1999.

USSK raw steel production was 4.1 million tons in 2001, or 81% of USSK's
stated annual raw steel production capability of 5.0 million net tons.

On November 13, 2000, United States Steel joined with eight other producers
and the Independent Steelworkers Union to file trade cases against hot-rolled
carbon steel flat products from 11 countries (Argentina, India, Indonesia,
Kazakhstan, the Netherlands, the People's Republic of China, Romania, South
Africa, Taiwan, Thailand and Ukraine). Three days later, the USWA also entered
the cases as a petitioner. Antidumping ("AD") cases were filed against all the
countries and countervailing duty ("CVD") cases were filed against Argentina,
India, Indonesia, South Africa, and Thailand. The U.S. Department of Commerce
("Commerce") has found margins in all of the cases. The International Trade
Commission ("ITC") had previously found material injury to the domestic industry
in the cases against Argentina and South Africa, and, on November 2, 2001, the
ITC found material injury to the domestic industry in the cases against the
remaining countries.

On September 28, 2001, United States Steel joined with seven other
producers to file trade cases against cold-rolled carbon steel flat products
from 20 countries (Argentina, Australia, Belgium, Brazil, China, France,
Germany, India, Japan, Korea, Netherlands, New Zealand, Russia, South Africa,
Spain, Sweden, Taiwan, Thailand, Turkey, and Venezuela). AD cases were filed
against all the countries and CVD cases were filed against Argentina, Brazil,
France, and Korea. On November 13, 2001, the ITC determined that there is a
reasonable indication that the U.S. industry is materially injured or threatened
with material injury by reason of the imports in question. These cases will be
the subject of continuing investigations at both Commerce and the ITC.

United States Steel believes that the remedies provided by AD and CVD cases
are insufficient to correct the widespread dumping and subsidy abuses that
currently characterize steel imports into our country and has, therefore, urged
the U.S. government to take actions such as those in President Bush's three-part
program to address the excessive imports of steel that have been depressing
markets in the United States. United States Steel, nevertheless, intends to file
additional AD and CVD petitions against unfairly traded imports that adversely
impact, or threaten to adversely impact, the results of United States Steel.

29

On March 5, 2002, President Bush announced his decision in response to the
prior finding of the ITC under Section 201 that imports were a substantial cause
of serious injury to the domestic steel industry. Slab imports will be subject
to a quota of 5.4 million metric tons in the first year on product shipped from
countries other than Canada and Mexico, with excess imports subject to a tariff
of 30%. The annual quota increases to 5.9 million metric tons in the second year
and 6.4 million metric tons in the third year. Imports of finished carbon and
alloy steel products (hot rolled, cold rolled, coated, plate and tin mill
products) from developed countries will be subject to a 30% tariff in the first
year, decreasing to 24% and 18% in the second and third years, respectively.
Imports of these finished products from developing countries will be subject to
an anti-surge mechanism to ensure they do not substantially increase their
shipments from historic levels. Imports of finished flat-rolled products from
Canada and Mexico are not subject to the import remedies announced by the
President. The tariffs and quotas are effective as of March 20, 2002. An import
licensing program applicable to imports covered by the above remedies will be
implemented. The application of the remedies is subject to various specific
product exclusions. The People's Republic of China has filed a challenge to
President Bush's action with the World Trade Organization and other nations have
indicated that they also intend to do so or to take other actions responding to
the Section 201 remedies.

Management's Discussion and Analysis of Financial Condition, Cash Flows and
Liquidity

Current assets at year-end 2001 decreased $644 million from year-end 2000
primarily due to the settlement in 2001 of the $364 million income tax
receivable from Marathon established in 2000, decreased trade receivables
including receivables subject to a security interest, and a decrease in cash and
cash equivalents. The proceeds from the settlement of the income tax receivable
from Marathon were used to reduce debt attributed to United States Steel.

Investments and long-term receivables decreased $93 million from year-end
2000 primarily due to the reorganization of Transtar in March of 2001, which
converted an equity method investee into a consolidated subsidiary.

Net property, plant and equipment at year-end 2001 increased $345 million
from year-end 2000 primarily due to the Transtar reorganization and the
acquisition of East Chicago Tin, which were noncash transactions.

Current liabilities at year-end 2001 decreased $132 million from year-end
2000 primarily due to a decrease in accounts payable and long-term debt due
within one year, partially offset by an increase in accrued taxes and amounts
payable to Marathon in connection with the Separation.

Total long-term debt and notes payable at December 31, 2001 was $1,434
million, $802 million lower than year-end 2000. The decrease in debt was
primarily due to the $900 million value transfer from Marathon and the receipt
of $819 million of favorable tax settlements with Marathon; partially offset by
negative operating cash flow of $150 million absent the Marathon tax
settlements, net cash used in investing activities of $239 million, debt
repayments of $370 million and dividends paid of $57 million.

Employee benefit liabilities at December 31, 2001 increased $241 million
from year-end 2000 of which $152 million reflected mergers of liabilities
associated with the Transtar reorganization, the acquisition of LTV tin mill
properties and medical expenses of former Lorain Works retirees paid by United
States Steel which are pending collection under Republic bankruptcy proceedings.
The remainder of the increase was primarily due to ongoing accruals in excess of
cash payments from company assets. Following the elective $500 million Voluntary
Employee Benefit Association ("VEBA") funding in the fourth quarter of 2000,
which decreased the employee benefits liability, most union retiree medical
claims are being paid from the VEBA instead of company assets.

Preferred stock of subsidiary and mandatorily redeemable convertible
preferred securities of a subsidiary trust holding solely junior subordinated
convertible debentures decreased $66 million and $183 million, respectively,
from year-end 2000 in connection with the Separation. These amounts were
previously attributed to United States Steel under the Marathon capital
structure.

30

Net cash provided from operating activities of $669 million increased in
2001 compared to 2000. The increase was primarily due to the receipt of
favorable intergroup tax settlements from Marathon totaling $819 million in the
2001 period compared to a favorable intergroup settlement of $91 million in the
2000 period and the absence of a $530 million elective contribution to a VEBA
and non-union retiree life insurance trust. The $819 million tax settlement is
reflected in net cash provided by operating activities primarily as favorable
working capital changes of $364 million related to the settlement of the income
tax receivable established in 2000 arising from tax attributes primarily
generated in the year 2000; increases in net income of $426 million for tax
benefits generated by United States Steel in 2001; and net increases in all
other items net of $15 million for state tax benefits generated in 2000. The
last two items were included in the $441 million settlement with Marathon, which
occurred in 2001 as a result of the Separation. Absent these intergroup tax
settlements in 2001 and 2000 and the $530 million of elective contributions in
2000 to a VEBA and non-union retiree life insurance trust, net cash used in
operating activities decreased by $38 million. Cash payments of employee benefit
liabilities were lower because $152 million was paid from assets held in trust
for the plan in 2001 compared to $41 million in 2000 primarily as a result of
approximately $112 million of funds from the VEBA being used to pay retiree
medical and life insurance benefits for union retirees in 2001. In addition,
working capital improved. These improvements were partially offset by decreased
net income.

Net cash used in operating activities in 2000 was $627 million and
reflected the $500 million elective contribution to a VEBA, a $30 million
elective contribution to a non-union retiree life insurance trust and an income
tax receivable from Marathon of $364 million. These unfavorable effects were
partially offset by a $91 million income tax settlement with Marathon received
in 2000 primarily for the year 1999 in accordance with the group tax allocation
policy. The $500 million VEBA contribution has provided United States Steel with
the flexibility to pay ongoing costs of providing USWA retiree health care and
life insurance benefits from the VEBA instead of from corporate cash flow.

Net cash used in operating activities was $80 million in 1999 including a
net payment of $320 million under a terminated accounts receivable program.
Excluding the non-recurring VEBA contributions and the accounts receivable
facility termination as well as the tax settlements with Marathon in both years,
net cash provided from operating activities decreased $430 million in 2000 due
mainly to decreased profitability and an increase in working capital.

Capital expenditures of $287 million in 2001 included exercising a buyout
option of a lease for half of the Gary Works No. 2 Slab Caster; repairs to the
No. 3 blast furnace at the Mon Valley Works; work on the No. 2 stove at the No.
6 blast furnace at Gary Works; the completion of the replacement coke battery
thruwalls at Gary Works; the completion of an upgrade to the Mon Valley Works
cold reduction mill; systems development projects; and projects at USSK,
including the tin mill expansion and the vacuum degasser project.

Capital expenditures of $244 million in 2000 included exercising an early
buyout option of a lease for half of the Gary Works No. 2 Slab Caster; the
continued replacement of coke battery thruwalls at Gary Works; installation of
the remaining two coilers at the Gary Works hot strip mill; a blast furnace
stove replacement at Gary Works; and the continuation of an upgrade to the Mon
Valley Works cold reduction mill.

Capital expenditures of $287 million in 1999 included the completion of the
64" pickle line at Mon Valley Works; the replacement of one coiler at the Gary
Works hot strip mill; an upgrade to the Mon Valley Works cold reduction mill;
replacement of coke battery thruwalls at Gary Works; several projects at Gary
Works allowing for production of specialized high-strength steels, primarily for
the automotive market; and completion of the conversion of the Fairfield Works
pipemill to use rounds instead of square blooms.

Contract commitments for capital expenditures at year-end 2001 were $84
million, compared with $206 million at year-end 2000. USSK has a commitment to
the Slovak government to spend $700 million for a capital improvements program
at USSK, subject to certain conditions, over a period commencing with the
acquisition date and ending on December 31, 2010. As of December 31, 2001, USSK
had spent $66 million on this capital improvement program.

Capital expenditures for 2002 are expected to be approximately $300
million, including $105 million for USSK. This estimate anticipates entering
into operating leases for certain mobile and systems equipment, valued at
approximately $40 million, the acquisition of which would be included in capital
spending if the leases are not completed. Major expenditures include the
installation of a new quench and temper line at Lorain

31

Tubular; continued information systems development at Straightline; and projects
at USSK, including continued work on the new tin and continuous annealing lines
and the completion of the vacuum degasser. Over and above this capital spending,
$37.5 million will be paid to VSZ by USSK in both 2002 and 2003 to complete
payment for the USSK acquisition.

The preceding statement concerning expected 2002 capital expenditures is a
forward-looking statement. This forward-looking statement is based on
assumptions, which can be affected by (among other things) levels of cash flow
from operations, general economic conditions, business conditions, availability
of capital, whether or not assets are purchased or financed by operating leases,
and unforeseen hazards such as weather conditions, explosions or fires, which
could delay the timing of completion of particular capital projects.
Accordingly, actual results may differ materially from current expectations in
the forward-looking statement.

The acquisition oF U. S. Steel Kosice s.r.o., consisted of cash payments of
$14 million in 2001 and net cash payments of $10 million in 2000, which
reflected $69 million of cash payments in 2000 less $59 million of cash acquired
in the transaction. Two additional payments of $37.5 million each are to be made
to VSZ in 2002 and 2003 related to the purchase. The first quarter 2001
acquisition of East Chicago Tin and reorganization of Transtar were noncash
transactions. See also Note 5 to the Financial Statements.

Investees - return of capital in 2001 of $13 million reflected a return of
capital on an investment in stock of VSZ in which United States Steel holds a
25% interest.

Net change in attributed portion of Marathon consolidated debt and other
financings was a decrease of $74 million in 2001 compared to an increase of
$1,208 million and $147 million in 2000 and 1999, respectively. The decrease in
2001 primarily reflected the net effects of cash provided from operating
activities less cash used for investing activities and dividend payments. The
increase in 2000 primarily reflected the net effects of cash used in operating
activities, including a VEBA contribution, cash used in investing activities,
dividend payments and preferred stock repurchases. The increase in 1999
primarily reflected the net effects of cash used in operating and investing
activities and dividend payments.

Dividends paid decreased $40 million from year 2000 due to a decrease in
the quarterly dividend rate from $0.25 to $0.10 per share paid to USX-U. S.
Steel Group common stockholders, effective with the June 2001 payment. After the
Separation, United States Steel established an initial quarterly dividend rate
of $0.05 per share effective with the March 2002 payment.

Debt Ratings

As of December 31, 2001, Moody's Investor Services, Inc. assigned a
corporate credit rating of Ba3 to United States Steel with negative
implications. On January 17, 2002, Standard & Poor's Corp. placed the BB
corporate credit rating for United States Steel on credit watch with negative
implications. Additionally, Moody's and Standard & Poor's have assigned Ba3 and
BB, respectively, to United States Steel's senior unsecured debt.

Liquidity

In November 2001, United States Steel entered into a five-year Receivables
Purchase Agreement with financial institutions. United States Steel established
a wholly owned subsidiary, United States Steel Receivables LLC, which is a
special-purpose, bankruptcy-remote entity that acquires, on a daily basis,
eligible trade receivables generated by United States Steel and certain of its
subsidiaries. Fundings under the facility are limited to the lesser of eligible
receivables or $400 million. As of February 28, 2002, United States Steel had
$299 million of eligible receivables, of which $200 million were sold, primarily
to fund working capital needs to build inventory based on increased order rates.

In addition, United States Steel entered into a three-year revolving credit
facility expiring December 31, 2004, that provides for borrowings of up to $400
million secured by all domestic inventory and related assets ("Inventory
Facility"), including receivables other than those sold under the Receivables
Purchase Agreement. As of February 28, 2002, $249 million was available to
United States Steel under the Inventory Facility.

USSK has bank credit facilities aggregating $50 million. At December 31,
2001, there were no borrowings against these facilities. If USSK were to default
under the $325 million outstanding loan, lenders

32

could refuse to allow additional borrowing under the $40 million facility;
however, outstanding loans would not be called.

United States Steel currently has Senior Notes outstanding in the aggregate
principal amount of $535 million. The Senior Notes impose significant
restrictions on United States Steel such as the following: restrictions on
payments of dividends; limits on additional borrowings, including limiting the
amount of borrowings secured by inventories or accounts receivable; limits on
sale/leasebacks; limits on the use of funds from asset sales and sale of the
stock of subsidiaries; and restrictions on our ability to invest in joint
ventures or make certain acquisitions. The Inventory Facility imposes additional
restrictions on United States Steel including the following: effective September
30, 2002, United States Steel must meet an interest expense coverage ratio of at
least 2 to 1 through March 30, 2003 and 2.5 to 1 thereafter and a leverage ratio
of no more than 6 to 1 through December 30, 2002, 5.5 to 1 through March 30,
2003, 5 to 1 through June 29, 2003, 4.5 to 1 through September 29, 2003, 4 to 1
through March 30, 2004 and 3.75 to 1 thereafter; limitations on capital
expenditures; and restrictions on investments. If these covenants are breached
or if we fail to make payments under our material debt obligations or the
Receivables Purchase Agreement, creditors would be able to terminate their
commitments to make further loans, declare their outstanding obligations
immediately due and payable and foreclose on any collateral, and it may also
cause termination events to occur under the Receivables Purchase Agreement and a
default under the Senior Notes. Additional indebtedness that United States Steel
may incur in the future may also contain similar covenants, as well as other
restrictive provisions. Cross-default and cross-acceleration clauses in the
Receivables Purchase Agreement, the Inventory Facility, the Senior Notes and any
future additional indebtedness could have an adverse effect upon our financial
position and liquidity.

United States Steel has utilized surety bonds to provide financial
assurance for certain transactions and business activities. The total amount of
active surety bonds currently being used for financial assurance purposes is
approximately $255 million. Recent events have caused major changes in the
surety bond market including significant increases in surety bond premiums.
These factors, together with our non-investment grade credit rating, may cause
United States Steel to replace some surety bonds with other forms of financial
assurance, or provide some form of collateral to the surety bond providers in
order to keep bonds in place. The other forms of financial assurance or
collateral could include financial instruments that are supported by either the
Receivables Purchase Agreement or Inventory Facility. The use of these types of
financial instruments for financial assurance and collateral will have a
negative impact on liquidity.

United States Steel is contingently liable for debt and other obligations
of Marathon in the amount of $359 million as of December 31, 2001. Marathon is
not limited by agreement with United States Steel as to the amount of
indebtedness that it may incur. In the event of the bankruptcy of Marathon,
these obligations for which United States Steel is contingently liable, as well
as obligations relating to Industrial Development and Environmental Improvement
Bonds and Notes that were assumed by United States Steel from Marathon, may be
declared immediately due and payable. If that occurs, United States Steel may
not be able to satisfy such obligations. See Note 11 to the Financial Statements
for further information on the Industrial Development and Environmental
Improvement Bonds and Notes assumed by United States Steel. In addition, if
Marathon loses its investment grade ratings, certain of these obligations will
be considered indebtedness under the Senior Notes indenture and for covenant
calculations under the Inventory Facility. This occurrence could prevent United
States Steel from incurring additional indebtedness under the Senior Notes or
may cause a default under the Inventory Facility.

United States Steel is the sole general partner of and owns a 10 percent
equity interest in Clairton 1314B Partnership, L.P. As general partner, United
States Steel is responsible for operating and selling coke and by-products from
the partnership's three coke batteries located at United States Steel's Clairton
Works. United States Steel's share of profits and losses is currently 1.75%,
which will increase to 45.75% when the limited partners achieve a specified
return, which is currently expected to occur this year. The partnership at times
had operating cash shortfalls after payment of distributions to the partners in
2001 that were funded with loans from United States Steel. As of December 31,
2001, the partnership owed United States Steel $3 million, which was repaid in
January 2002. United States Steel may dissolve the partnership under certain
circumstances including if it is required to make equity investments or loans in
excess of $150 million to fund such shortfalls.

The following table summarizes United States Steel's liquidity as of
December 31, 2001:

(Dollars in millions)
---------------------------------------------------------
Cash and cash equivalents....................... $147
Amount available under Receivables
Purchase Agreement........................... 258
Amount available under Inventory Facility....... 250
Amounts available under USSK credit facilities.. 50
----
Total estimated liquidity..................... $705
---------------------------------------------------------

33

The following table summarizes United States Steel's contractual
obligations and commercial commitments at December 31, 2001, and the effect such
obligations and commitments are expected to have on its liquidity and cash flow
in future periods.

(Dollars in millions)
-----------------------------------------------------------------------------------
Payments Due By Period
Less Than 1-3 4-5 Beyond
Contractual Obligations Total 1 Year Years Years 5 Years
-----------------------------------------------------------------------------------

Long-term debt........................... $1,380 $ 26 $ 40 $ 40 $1,274
Capital leases/(a)/...................... 134 14 24 22 74
Operating leases/(a)/.................... 417 74 112 73 158
Capital commitments/(b)(f)/.............. 718 - - - 718
Commitments under lease agreements/(b)/.. 2 1 1 - -
Environmental commitments/(b)(f)/........ 138 16 - - 122
Usher Separation bonus/(b)/.............. 3 - 3 - -
Additional consideration for
USSK purchase/(c)/...................... 75 38 37 - -
------ ---- ---- ---- ------
Total contractual cash obligations.... $2,867 $169 $217 $135 $2,346
-----------------------------------------------------------------------------------
Standby letters of credit/(d)/........... $ 1 $ 1 $ - $ - $ -
Surety bonds/(f)/........................ 255 - - - 255
Clairton 1314B Partnership/(e)(f)/....... 150 - - - 150
Guarantees of indebtedness of
unconsolidated entities/(b)(f)/......... 32 - - - 32
Contingent liabilities:
- Marathon obligations/(b)/............. 359 - 16 191 152
- Take or pay arrangement/(b)/.......... 105 17 34 34 20
------ ---- ---- ---- ------
Total commercial commitments.......... $ 902 $ 18 $ 50 $225 $ 609
-----------------------------------------------------------------------------------

/(a)/ See Note 17 to the Financial Statements.
/(b)/ See Note 26 to the Financial Statements.
/(c)/ See Note 5 to the Financial Statements.
/(d)/ Guaranteed by Marathon.
/(e)/ See Note 16 to the Financial Statements.
/(f)/ Timing of potential cash outflows is not determinable.

Contingent lease payments have been excluded from the above table.
Contingent lease payments relate to operating lease agreements that include a
floating rental charge, which is associated to a variable component. Future
contingent lease payments are not determinable to any degree of certainty.
United States Steel's annual incurred contingent lease expense is disclosed in
Note 17 to the Financial Statements. Additionally, recorded liabilities related
to deferred income taxes, employee benefits and other liabilities that may have
an impact on liquidity and cash flow in future periods are excluded from the
above table.

United States Steel management believes that our liquidity will be
adequate to satisfy our obligations for the foreseeable future, including
obligations to complete currently authorized capital spending programs. Future
requirements for United States Steel's business needs, including the funding of
capital expenditures, debt service for financings incurred in relation to the
Separation, and any amounts that may ultimately be paid in connection with
contingencies, are expected to be financed by a combination of internally
generated funds, proceeds from the sale of stock, borrowings and other external
financing sources. However, there is no assurance that our business will
generate sufficient operating cash flow or that external financing sources will
be available in an amount sufficient to enable us to service or refinance our
indebtedness or to fund other liquidity needs. If there is a prolonged delay in
the recovery of the manufacturing sector of the U.S. economy, United States
Steel believes that it can maintain adequate liquidity through a combination of
deferral of nonessential capital spending, sales of non-strategic assets and
other cash conservation measures.

United States Steel management's opinion concerning liquidity and
United States Steel's ability to avail itself in the future of the financing
options mentioned in the above forward-looking statements are based on currently
available information. To the extent that this information proves to be
inaccurate, future availability of financing may be adversely affected. Factors
that could affect the availability of financing include the performance of
United States Steel (as measured by various factors including cash provided from
operating

34

activities), levels of inventories and accounts receivable, the state of
worldwide debt and equity markets, investor perceptions and expectations of past
and future performance, the overall U.S. financial climate, and, in particular,
with respect to borrowings, the levels of United States Steel's outstanding debt
and credit ratings by rating agencies.

Derivative Instruments

See Quantitative and Qualitative Disclosures About Market Risk for
discussion of derivative instruments and associated market risk for United
States Steel.

Management's Discussion and Analysis of Environmental Matters, Litigation and
Contingencies

United States Steel has incurred and will continue to incur substantial
capital, operating and maintenance, and remediation expenditures as a result of
environmental laws and regulations. In recent years, these expenditures have
been mainly for process changes in order to meet Clean Air Act obligations,
although ongoing compliance costs have also been significant. To the extent
these expenditures, as with all costs, are not ultimately reflected in the
prices of United States Steel's products and services, operating results will be
adversely affected. United States Steel believes that all of its domestic
competitors are subject to similar environmental laws and regulations. However,
the specific impact on each competitor may vary depending on a number of
factors, including the age and location of its operating facilities, production
processes and the specific products and services it provides. To the extent that
competitors are not required to undertake equivalent costs in their operations,
the competitive position of United States Steel could be adversely affected.

USSK is subject to the laws of the Slovak Republic. The environmental laws
of the Slovak Republic generally follow the requirements of the European Union,
which are comparable to domestic standards. USSK has also entered into an
agreement with the Slovak government to bring, over time, its facilities into
European Union environmental compliance.

In addition, United States Steel expects to incur capital and operating
expenditures to meet environmental standards under the Slovak Republic's
environmental laws for its USSK operation.

United States Steel's environmental expenditures for the last three years
were/(a)/:

(Dollars in millions) 2001 2000 1999
----------------------------------------------------

Domestic:
Capital....................... $ 5 $ 18 $ 32
Compliance
Operating & maintenance...... 184 194 199
Remediation/(b)/............. 26 18 22
----- ----- -----
Total Domestic.............. $ 215 $ 230 $ 253
USSK:
Capital....................... $ 10 $ - $ -
Compliance
Operating & maintenance...... 6 - -
Remediation.................. - - -
----- ----- -----
Total USSK.................. $ 16 $ - $ -
Total United States Steel.. $ 231 $ 230 $ 253
----------------------------------------------------

/(a)/ Based on previously established U. S. Department of Commerce survey
guidelines.
/(b)/ These amounts include spending charged against remediation reserves,
net of recoveries where permissible, but do not include noncash
provisions recorded for environmental remediation.

United States Steel's environmental capital expenditures accounted for 5%,
7% and 11% of total capital expenditures in 2001, 2000 and 1999, respectively.

35

Compliance expenditures represented 3% of United States Steel's total costs
and expenses in 2001 and 4% of United States Steel's total costs and expenses in
2000 and 1999. Remediation spending during 1999 to 2001 was mainly related to
remediation activities at former and present operating locations. These projects
include remediation of contaminated sediments in a river that receives
discharges from the Gary Works and the closure of permitted hazardous and non-
hazardous waste landfills.

The Resource Conservation and Recovery Act ("RCRA") establishes standards
for the management of solid and hazardous wastes. Besides affecting current
waste disposal practices, RCRA also addresses the environmental effects of
certain past waste disposal operations, the recycling of wastes and the
regulation of storage tanks.

United States Steel is in the study phase of RCRA corrective action
programs at its Fairless Works and its former Geneva Works. A RCRA corrective
action program has been initiated at its Gary Works and its Fairfield Works.
Until the studies are completed at these facilities, United States Steel is
unable to estimate the total cost of remediation activities that will be
required.

United States Steel has been notified that it is a potentially responsible
party ("PRP") at 19 waste sites under the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA") as of December 31, 2001.
In addition, there are 13 sites related to United States Steel where it has
received information requests or other indications that it may be a PRP under
CERCLA but where sufficient information is not presently available to confirm
the existence of liability or make any judgment as to the amount thereof. There
are also 34 additional sites related to United States Steel where remediation is
being sought under other environmental statutes, both federal and state, or
where private parties are seeking remediation through discussions or litigation.
At many of these sites, United States Steel is one of a number of parties
involved and the total cost of remediation, as well as United States Steel's
share thereof, is frequently dependent upon the outcome of investigations and
remedial studies. United States Steel accrues for environmental remediation
activities when the responsibility to remediate is probable and the amount of
associated costs is reasonably determinable. As environmental remediation
matters proceed toward ultimate resolution or as additional remediation
obligations arise, charges in excess of those previously accrued may be
required. See Note 26 to the Financial Statements.

In October 1996, United States Steel was notified by the Indiana Department
of Environmental Management ("IDEM") acting as lead trustee, that IDEM and the
U.S. Department of the Interior had concluded a preliminary investigation of
potential injuries to natural resources related to releases of hazardous
substances from various municipal and industrial sources along the east branch
of the Grand Calumet River and Indiana Harbor Canal. The public trustees
completed a pre-assessment screen pursuant to federal regulations and have
determined to perform a Natural Resource Damages Assessment. United States Steel
was identified as a PRP along with 15 other companies owning property along the
river and harbor canal. United States Steel and eight other PRPs have formed a
joint defense group. The trustees notified the public of their plan for
assessment and later adopted the plan. In 2000, the trustees concluded their
assessment of sediment injuries, which includes a technical review of
environmental conditions. The PRP joint defense group has proposed terms for the
settlement of this claim, which have been endorsed by representatives of the
trustees and the U.S. Environmental Protection Agency ("EPA") to be included in
a consent decree that United States Steel expects will resolve this claim.

In 1998, United States Steel entered into a consent decree with the EPA
which resolved alleged violations of the Clean Water Act National Pollution
Discharge Elimination System ("NPDES") permit at Gary Works and provides for a
sediment remediation project for a section of the Grand Calumet River that runs
through Gary Works. Contemporaneously, United States Steel entered into a
consent decree with the public trustees, which resolves potential liability for
natural resource damages on the same section of the Grand Calumet River. In
1999, United States Steel paid civil penalties of $2.9 million for the alleged
water act violations and $0.5 million in natural resource damages assessment
costs. In addition, United States Steel will pay the public trustees $1 million
at the end of the remediation project for future monitoring costs and United
States Steel is obligated to purchase and restore several parcels of property
that have been or will be conveyed to the trustees. During the negotiations
leading up to the settlement with EPA, capital improvements were made to upgrade
plant systems to comply with the NPDES requirements. As of December 31, 2001,
the sediment

36

remediation project is an approved final interim measure under the corrective
action program for Gary Works and is expected to cost approximately $35.2
million over the next five years. Estimated remediation and monitoring costs for
this project have been accrued.

At the former Duluth, Minnesota Works, United States Steel spent a total of
approximately $11.4 million through 2001. The Duluth Works was listed by the
Minnesota Pollution Control Agency under the Minnesota Environmental Response
and Liability Act on its Permanent List of Priorities. The EPA has consolidated
and included the Duluth Works site with the other sites on the EPA's National
Priorities List. The Duluth Works cleanup has proceeded since 1989. United
States Steel is conducting an engineering study of the estuary sediments.
Depending upon the method and extent of remediation at this site, future costs
are presently unkown and indeterminable.

In 1997, USS/Kobe, a joint venture between United States Steel and Kobe
Steel, Ltd. ("Kobe"), was the subject of a multi-media audit by the EPA that
included an air, water and hazardous waste compliance review. USS/Kobe and the
EPA entered into a tolling agreement pending issuance of the final audit and
commenced settlement negotiations in July 1999. In August 1999, the steelmaking
and bar producing operations of USS/Kobe were combined with companies controlled
by Blackstone Capital Partners II to form Republic. The tubular operations of
USS/Kobe were transferred to a newly formed entity, Lorain Tubular Company, LLC
("Lorain Tubular"), which operated as a joint venture between United States
Steel and Kobe until December 31, 1999, when United States Steel purchased all
of Kobe's interest in Lorain Tubular. Republic and United States Steel are
continuing negotiations with the EPA. Most of the matters raised by the EPA
relate to Republic's facilities; however, air discharges from United States
Steel's #3 seamless pipe mill have also been cited. United States Steel will be
responsible for matters relating to its facilities. The final report and
citations from the EPA have not been issued.

In 1987, United States Steel and the Pennsylvania Department of
Environmental Resources ("PADER") entered into a Consent Order to resolve an
incident in January 1985 involving the alleged unauthorized discharge of benzene
and other organic pollutants from Clairton Works in Clairton, Pa. That Consent
Order required United States Steel to pay a penalty of $50,000 and a monthly
payment of $2,500 for five years. In 1990, United States Steel and the PADER
reached agreement to amend the Consent Order. Under the amended Order, United
States Steel agreed to remediate the Peters Creek Lagoon (a former coke plant
waste disposal site); to pay a penalty of $300,000; and to pay a monthly penalty
of up to $1,500 each month until the former disposal site is closed. Remediation
costs have amounted to $9.9 million with another $1.1 million presently
projected to complete the project.

In 1988, United States Steel and three other PRPs agreed to the issuance of
an administrative order by the EPA to undertake emergency removal work at the
Municipal & Industrial Disposal Co. site in Elizabeth Township, Pa. The cost of
such removal, which has been completed, was approximately $4.2 million, of which
United States Steel paid $3.4 million. The EPA indicated that further
remediation of this site would be required. In October 1991, the PADER placed
the site on the Pennsylvania State Superfund list and began a Remedial
Investigation ("RI"), which was issued in 1997. United States Steel's share of
any final allocation formula for cleanup of the entire site was never
determined; however, based on presently available information, United States
Steel may have been responsible for as much as 70% of the waste material
deposited at the site. The Pennsylvania Department of Environmental Protection
("PADEP"), formerly PADER, issued its Final Feasibility Study Report for the
entire site in August 2001. The report identifies and evaluates feasible
remedial alternatives and selects three preferred alternatives. These
alternatives are estimated to cost from $17 million to $20 million. Consultants
for United States Steel have concluded that a less costly alternative should be
employed at the site, which is estimated to cost $5.5 million. Based on the
allocation of liability that has been recognized for past site cleanup
activities, the United States Steel share of costs for this remedy would be
approximately $3.7 million. United States Steel is in the process of negotiating
a consent decree with PADEP. United States Steel has submitted a conceptual
remediation plan, which PADEP has approved. United States Steel will be
submitting a remedial design plan based on the remediation plan. PADEP is also
seeking reimbursement for approximately $2 million in costs. United States Steel
could potentially be held responsible for an undetermined share of those costs.

37

In September 2001, United States Steel agreed to an Administrative Order on
Consent with the State of North Carolina for the assessment and cleanup of a
Greensboro, N.C. fertilizer manufacturing site. The site was owned by Armour
Agriculture Chemical Company (now named Viad) from 1912 to 1968. United States
Steel owned the site from 1968 to 1986 and sold the site to LaRoche Industries
in 1986. The agreed order allocated responsibility for assessment and cleanup
costs as follows: Viad - 48%, United States Steel - 26% and LaRoche - 26%; and
LaRoche was appointed to be the lead party responsible for conducting the
cleanup. In March 2001, United States Steel was notified that LaRoche had filed
for protection under the bankruptcy law. On August 23, 2001, the allocation of
responsibility for this site assessment and cleanup and the cost allocation was
approved by the bankruptcy court in the LaRoche bankruptcy. The estimated
remediation costs are $4.4 million to $5.7 million. United States Steel's
estimated share of these costs is $1.6 million.

New or expanded environmental requirements, which could increase United
States Steel's environmental costs, may arise in the future. United States Steel
intends to comply with all legal requirements regarding the environment, but
since many of them are not fixed or presently determinable (even under existing
legislation) and may be affected by future legislation, it is not possible to
predict accurately the ultimate cost of compliance, including remediation costs
which may be incurred and penalties which may be imposed. However, based on
presently available information, and existing laws and regulations as currently
implemented, United States Steel does not anticipate that environmental
compliance expenditures (including operating and maintenance and remediation)
will materially increase in 2002. United States Steel's environmental capital
expenditures are expected to be approximately $28 million in 2002 primarily
related to projects at Gary Works and at USSK (approximately $8 million).
Predictions beyond 2002 can only be broad-based estimates, which have varied,
and will continue to vary, due to the ongoing evolution of specific regulatory
requirements, the possible imposition of more stringent requirements and the
availability of new technologies to remediate sites, among other matters. Based
upon currently identified projects, United States Steel anticipates that
environmental capital expenditures will be approximately $49 million in 2003
including $17 million for USSK; however, actual expenditures may vary as the
number and scope of environmental projects are revised as a result of improved
technology or changes in regulatory requirements and could increase if
additional projects are identified or additional requirements are imposed.

United States Steel has been and is a defendant in a large number of cases
in which plaintiffs allege injury resulting from exposure to asbestos. Many of
these cases involve multiple plaintiffs and most have multiple defendants. These
claims fall into three major groups: (1) claims made under certain federal and
general maritime law by employees of the Great Lakes Fleet or Intercoastal
Fleet, former operations of United States Steel; (2) claims made by persons who
performed work at United States Steel facilities; and (3) claims made by
industrial workers allegedly exposed to an electrical cable product formerly
manufactured by United States Steel. To date all actions resolved have been
either dismissed or settled for immaterial amounts. It is not possible to
predict with certainty the outcome of these matters; however, based upon present
knowledge, United States Steel believes that it is unlikely that the resolution
of the remaining actions will have a material adverse effect on its financial
condition. This statement of belief is a forward-looking statement. Predictions
as to the outcome of pending litigation are subject to substantial uncertainties
with respect to (among other things) factual and judicial determinations, and
actual results could differ materially from those expressed in this forward-
looking statement.

United States Steel is the subject of, or a party to, a number of pending
or threatened legal actions, contingencies and commitments involving a variety
of matters, including laws and regulations relating to the environment, certain
of which are discussed in Note 26 to the Financial Statements. The ultimate
resolution of these contingencies could, individually or in the aggregate, be
material to the United States Steel Financial Statements. However, management
believes that United States Steel will remain a viable and competitive
enterprise even though it is possible that these contingencies could be resolved
unfavorably to United States Steel.

38

Outlook for 2002

In November 2001, Domestic Steel's order rate began to increase and this
trend has continued into the first quarter. Sheet facilities are now fully
loaded and spot market price increases are being implemented. Plate and tubular
markets continue to reflect weak demand. In the first quarter 2002, domestic
shipments are expected to improve and average realized prices are expected to be
lower, largely due to product mix and the halt in production at DESCO as a
result of the December 2001 fire. United States Steel and Rouge plan to return
DESCO to full production by the fourth quarter of 2002. USSK first quarter 2002
shipments and average realized prices are expected to be lower than fourth
quarter 2001.

For full-year 2002, domestic shipments are expected to be approximately 11
million net tons and USSK shipments are expected to be approximately 3.8 million
net tons.

For the longer term, domestic shipment levels and realized prices will be
influenced by the strength and timing of a recovery in the manufacturing sector
of the domestic economy, levels of imported steel following the outcome of the
President's Section 201 decision and production capability changes at domestic
facilities. Many factors will determine the strength and timing of such
recovery, and shipment levels and prices are also subject to many of the same
factors. For USSK, economic and political developments in Europe, including many
factors similar to those impacting Domestic Steel, will impact USSK's results of
operations.

United States Steel's income from operations includes net pension credits,
which are primarily noncash, associated with all of United States Steel's
pension plans. Net pension credits were $146 million in 2001. At the end of
2000, United States Steel's main pension plan's transition asset was fully
amortized, decreasing the pension credit by $69 million in 2001 and in future
years for this component. In addition, for the year 2002, lower than expected
market returns in the year 2001 and the mergers of Transtar and LTV tin mill
liabilities will further reduce net pension credits to approximately $110
million, excluding settlements and any potential effects of consolidation or
rationalization activities. An unfavorable $8 million settlement charge is
expected in the first half of 2002 under the nonqualified pension plan relative
to salaried employees accepting retirement under last year's VERP. A settlement
effect is not currently expected under the qualified salaried pension plan in
2002 relative to the VERP program. The above includes forward-looking statements
concerning net pension credits which can vary depending upon the market
performance of plan assets, changes in actuarial assumptions regarding discount
rate and rate of return on plan assets, plan amendments affecting benefit payout
levels and profile changes in the beneficiary populations being valued. Changes
in any of these factors could cause net pension credits to change. To the extent
net pension credits decline in the future, income from operations would be
adversely affected.

In its retiree medical estimates of escalation, United States Steel
projects an aggregate 8.0% initial trend rate in 2002 that gradually reduces
each year to an ultimate trend rate of 5% in the year 2008. This was increased
from a 7.5% initial trend rate assumed for 2001. The 8.0% rate reflects a
weighting of various escalation rates on different components of the plan, with
some rates as high as 15%, after taking into consideration the demographics of
the affected populations and the different utilization patterns of medicare
versus pre-medicare retirees. See Note 12 to the Financial Statements for the
effect of a 1% change in the assumed health care cost trend rates.

United States Steel owns a 16% investment in Republic, through United
States Steel's ownership in Republic Technologies International Holdings, LLC,
which is the sole owner of Republic. Republic is a major purchaser of raw
materials from United States Steel and the primary supplier of rounds for our
tubular facility in Lorain, Ohio. During the first quarter of 2001, United
States Steel discontinued applying the equity method of accounting since
investments in and advances to Republic had been reduced to zero. United States
Steel now accounts for this investment under the cost method. On April 2, 2001,
Republic filed to reorganize under Chapter 11 of the U.S. Bankruptcy Code.
Republic has continued to supply the Lorain mill since filing for bankruptcy.
During the first quarter of 2001, as a result of Republic's action, United
States Steel recorded a pretax charge of $74 million for potentially
uncollectible receivables from Republic and recognized certain debt obligations
of $14 million previously assumed by Republic. Due to further financial
deterioration of Republic during the balance of 2001, United States Steel
recorded a pretax charge of $68 million in the fourth quarter of 2001 related to
a portion of the remaining Republic trade receivables and retiree medical cost
reimbursements owed by Republic. At December 31, 2001, United States Steel's
remaining financial exposure to Republic was approximately $19 million.

39

On January 17, 2002, United States Steel announced that it had entered into
an Option Agreement with NKK Corporation ("NKK") of Japan. The agreement grants
United States Steel an option to purchase, either directly or through a
subsidiary, all of NKK's National Steel Corporation common stock and to
restructure a $100 million loan previously made to National Steel by an NKK
subsidiary. NKK's ownership of National Steel's common stock represents
approximately 53% of National's outstanding shares. The option expires on June
15, 2002.

Although United States Steel has the ability to exercise the option at any
time during its term, it is United States Steel's current intent not to exercise
the option or to consummate a merger with National Steel unless a number of
significant conditions are satisfied, including a substantial restructuring of
National Steel's debt and other obligations. Other significant conditions
include the resolution of key contingencies related to the consolidation of the
domestic steel industry, the financial viability of National Steel and
satisfactory general market conditions. On March 6, 2002, National Steel filed
voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code.
Any agreement with National Steel will be subject to the approval of the
bankruptcy court.

United States Steel has publicly stated that it is willing to participate
in consolidation of the domestic steel industry if it would be beneficial to our
shareholders, creditors, customers and employees. A number of important
conditions must occur to facilitate such consolidation including implementation
of President Bush's three-part program to address worldwide overcapacity, relief
from the burden of costs related to retiree obligations of other domestic steel
companies and a new progressive labor agreement. On March 5, 2002, President
Bush announced a Section 201 trade remedy as discussed previously. In addition,
United States Steel may make additional investments in Central Europe to grow
our business and to better serve our customers who are seeking worldwide supply
arrangements.

United States Steel has responded to domestic competition resulting from
excess steel industry capability by eliminating less efficient facilities,
modernizing those that remain and entering into joint ventures, all with the
objective of focusing production on higher value-added products, where superior
quality and special characteristics are of critical importance. Our business
strategy is to maximize our investment in high-end finishing assets and to
minimize or redeploy our investment in domestic raw materials and hot-ends.

The preceding statements concerning anticipated steel demand, steel
pricing, and shipment levels are forward-looking and are based upon assumptions
as to future product prices and mix, and levels of steel production capability,
production and shipments. These forward-looking statements can be affected by
levels of imports following government action on Section 201 activities,
domestic and international economies, domestic production capacity and customer
demand. In the event these assumptions prove to be inaccurate, actual results
may differ significantly from those presently anticipated. The potential
exercise of the National Steel option by United States Steel, the negotiation
and possible consummation of any merger or acquisition agreement, and the
potential completion of any industry consolidation or acquisitions whether
domestic or international are all subject to numerous conditions, some of which
are described above. Many of these conditions depend upon actions of other
parties, such as the federal government, the United Steelworkers of America and
foreign governments. There is no assurance that the National Steel option will
be exercised, that any merger agreement will be negotiated and/or consummated,
or that any industry domestic or international consolidation in general will
occur, nor any specificity concerning the terms upon which any of these might
occur, other than the specific terms of the Option Agreement.

40

Accounting Standards

Effective January 1, 2001, United States Steel adopted Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"), as amended by SFAS Nos. 137 and 138.
This Statement, as amended, requires recognition of all derivatives at fair
value as either assets or liabilities. Changes in fair value will be reflected
in current period net income or other comprehensive income depending on the
designation of the derivative instrument. A cumulative effect adjustment
relating to the adoption of SFAS No. 133 was recognized in other comprehensive
income. The cumulative effect adjustment relates only to deferred gains or
losses for hedge transactions as of December 31, 2000. The effect of adoption of
SFAS No. 133 was less than $1 million, net of tax.

In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards No. 141, "Business Combinations"
("SFAS No. 141"), No. 142, "Goodwill and Other Intangible Assets" ("SFAS No.
142") and No. 143, "Accounting for Asset Retirement Obligations" ("SFAS No.
143"). The adoption of SFAS No. 141 and SFAS No. 142 on January 1, 2002, did not
have a material impact on the results of operations or financial position of
United States Steel.

SFAS No. 143 establishes a new accounting model for the recognition and
measurement of retirement obligations associated with tangible long-lived
assets. SFAS No. 143 requires that an asset retirement obligation should be
capitalized as part of the cost of the related long-lived asset and subsequently
allocated to expense using a systematic and rational method. United States Steel
plans to adopt the Statement effective January 1, 2003. The transition
adjustment resulting from the adoption of SFAS No. 143 will be reported as a
cumulative effect of a change in accounting principle. At this time, United
States Steel has not completed its assessment of the effect of the adoption of
this Statement on either its financial position or results of operations.

In August 2001, the FASB approved SFAS No. 144, "Accounting for Impairment
or Disposal of Long-Lived Assets" ("SFAS No. 144"). This Statement establishes a
single accounting model for long-lived assets to be disposed of by sale and
provides additional implementation guidance for assets to be held and used and
assets to be disposed of other than by sale. United States Steel adopted SFAS
No. 144 effective January 1, 2002. There was no financial statement implication
related to the adoption of SFAS No. 144, and the guidance will be applied on a
prospective basis.

41

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Management Opinion Concerning Derivative Instruments

United States Steel uses commodity-based and foreign currency derivative
instruments to manage its price risk. Management has authorized the use of
futures, forwards, swaps and options to manage exposure to price fluctuations
related to the purchase of natural gas, heating oil and nonferrous metals and
also certain business transactions denominated in foreign currencies. Derivative
instruments used for trading and other activities are marked-to-market and the
resulting gains or losses are recognized in the current period in income from
operations. While United States Steel's risk management activities generally
reduce market risk exposure due to unfavorable commodity price changes for raw
material purchases and products sold, such activities can also encompass
strategies that assume price risk.

Management believes that the use of derivative instruments, along with risk
assessment procedures and internal controls, does not expose United States Steel
to material risk. The use of derivative instruments could materially affect
United States Steel's results of operations in particular quarterly or annual
periods. However, management believes that use of these instruments will not
have a material adverse effect on financial position or liquidity. For a summary
of accounting policies related to derivative instruments, see Note 3 to the
Financial Statements.

Commodity Price Risk and Related Risks

In the normal course of its business, United States Steel is exposed to
market risk or price fluctuations related to the purchase, production or sale of
steel products. To a lesser extent, United States Steel is exposed to price risk
related to the purchase, production or sale of coal and coke and the purchase of
natural gas, steel scrap, iron ore and pellets, and certain nonferrous metals
used as raw materials.

United States Steel's market risk strategy has generally been to obtain
competitive prices for its products and services and allow operating results to
reflect market price movements dictated by supply and demand. However, United
States Steel uses derivative commodity instruments (primarily over-the-counter
commodity swaps) to manage exposure to fluctuations in the purchase price of
natural gas, heating oil and certain nonferrous metals. The use of these
instruments has not been significant in relation to United States Steel's
overall business activity.

Sensitivity analyses of the incremental effects on pretax income of
hypothetical 10% and 25% decreases in commodity prices for open derivative
commodity instruments as of December 31, 2001, and December 31, 2000, are
provided in the following table.

(Dollars in millions)
-----------------------------------------------------------------------
Incremental Decrease in
Pretax Income Assuming a
Hypothetical Price
Decrease of/(a)/
2001 2000
Commodity-Based Derivative Instruments 10% 25% 10% 25%
-----------------------------------------------------------------------
Zinc.................................... 3.5 8.9 1.5 3.8
Tin..................................... 0.2 0.6 0.2 0.6
-----------------------------------------------------------------------
/(a)/ With the adoption of SFAS No. 133, the definition of a derivative
instrument has been expanded to include certain fixed price physical
commodity contracts. Such instruments are included in the above
table. Amounts reflect the estimated incremental effect on pretax
income of hypothetical 10% and 25% decreases in closing commodity
prices for each open contract position at December 31, 2001, and
December 31, 2000. Management evaluates the portfolio of derivative
commodity instruments on an ongoing basis and adjusts strategies to
reflect anticipated market conditions, changes in risk profiles and
overall business objectives. Changes to the portfolio subsequent to
December 31, 2001, may cause future pretax income effects to differ
from those presented in the table.

42

United States Steel uses OTC commodity swaps to manage exposure to
market risk related to the purchase of natural gas, heating oil and certain
nonferrous metals. United States Steel recorded net pretax other than trading
activity losses of $13 million in 2001, gains of $2 million in 2000 and losses
of $3 million in 1999. These gains and losses were offset by changes in the
realized prices of the underlying hedged commodities. For additional
quantitative information relating to derivative commodity instruments, including
aggregate contract values and fair values, where appropriate, see Note 24 to the
Financial Statements.

Interest Rate Risk

United States Steel is subject to the effects of interest rate
fluctuations on certain of its non-derivative financial instruments. A
sensitivity analysis of the projected incremental effect of a hypothetical 10%
decrease in year-end 2001 and 2000 interest rates on the fair value of United
States Steel's non-derivative financial instruments is provided in the following
table:

(Dollars in millions)
-----------------------------------------------------------------------------------------------
As of December 31 2001 2000
Incremental Incremental
Increase in Increase in
Fair Fair Fair Fair
Non-derivative Financial Instruments/(a)/ Value/(b)/ Value/(c)/ Value/(b)/ Value/(c)/
------------------------------------------------------------------------------------------------

Financial assets:
Investments and long-term receivables/(d)/.. $ 42 $ - $ 137 $ -
Financial liabilities:
Long-term debt/(e)(f)/...................... $1,122 $ 79 $2,375 $80
Preferred stock of subsidiary/(g)/.......... - - 63 5
USX obligated mandatorily
redeemable convertible preferred
securities of a subsidiary trust/(g)/...... - - 119 10
------ ------ ------ ---
Total liabilities......................... $1,122 $ 79 $2,557 $95
------------------------------------------------------------------------------------------------

/(a)/ Fair values of cash and cash equivalents, receivables, notes payable,
accounts payable and accrued interest approximate carrying value and
are relatively insensitive to changes in interest rates due to the
short-term maturity of the instruments. Accordingly, these instruments
are excluded from the table.
/(b)/ See Note 25 to the Financial Statements for carrying value of
instruments.
/(c)/ Reflects, by class of financial instrument, the estimated incremental
effect of a hypothetical 10% decrease in interest rates at December
31, 2001, and December 31, 2000, on the fair value of United States
Steel's non-derivative financial instruments. For financial
liabilities, this assumes a 10% decrease in the weighted average yield
to maturity of United States Steel's long-term debt at December 31,
2001, and December 31, 2000.
/(d)/ For additional information, see Note 16 to the Financial Statements.
/(e)/ Includes amounts due within one year.
/(f)/ Fair value was based on market prices where available, or current
borrowing rates for financings with similar terms and maturities. For
additional information, see Note 11 to the Financial Statements.
/(g)/ See Note 18 to the Financial Statements.

At December 31, 2001, United States Steel's portfolio of long-term
debt was comprised primarily of fixed-rate instruments. Therefore, the fair
value of the portfolio is relatively sensitive to effects of interest rate
fluctuations. This sensitivity is illustrated by the $79 million increase in the
fair value of long-term debt assuming a hypothetical 10% decrease in interest
rates. However, United States Steel's sensitivity to interest rate declines and
corresponding increases in the fair value of its debt portfolio would
unfavorably affect United States Steel's results and cash flows only to the
extent that United States Steel elected to repurchase or otherwise retire all or
a portion of its fixed-rate debt portfolio at prices above carrying value.

Foreign Currency Exchange Rate Risk

United States Steel is subject to the risk of price fluctuations
related to anticipated revenues and operating costs, firm commitments for
capital expenditures and existing assets or liabilities denominated in
currencies other than U.S. dollars, in particular the Euro and Slovak Koruna.
United States Steel has not generally used derivative instruments to manage this
risk. However, United States Steel has made limited use of forward currency
contracts to manage exposure to certain currency price fluctuations. At December
31, 2001, United States Steel had no open forward currency contracts. In
November 2001, the month in which United States Steel had the most foreign
currency exchange maturities, total notional maturities were $19.4 million.

43

Equity Price Risk

United States Steel is subject to equity price risk and market liquidity
risk related to its investment in VSZ a.s., the former parent of U. S. Steel
Kosice, s.r.o. These risks are not readily quantifiable for several reasons,
including the absence of a readily determinable fair value as determined under
U.S. generally accepted accounting principles. See Note 16 to the Financial
Statements.

Safe Harbor

United States Steel's quantitative and qualitative disclosures about market
risk include forward-looking statements with respect to management's opinion
about risks associated with United States Steel's use of derivative instruments.
These statements are based on certain assumptions with respect to market prices
and industry supply of and demand for steel products and certain raw materials.
To the extent that these assumptions prove to be inaccurate, future outcomes
with respect to United States Steel's hedging programs may differ materially
from those discussed in the forward-looking statements.

44

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Management's Report

The accompanying consolidated financial statements of United
States Steel Corporation are the responsibility of and have been
prepared by United States Steel Corporation in conformity with
accounting principles generally accepted in the United States of
America. They necessarily include some amounts that are based on
best judgments and estimates. The United States Steel Corporation
financial information displayed in other sections of this report
is consistent with these financial statements.

United States Steel Corporation seeks to assure the
objectivity and integrity of its financial records by careful
selection of its managers, by organizational arrangements that
provide an appropriate division of responsibility and by
communications programs aimed at assuring that its policies and
methods are understood throughout the organization.

United States Steel Corporation has a comprehensive
formalized system of internal accounting controls designed to
provide reasonable assurance that assets are safeguarded and that
financial records are reliable. Appropriate management monitors
the system for compliance, and the internal auditors
independently measure its effectiveness and recommend possible
improvements thereto. In addition, as part of their audit of the
financial statements, United States Steel Corporation's
independent accountants review and test the internal accounting
controls selectively to establish a basis of reliance thereon in
determining the nature, extent and timing of audit tests to be
applied.

The Board of Directors pursues its oversight role in the
area of financial reporting and internal accounting control
through its Audit Committee. This Committee, composed solely of
nonmanagement directors, regularly meets (jointly and separately)
with the independent accountants, management and internal
auditors to monitor the proper discharge by each of their
responsibilities relative to internal accounting controls and the
Corporation's financial statements.

Thomas J. Usher John P. Surma Gretchen R. Haggerty

Chairman, Board of Directors, Vice Chairman & Senior Vice President &
Chief Executive Officer & President Chief Financial Officer Controller

Report of Independent Accountants

To the Stockholders of United States Steel Corporation:

In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of operations, stockholders'
equity and cash flows present fairly, in all material respects,
the financial position of United States Steel Corporation and its
subsidiaries at December 31, 2001 and 2000, and the results of
their operations and their cash flows for each of the three years
in the period ended December 31, 2001 in conformity with
accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of
United States Steel Corporation's management; our responsibility
is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
February 15, 2002

F-1

Statement of Operations

(Dollars in millions) 2001 2000 1999
------------------------------------------------------------------------------------------------------------

Revenues and other income:
Revenues $6,286 $6,090 $5,536
Income (loss) from investees 64 (8) (89)
Net gains on disposal of assets 22 46 21
Other income 3 4 2
------ ------ ------
Total revenues and other income 6,375 6,132 5,470
------ ------ ------
Costs and expenses:
Cost of revenues (excludes items shown below) 6,091 5,656 5,084
Selling, general and administrative expenses (credits) (Note 12) 92 (223) (283)
Depreciation, depletion and amortization 344 360 304
Taxes other than income taxes 253 235 215
------ ------ ------
Total costs and expenses 6,780 6,028 5,320
------ ------ ------
Income (loss) from operations (405) 104 150
Net interest and other financial costs (Note 7) 141 105 74
------ ------ ------
Income (loss) before income taxes and extraordinary losses (546) (1) 76
Provision (credit) for income taxes (Note 14) (328) 20 25
------ ------ ------
Income (loss) before extraordinary losses (218) (21) 51
Extraordinary losses (Note 6) - - 7
------ ------ ------
Net income (loss) $ (218) $ (21) $ 44
------------------------------------------------------------------------------------------------------------

Income Per Common Share (Note 20)

2001 2000 1999
------------------------------------------------------------------------------------------------------------

Basic and diluted:
Income (loss) before extraordinary losses $(2.45) $ (.24) $ .57
Extraordinary losses - - .08
------ ------ ------
Net income (loss) $(2.45) $ (.24) $ .49
------------------------------------------------------------------------------------------------------------

The accompanying notes are an integral part of these financial
statements.

F-2

Balance Sheet

(Dollars in millions) December 31 2001 2000
------------------------------------------------------------------------------------------------------------

Assets
Current assets:
Cash and cash equivalents $ 147 $ 219
Receivables, less allowance for doubtful accounts
of $165 and $57 (Note 22) 802 625
Receivables subject to a security interest (Note 11) - 350
Receivables from Marathon (Note 15) 28 366
Inventories (Note 13) 870 946
Deferred income tax benefits (Note 14) 216 201
Other current assets 10 10
------ ------
Total current assets 2,073 2,717

Investments and long-term receivables,
less valuation allowance of $75 and $38 (Note 16) 346 439
Long-term receivables from Marathon (Note 15) 8 97
Property, plant and equipment - net (Note 23) 3,084 2,739
Prepaid pensions (Note 12) 2,745 2,672
Other noncurrent assets 81 47
------ ------
Total assets $8,337 $8,711
------------------------------------------------------------------------------------------------------------
Liabilities
Current liabilities:
Notes payable $ - $ 70
Accounts payable 638 755
Accounts payable to Marathon (Note 15) 54 5
Payroll and benefits payable 239 202
Accrued taxes 248 173
Accrued interest 48 47
Long-term debt due within one year (Note 11) 32 139
------ ------
Total current liabilities 1,259 1,391
Long-term debt (Note 11) 1,434 2,236
Deferred income taxes (Note 14) 732 666
Employee benefits (Note 12) 2,008 1,767
Deferred credits and other liabilities 398 483
Preferred stock of Marathon subsidiary (Note 18) - 66
Mandatorily redeemable convertible preferred
securities of a subsidiary trust holding solely junior
subordinated convertible debentures of Marathon (Note 18) - 183
Contingencies and commitments (Note 26) - -

Stockholders' equity (Details on page 5)
Marathon net investment - 1,952
Common stock -
Issued - 89,197,740 shares (par value $1 per share,
authorized 200,000,000 shares) 89 -
Additional paid-in capital 2,475 -
Accumulated other comprehensive loss (49) (30)
Deferred compensation (9) (3)
------ ------
Total stockholders' equity 2,506 1,919
------ ------
Total liabilities and stockholders' equity $8,337 $8,711
------------------------------------------------------------------------------------------------------------

The accompanying notes are an integral part of these financial
statements.

F-3

Statement of Cash Flows

(Dollars in millions) 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------

Increase (decrease) in cash and cash equivalents

Operating activities:

Net income (loss) $(218) $ (21) $ 44
Adjustments to reconcile to net cash provided
from (used in) operating activities:
Extraordinary losses - - 7
Depreciation, depletion and amortization 344 360 304
Pensions and other postretirement benefits (57) (847) (256)
Deferred income taxes 18 389 107
Net gains on disposal of assets (22) (46) (21)
(Income) loss from equity investees (64) 8 89
Changes in:
Current receivables
- sold (repurchased) - - (320)
- operating turnover 116 (43) (146)
- income taxes 336 (267) (97)
- provision for doubtful accounts 108 47 1
Inventories 104 (63) (14)
Current accounts payable and accrued expenses (87) (262) 239
All other - net 91 118 (17)
----- ------ ------
Net cash provided from (used in) operating activities 669 (627) (80)
----- ------ ------
Investing activities:

Capital expenditures (287) (244) (287)
Acquisition of U. S. Steel Kosice, net of cash acquired in 2000 of $59 (14) (10) -
Disposal of assets 44 21 10
Restricted cash - withdrawals 5 2 15
- deposits (4) (2) (17)
Investees - investments (3) (35) (15)
- loans and advances (3) (10) -
- return of capital 13 - -
All other - net 10 8 -
----- ------ ------
Net cash used in investing activities (239) (270) (294)
----- ------ ------
Financing activities:

Net change in attributed portion of Marathon
consolidated debt and other financings (74) 1,208 147
Specifically attributed debt:
Borrowings - - 350
Repayments (370) (6) (11)
Preferred stock repurchased - (12) (2)
Dividends paid (57) (97) (97)
----- ------ ------
Net cash provided from (used in) financing activities (501) 1,093 387
----- ------ ------
Effect of exchange rate changes on cash (1) 1 -
----- ------ ------
Net increase (decrease) in cash and cash equivalents (72) 197 13

Cash and cash equivalents at beginning of year 219 22 9
----- ------ ------
Cash and cash equivalents at end of year $ 147 $ 219 $ 22
- ------------------------------------------------------------------------------------------------------------
Cash provided from (used in) operating activities included:
Interest and other financial costs paid
(net of amount capitalized) $(182) $ (71) $ (77)
Income taxes refunded from (paid to) taxing authorities 9 (10) 5
Income tax settlements received from (paid to) Marathon 819 91 (2)
- ------------------------------------------------------------------------------------------------------------

See Note 9, for supplemental cash flow information.
The accompanying notes are an integral part of these financial statements.

F-4

Statement of Stockholders' Equity
Dollars in millions Shares in thousands
--------------------- ------------------------------------------
(In millions, except per share data) 2001 2000 1999 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------------

Common stock:
Balance at beginning of year $ - $ - $ - - - -
Issued in Separation 89 - - 89,198 - -
------- ------ ------ --------- --------- ---------
Balance at end of year $ 89 $ - $ - 89,198 - -
- ----------------------------------------------------------------------------------------------------------------------------------
Additional paid-in capital:
Balance at beginning of year $ - $ - $ -
Common stock issued in Separation 2,475 - -
------- ------ ------
Balance at end of year $ 2,475 $ - $ -
- ----------------------------------------------------------------------------------------------------------------------------------
Comprehensive Income
---------------------------------
2001 2000 1999
--------- --------- ---------
Marathon net investment (Note 1):
Balance at beginning of year $ 1,952 $2,076 $2,129
Net income (loss) (218) (21) 44 $ (218) $ (21) $ 44
Repurchase of 6.50% preferred stock - (12) (2)
Common stock issued 8 6 2
Dividends on preferred stock (8) (8) (9)
Dividends on common stock
(per share $.55 in 2001 and
$1.00 in 2000 and 1999) (49) (89) (88)
Excess redemption value over
carrying value of preferred securities (14) - -
Preferred stock retained by Marathon
in Separation (120) - -
Capital contributions by Marathon (Note 2) 1,013 - -
Transfer to common stockholders'
equity at Separation (2,564) - -
------- ------ ------
Balance at end of year $ - $1,952 $2,076
- ----------------------------------------------------------------------------------------------
Deferred compensation:
Balance at beginning of year $ (3) $ - $ (1)
Changes during year, net of taxes (6) (3) 1
------- ------ ------
Balance at end of year $ (9) $ (3) $ -
- ----------------------------------------------------------------------------------------------
Accumulated other comprehensive
income (loss):
Minimum pension liability
adjustments (Note 12):
Balance at beginning of year $ (4) $ (7) $ (27)
Changes during year, net of taxes/(a)/ (16) 3 20 (16) 3 20
------- ------ ------
Balance at end of year (20) (4) (7)
------- ------ ------
Foreign currency translation
adjustments:
Balance at beginning of year $ (26) $ (13) $ (8)
Changes during year, net of taxes/(a)/ (3) (13) (5) (3) (13) (5)
------- ------ ------
Balance at end of year (29) (26) (13)
------- ------ ------
Total accumulated other
comprehensive income (loss) $ (49) $ (30) $ (20)
- ---------------------------------------------------------------------------------------------- --------- --------- ---------
Total comprehensive income (loss) $ (237) $ (31) $ 59
- ----------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity $ 2,506 $1,919 $2,056
- ----------------------------------------------------------------------------------------------
/(a)/ Related income tax provision (credit):
Minimum pension liability adjustment $ 9 $ (1) $ (11)
Foreign currency translation adjustments - (5) 3

The accompanying notes are an integral part of these financial statements.

F-5

Notes to Financial Statements

1. Basis of Presentation

United States Steel Corporation (United States Steel) owns and
operates the former steel businesses of USX Corporation, now named and
referred to herein as Marathon Oil Corporation (Marathon). United
States Steel is engaged in the production, sale and transportation of
steel mill products, coke, taconite pellets, and coal; the management
of mineral resources; real estate development; and engineering and
consulting services.

Prior to December 31, 2001, the businesses of United States Steel
comprised an operating unit of Marathon. Marathon had two outstanding
classes of common stock: USX-Marathon Group common stock, which was
intended to reflect the performance of Marathon's energy business, and
USX-U. S. Steel Group common stock (Steel Stock), which was intended
to reflect the performance of Marathon's steel business. As described
further in Note 2, on December 31, 2001, United States Steel was
capitalized through the issuance of 89.2 million shares of common
stock to holders of Steel Stock in exchange for all outstanding shares
of Steel Stock on a one-for-one basis.

The accompanying consolidated balance sheet as of December 31,
2001, reflects the financial position of United States Steel as a
separate, stand-alone entity. The combined balance sheet as of
December 31, 2000, and the combined statements of operations and of
cash flows for each of the three years in the period ended December
31, 2001, represent a carve-out presentation of the businesses
comprising United States Steel, and are not intended to be a complete
presentation of the financial position, results of operations and cash
flows of United States Steel on a stand-alone basis. Marathon's net
investment in United States Steel represents the combined net assets
of the businesses comprising United States Steel and is presented in
lieu of common stockholders equity in the combined balance sheet as of
December 31, 2000. The allocations and estimates included in these
combined financial statements are determined using the methodologies
described below:

Financial activities - As a matter of policy, Marathon historically
managed most financial activities on a centralized, consolidated
basis. Transactions related primarily to invested cash, short-term and
long-term debt (including convertible debt), related net interest and
other financial costs, and preferred stock and related dividends were
attributed to United States Steel based upon its cash flows for each
of the periods presented and its initial capital structure. However,
transactions such as leases, certain collateralized financings,
certain indexed debt instruments, financial activities of consolidated
entities which were less than wholly owned by Marathon, and
transactions related to securities convertible solely into Steel Stock
were specifically attributed to United States Steel.

Corporate general and administrative costs - Corporate general and
administrative costs were allocated to United States Steel based upon
utilization or other methods management believed to be reasonable and
which considered certain measures of business activities, such as
employment, investments and revenues.

Income taxes - The results from the businesses comprising United
States Steel were included in the consolidated federal income tax
returns of Marathon through 2001. The consolidated provision and the
related tax payments or refunds were reflected in United States
Steel's combined financial statements in accordance with Marathon's
tax allocation policy. In general, such policy provided that the
consolidated tax provision and related tax payments or refunds were
allocated to United States Steel, based principally upon the financial
income, taxable income, credits, preferences and other amounts
directly related to United States Steel.

For tax provision and settlement purposes, tax benefits resulting
from attributes (principally net operating losses and various tax
credits), which could not be utilized by United States Steel on a
separate return basis but which could be utilized on a consolidated
basis in that year or in a carryback year, were allocated to United
States Steel if it generated the attributes. As a result, the
allocated group amounts of taxes payable or refundable were not
necessarily comparable to those that would have resulted if United
States Steel had filed its own separate tax returns.

In connection with the Separation discussed in Note 2, United
States Steel and Marathon entered into a tax sharing agreement, which
is discussed in Note 14.

F-6

- --------------------------------------------------------------------------------
2. The Separation

On December 31, 2001, in accordance with the Agreement and Plan of
Reorganization approved by the shareholders of Marathon, Marathon
converted each share of Steel Stock into the right to receive one
share of United States Steel common stock (the Separation).

In connection with the Separation, United States Steel was
required to repay or replace certain indebtedness and other
obligations of Marathon so that the amount of indebtedness and other
obligations for which United States Steel was responsible immediately
following the Separation would be $900 million less than the net
amounts attributed to United States Steel immediately prior to the
Separation (Value Transfer). Any difference between the two amounts,
adjusted for the Value Transfer, was to be settled in cash (Cash
Settlement). During the last six months of 2001, United States Steel
completed a number of financings in order to repay or replace certain
indebtedness and other obligations of Marathon. At December 31, 2001,
the net debt and other obligations of United States Steel was $54
million less than the net debt and other obligations attributed to
United States Steel, adjusted for the Value Transfer. As a result,
United States Steel recorded a $54 million payable to Marathon for the
Cash Settlement. In accordance with the terms of the Separation,
United States Steel paid Marathon $54 million, plus applicable
interest, on February 6, 2002.

The net assets of United States Steel at Separation were
approximately the same as the net assets attributed to United States
Steel immediately prior to the Separation, except for the Value
Transfer and the impacts of certain other transactions directly
related to the Separation. The following table reconciles the net
assets attributed to United States Steel immediately prior to the
Separation with the net assets of United States Steel immediately
following the Separation:

(In millions)
---------------------------------------------------------------------
Net assets of United States Steel prior to Separation $1,551
Value Transfer $ 900
Separation costs funded by Marathon 62
Other Separation adjustments 51
-----
Increase in net assets related to Separation 1,013
------
Net assets of United States Steel $2,564
---------------------------------------------------------------------

In connection with the Separation, United States Steel and
Marathon entered into the following Agreements:

Financial Matters Agreement - This agreement establishes the
responsibilities of United States Steel and Marathon relating to
certain corporate obligations of Marathon at the time of Separation as
follows:

. The assumption by United States Steel of certain industrial
revenue bonds and certain other financial obligations of
Marathon. See Notes 11 and 26 for details.

. Obligations for which Marathon is solely responsible.

. Obligations of Marathon for which United States Steel
remains contingently liable. See Note 26 for details.

. Obligations of United States Steel for which Marathon
remains contingently liable.

Tax Sharing Agreement - See Note 14, for a discussion of this
agreement.

Transition Services Agreement - This agreement provides that, to the
extent that one company or the other is not able to immediately
service its own needs relating to services formerly managed on a
corporate-wide basis, United States Steel and Marathon will enter into
a transition services agreement whereby one company will provide such
services to the other to the extent requested if the providing company
is able to do so. Such agreements will be for a term of up to twelve
months and be on a cost reimbursement basis.

License Agreement - This agreement granted to United States Steel a
non-exclusive license to use the USX name rights and certain
intellectual property with the right to sublicense.

Insurance Assistance Agreement - This agreement provides for the
division of responsibility for joint insurance arrangements and the
associated payment of insurance claims and deductibles following the
Separation for claims associated with pre-Separation periods.

For other activities between United States Steel and Marathon in
2001 and prior periods, see Note 15.

F-7

- --------------------------------------------------------------------------------
3. Summary of Principal Accounting Policies

Principles applied in consolidation - These financial statements
include the accounts of United States Steel and its majority-owned
subsidiaries.

Investments in entities over which United States Steel has
significant influence are accounted for using the equity method of
accounting and are carried at United States Steel's share of net
assets plus loans and advances. Differences in the basis of the
investment and the underlying net asset value of the investee, if any,
are amortized into earnings over the remaining useful life of the
associated assets.

Investments in companies whose stock is publicly traded are
carried generally at market value. The difference between the cost of
these investments and market value is recorded in other comprehensive
income (net of tax). Investments in companies whose stock has no
readily determinable fair value are carried at cost and are
periodically reviewed for impairment.

Income (loss) from investees includes United States Steel's
proportionate share of income (loss) from equity method investments.
Also, gains or losses from changes in ownership of unconsolidated
investees are recognized in the period of change.

Use of estimates - Generally accepted accounting principles require
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at year-end and the reported amounts of revenues and
expenses during the year. Significant items subject to such estimates
and assumptions include the carrying value of property, plant and
equipment; valuation allowances for receivables, inventories and
deferred income tax assets; environmental liabilities; liabilities for
potential tax deficiencies and potential litigation claims and
settlements; and assets and obligations related to employee benefits.
Additionally, certain estimated liabilities are recorded when
management commits to a plan to close an operating facility or to exit
a business activity. Actual results could differ from the estimates
and assumptions used.

Revenue recognition - Revenues are primarily recognized when products
are shipped or services are provided to customers, the sales price is
fixed and determinable, collectibility is reasonably assured, and
title and risks of ownership have passed to the buyer. Costs
associated with revenues, including shipping and other transportation
costs, are recorded in cost of revenues.

Cash and cash equivalents - Cash and cash equivalents include cash on
hand and on deposit and investments in highly liquid debt instruments
with maturities generally of three months or less.

Inventories - Inventories are carried at lower of cost or market on a
worldwide basis. Cost of inventories is determined primarily under the
last-in, first-out (LIFO) method.

Derivative instruments - United States Steel uses commodity-based and
foreign currency derivative instruments to manage its exposure to
price risk. Futures, forwards, swaps and options are used to reduce
the effects of fluctuations in the purchase price of natural gas and
nonferrous metals and also certain business transactions denominated
in foreign currencies. United States Steel has not elected to
designate derivative instruments as qualifying for hedge accounting
treatment. As a result, the changes in fair value of all derivatives
are recognized immediately in results of operations.

Property, plant and equipment - Depreciation is primarily computed
using a modified straight-line method based upon estimated lives of
assets and production levels. The modification factors for domestic
steel producing assets range from a minimum of 85% at a production
level below 81% of capability, to a maximum of 105% for a 100%
production level. No modification is made at the 95% production level,
considered the normal long-range level. For certain equipment related
to the railroad operations, depreciation is computed on the straight-
line method, utilizing a composite or grouped asset approach, based on
estimated lives of the assets.

Depletion of mineral properties is based on rates which are
expected to amortize cost over the estimated tonnage of minerals to be
removed.

United States Steel evaluates impairment of its property, plant
and equipment on an individual asset basis or by logical groupings of
assets. Assets deemed to be impaired are written down to their fair
value, including any related goodwill, using discounted future cash
flows and, if available, comparable market values.

When property, plant and equipment depreciated on an individual
basis are sold or otherwise disposed of, any gains or losses are
reflected in income. Gains on disposal of long-lived assets are
recognized when earned, which is generally at the time of closing. If
a loss on disposal is expected, such losses are recognized when the
assets are reclassified as assets held for sale. Proceeds from
disposal of property, plant and equipment depreciated on a group basis
are credited to accumulated depreciation, depletion and amortization
with no immediate effect on income.

F-8

Major maintenance activities - United States Steel incurs planned
major maintenance costs primarily for blast furnace relines. Costs
that extend the life of the asset are separately capitalized in
property, plant and equipment and are amortized over their estimated
useful life, which is generally the period until the next scheduled
reline.

Environmental remediation - Environmental expenditures are capitalized
if the costs mitigate or prevent future contamination or if the costs
improve existing assets' environmental safety or efficiency. United
States Steel provides for remediation costs and penalties when the
responsibility to remediate is probable and the amount of associated
costs is reasonably determinable. Generally, the timing of remediation
accruals coincides with completion of a feasibility study or the
commitment to a formal plan of action. Remediation liabilities are
accrued based on estimates of known environmental exposure and are
discounted in certain instances.

Pensions, other postretirement and postemployment benefits -United
States Steel has noncontributory defined benefit pension plans
covering most U.S. employees and defined benefit retiree health care
and life insurance plans (other postretirement benefits) covering most
U.S. employees on their retirement. The net pension and other
postretirement benefits obligations recorded and the related periodic
costs are based on, among other things, assumptions of the discount
rate, estimated return on plan assets, salary increases, the mortality
of participants and the current level and escalation of health care
costs in the future. Additionally, United States Steel recognizes an
obligation to provide postemployment benefits, primarily for
disability-related claims covering indemnity and medical payments to
certain U.S. employees. The obligation for these claims and the
related periodic costs are measured using actuarial techniques and
assumptions. Actuarial gains and losses are deferred and amortized
over future periods.

Concentration of credit and business risks - United States Steel is
exposed to credit risk in the event of nonpayment by customers
principally within the automotive, steel and construction industries.
Changes in these industries may significantly affect management's
estimates and United States Steel's financial performance. United
States Steel mitigates its exposure to credit risk by performing
ongoing credit evaluations and, when deemed necessary, requiring
letters of credit, guarantees or collateral.

The majority of customers of United States Steel are located in
the United States with the remainder primarily located in Central
Europe. No single customer accounts for more than 5% of gross annual
revenues.

Stock-based compensation - In 1995, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standards (SFAS)
No. 123, "Accounting for Stock-Based Compensation." The Company has
elected to continue to apply the principles of Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees."

Deferred taxes - Deferred tax assets and liabilities are recognized
for the estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. The realization of
deferred tax assets is assessed periodically based on several
interrelated factors. These factors include United States Steel's
expectation to generate sufficient future taxable income and
management's intent regarding the permanent reinvestment of the
earnings from certain foreign subsidiaries. U.S. deferred tax
liabilities have not been recognized for the undistributed earnings of
certain foreign subsidiaries, primarily USSK, because management
intends to permanently reinvest such earnings in those foreign
operations.

Insurance - United States Steel is insured for catastrophic casualty
and certain property and business interruption exposures, as well as
those risks required to be insured by law or contract. Costs resulting
from noninsured losses are charged against income upon occurrence.

Reclassifications - Certain reclassifications of prior years' data
have been made to conform to 2001 classifications.

- --------------------------------------------------------------------------------
4. New Accounting Standards

Effective January 1, 2001, United States Steel adopted SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as
amended by SFAS Nos. 137 and 138. This Statement, as amended, requires
recognition of all derivatives at fair value as either assets or
liabilities. A cumulative effect adjustment relating to the adoption
of SFAS No. 133 was recognized in other comprehensive income. The
cumulative effect adjustment relates only to deferred gains or losses
for hedge transactions as of December 31, 2000. The effect of adoption
of SFAS No. 133 was less than $1 million, net of tax.

F-9

In June 2001, the FASB issued SFAS No. 141 "Business
Combinations," SFAS No. 142 "Goodwill and Other Intangible Assets"
and SFAS No. 143 "Accounting for Asset Retirement Obligations." The
adoption of SFAS 141 and 142 on January 1, 2002, did not have a
material impact on the results of operations or financial position
of United States Steel.

SFAS No. 143 establishes a new accounting model for the
recognition and measurement of retirement obligations associated
with tangible long-lived assets. SFAS No. 143 requires that an
asset retirement obligation should be capitalized as part of the
cost of the related long-lived asset and subsequently allocated to
expense using a systematic and rational method. United States Steel
will adopt the Statement effective January 1, 2003. The transition
adjustment resulting from the adoption of SFAS No. 143 will be
reported as a cumulative effect of a change in accounting
principle. At this time, United States Steel has not completed its
assessment of the effect of the adoption of this Statement on
either its financial position or results of operations.

In August 2001, the FASB approved SFAS No. 144, "Accounting for
Impairment or Disposal of Long-Lived Assets" (SFAS No. 144). This
Statement establishes a single accounting model for long-lived
assets to be disposed of by sale and provides additional
implementation guidance for assets to be held and used and assets
to be disposed of other than by sale. United States Steel adopted
this Statement effective January 1, 2002. There were no financial
statement implications related to the adoption of SFAS No. 144, and
the guidance will be applied on a prospective basis.

- --------------------------------------------------------------------------------
5. Business Combinations

On November 24, 2000, United States Steel acquired U. S. Steel
Kosice, s.r.o. (USSK), which is located in the Slovak Republic.
USSK was formed in June 2000 to hold the steel operations and
related assets of VSZ a.s. (VSZ), a diversified Slovak corporation.
The purchase price for USSK consisted of cash payments of $69
million in 2000, $14 million in 2001 and additional consideration
of not less than $25 million and up to $75 million was contingent
upon the performance of USSK in 2001. Based on the performance of
USSK in 2001, the maximum contingent consideration has been accrued
and will be paid in two installments of $37.5 million each in 2002
and 2003, resulting in total cash consideration of $158 million.
Additionally, $325 million of debt and $226 million of other
liabilities were included with the acquisition. The acquisition was
accounted for under the purchase method of accounting. The 2000
results of operations include the operations of USSK from the date
of acquisition. Prior to this transaction, United States Steel and
VSZ were equal partners in VSZ U. S. Steel, s.r.o. (VSZUSS), a tin
mill products manufacturer. The assets of USSK included VSZ's
interest in VSZUSS. The acquisition of the remaining interest in
VSZUSS was accounted for under the purchase method of accounting.
Prior to the acquisition, United States Steel had accounted for its
investment in VSZUSS under the equity method of accounting.

On March 1, 2001, United States Steel completed the purchase of
the tin mill products business of LTV Corporation (LTV), which is
now operated as East Chicago Tin. In this noncash transaction,
United States Steel assumed approximately $66 million of employee
related obligations from LTV. The acquisition was accounted for
using the purchase method of accounting. Results of operations for
the year 2001 include the operations of East Chicago Tin from the
date of acquisition. In the fourth quarter of 2001, United States
Steel recorded an intangible asset impairment of $20 million,
related to the five-year agreement for LTV to supply United States
Steel with pickled hot bands entered into in conjunction with the
acquisition of LTV's tin mill products business. This impairment
was recorded because LTV permanently ceased operations at their
plants during the quarter pursuant to a bankruptcy court order.

On March 23, 2001, Transtar, Inc. (Transtar) completed a
reorganization with its two voting shareholders, United States
Steel and Transtar Holdings, L.P. (Holdings), an affiliate of
Blackstone Capital Partners L.P. As a result of this transaction,
United States Steel became sole owner of Transtar and certain of
its subsidiaries. Holdings became owner of the other subsidiaries
of Transtar. Because the reorganization involved the sale of
certain subsidiaries to Holdings, a noncontrolling shareholder,
Transtar recorded a gain by comparing the carrying value of the
businesses sold to their fair value. United States Steel's share of
the gain recognized by Transtar was $68 million, which is included
in income (loss) from investees. Concurrently, United States Steel
accounted for the change in ownership of Transtar using the step-
acquisition purchase method of accounting. Also, in connection with
this transaction, United States Steel recognized a favorable
deferred tax adjustment of $33 million related to its investment in
the stock of Transtar that was no longer required when United
States Steel acquired 100 percent of Transtar. United States Steel
previously accounted for its investment in Transtar under the
equity method of accounting.

F-10

The following unaudited pro forma data for United States Steel
includes the results of operations of the above acquisitions giving
effect to them as if they had been consummated at the beginning of
the years presented. Pro forma results for 2001 exclude the $68
million gain and $33 million tax benefit recorded as a result of
the Transtar transaction. In addition, VSZ did not historically
provide historical carve-out financial information for its steel
activities prepared in accordance with generally accepted
accounting principles in the United States of America. Therefore,
United States Steel made certain estimates and assumptions
regarding revenues and costs used in the preparation of the
unaudited pro forma data relating to USSK for the year 2000.

The following unaudited pro forma data is based on historical
information and does not necessarily reflect the actual results
that would have occurred nor is it necessarily indicative of future
results of operations.

(In millions) (Unaudited) 2001 2000
-------------------------------------------------------------------
Revenues and other income $ 6,353 $ 7,355
Net income (loss) (321) 58
Per share - basic and diluted (3.60) .65
-------------------------------------------------------------------

- --------------------------------------------------------------------------------
6. Extraordinary Losses

In 1999, United States Steel irrevocably deposited with a trustee
the entire 5.5 million common shares it owned in RTI International
Metals, Inc. (RTI). The deposit of the shares resulted in the
satisfaction of United States Steel's obligation under its 6/3//4%
Exchangeable Notes (indexed debt) due February 1, 2000. Under the
terms of the indenture, the trustee exchanged one RTI share for
each note at maturity. All shares were required for satisfaction of
the indexed debt; therefore, none reverted back to United States
Steel.

As a result of the above transaction, United States Steel
recorded in 1999 an extraordinary loss of $5 million, net of a $3
million income tax benefit, representing prepaid interest expense
and the write-off of unamortized debt issue costs, and a pretax
charge of $22 million, representing the difference between the
carrying value of the investment in RTI and the carrying value of
the indexed debt, which is included in net gains on disposal of
assets.

In 1999, Republic Technologies International, LLC, an equity
investee of United States Steel, recorded an extraordinary loss
related to the early extinguishment of debt. As a result, United
States Steel recorded an extraordinary loss of $2 million, net of a
$1 million income tax benefit, representing its share of Republic's
extraordinary loss.

- --------------------------------------------------------------------------------
7. Other Items

(In millions) 2001 2000 1999
------------------------------------------------------------------------------------------

Net interest and other financial costs

Interest and other financial income:
Interest income $ 13 $ 3 $ 1
Other (1) 7 -
----- ----- -----
Total 12 10 1
----- ----- -----
Interest and other financial costs:
Interest incurred 186 88 45
Less interest capitalized 1 3 6
----- ----- -----
Net interest 185 85 39
Interest on tax issues (58) /(a)/ 11 15
Financial costs on trust preferred securities 13 13 13
Financial costs on preferred stock of subsidiary 11 5 5
Amortization of discounts 2 1 1
Expenses on sales of accounts receivable - - 15
Adjustment to settlement value of indexed debt - - (13)
----- ----- -----
Total 153 115 75
----- ----- -----
Net interest and other financial costs $ 141 $ 105 $ 74
------------------------------------------------------------------------------------------

/(a)/ Includes a favorable adjustment of $67 million related to
prior years' taxes.

Foreign currency transactions

For 2001 and 2000, the aggregate foreign currency
transaction gains (losses) included in determining net
income were $(1) million and $7 million, respectively. There
were no foreign currency transaction gains or losses in
1999.

F-11

- --------------------------------------------------------------------------------
8. Segment Information

United States Steel consists of two reportable operating segments:
1) Domestic Steel and 2) U. S. Steel Kosice (USSK). Domestic Steel
is engaged in the domestic production, sale and transportation of
steel mill products, coke, taconite pellets and coal; the
management of mineral resources; real estate development; and
engineering and consulting services. USSK, with operations
primarily in the Slovak Republic, is engaged in the production and
sale of steel mill products and coke and primarily serves Central
European markets.

Segment income does not include net interest and other
financial costs or the provision (credit) for income taxes.
Additionally, the following items are not allocated to operating
segments:

. Net pension credits
. Certain costs related to former United States Steel
business activities
. Allocated Marathon corporate general and administrative
costs. These costs primarily consist of employment costs
including pension effects, professional services,
facilities and other related costs associated with
corporate activities.
. Certain other items not allocated to operating segments
for business performance reporting purposes (see
reconciliation below)

Information on assets by segment is not provided as it is not
reviewed by the chief operating decision maker.

(In millions) Domestic Steel USSK Total
------------------------------------------------------------------------------------------------------------------

2001
Revenues and other income:
Customer $5,323 $1,060 $6,383
Intersegment/(a)/ 6 - 6
Marathon/(a)/ 7 - 7
Equity in earnings (losses) of unconsolidated investees (51) 1 (50)
Other 22 3 25
------ ------ ------
Total revenues and other income $5,307 $1,064 $6,371
====== ====== ======
Segment income (loss) $ (461) $ 123 $ (338)
Significant noncash items included in segment income -
Depreciation, depletion and amortization/(b)/ 269 37 306
Capital expenditures 226 61 287
------------------------------------------------------------------------------------------------------------------
2000/(c)/
Revenues and other income:
Customer $5,989 $ 92 $6,081
Marathon/(a)/ 17 - 17
Equity in earnings of unconsolidated investees 28 - 28
Other 50 - 50
------ ------ ------
Total revenues and other income $6,084 $ 92 $6,176
====== ====== ======
Segment income $ 98 $ 2 $ 100
Significant noncash items included in segment income -
Depreciation, depletion and amortization/(b)/ 285 4 289
Capital expenditures 239 5 244
------------------------------------------------------------------------------------------------------------------
1999/(c)/
Revenues and other income:
Customer $5,519 $ - $5,519
Marathon/(a)/ 17 - 17
Equity in losses of unconsolidated investees (35) - (35)
Other 45 - 45
------ ------ ------
Total revenues and other income $5,546 $ - $5,546
====== ====== ======
Segment income $ 115 $ - $ 115
Significant noncash items included in segment income -
Depreciation, depletion and amortization 304 - 304
Capital expenditures/(d)/ 286 - 286
------------------------------------------------------------------------------------------------------------------

/(a)/ Revenues and transfers between segments and with Marathon
were conducted under terms comparable to those with
unrelated parties.
/(b)/ Differences between segment total and United States Steel
total represents amounts for impairment of assets related to
the Fairless shutdown and the intangible asset related to
the five-year agreement for LTV to supply pickled hot bands
in 2001 and impairment of coal assets in 2000.
/(c)/ Certain amounts have been reclassified from segment results
to items not allocated to segments to conform to 2001
presentation.
/(d)/ Differences between segment total and United States Steel
total represent amounts related to corporate administrative
activities.

F-12

The following schedules reconcile segment amounts to amounts
reported in United States Steel's financial statements:

(In millions) 2001 2000 1999
----------------------------------------------------------------------------------------------

Revenues and Other Income:
Revenues and other income of reportable segments $6,371 $6,176 $5,546
Items not allocated to segments:
Gain on Transtar reorganization 68 - -
Insurance recoveries related to USS-POSCO fire 46 - -
Asset impairment - trade receivables (104) (8) -
Impairment and other costs related to
investments in equity investees - (36) (54)
Loss on investment used to satisfy indexed
debt obligations - - (22)
Elimination for intersegment revenues (6) - -
------ ------ ------
Total revenues and other income $6,375 $6,132 $5,470
====== ====== ======
Income:
Income (loss) for reportable segments $ (338) $ 100 $ 115
Items not allocated to segment income:
Net pension credits 146 266 193
Costs related to former businesses (76) (86) (83)
Administrative expenses (22) (25) (17)
------ ------ ------
(290) 255 208
Other items not allocated to segment income:
Gain on Transtar reorganization 68 - -
Insurance recoveries related to USS-POSCO fire 46 - -
Asset impairments - trade receivables (100) (8) -
- other receivables (46) - -
Impairment and other costs related to
investments in equity investees - (36) (54)
Loss on investment used to satisfy indexed
debt obligations - - (22)
Costs related to Fairless shutdown (38) - -
Costs related to Separation (25) - -
Asset impairments - intangible assets (20) - -
- coal - (71) -
Environmental and legal contingencies - (36) (17)
Voluntary early retirement program pension settlement - - 35
------ ------ ------
Total income (loss) from operations $ (405) $ 104 $ 150
----------------------------------------------------------------------------------------------

Revenues by Product:
(In millions) 2001 2000 1999
----------------------------------------------------------------------------------------------

Sheet and semi-finished steel products $3,163 $3,288 $3,433
Tubular products 755 754 221
Plate and tin mill products 1,273 977 919
Raw materials (coal, coke and iron ore) 485 626 549
Other/(a)/ 610 445 414
------ ------ ------
Total $6,286 $6,090 $5,536
----------------------------------------------------------------------------------------------

/(a)/ Includes revenue from the sale of steel production by-
products, engineering and consulting services, real estate
development and resource management, and, beginning in 2001,
transportation services.

Geographic Area:

The information below summarizes revenue and other income
and property, plant and equipment and investments (assets) at the
manufacturing facilities in the different geographic areas.

Revenues
and
(In millions) Year Other Income Assets
--------------------------------------------------------------------------------------------------

United States 2001 $5,302 $2,927
2000 6,027 2,745
1999 5,452 2,889
Slovak Republic 2001 1,030 429
2000 95 376
1999 3 60
Other Foreign Countries 2001 43 11
2000 10 10
1999 15 3
Total 2001 $6,375 $3,367
2000 6,132 3,131
1999 5,470 2,952
--------------------------------------------------------------------------------------------------

F-13

- --------------------------------------------------------------------------------
9. Supplemental Cash Flow Information

(In millions) 2001 2000 1999
-----------------------------------------------------------------------------------------------------------

Noncash investing and financing activities:
Assets acquired through capital leases $ 7 $ - $ -
Steel Stock issued for employee stock plans 9 5 2
Disposal of assets:
Deposit of RTI common shares in satisfaction of indexed debt - - 56
Interest in USS/Kobe contributed to Republic - - 40
Other disposals of assets - notes or common stock received 4 14 1
Business combinations:
Acquisition of East Chicago Tin - liabilities assumed 66 - -
Acquisition of Transtar:
Liabilities assumed 114 - -
Investee liabilities consolidated in step acquisition 145 - -
Acquisition of USSK:
Liabilities assumed - 568 -
Accrual of contingent consideration at present value 45 21 -
Investee liabilities consolidated in step acquisition - 3 -
Other acquisitions:
Liabilities assumed - - 26
Investee liabilities consolidated in step acquisition - - 26
Separation activities (see Note 2):
Marathon obligations historically attributed to
United States Steel retained by Marathon in the
Separation (Value Transfer) 900 - -
Separation costs funded by Marathon 62 - -
Other Separation adjustments 51 - -
-----------------------------------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
10. Short-Term Debt

USSK has a short-term $10 million credit facility that
expires in November 2002. The facility, which is nonrecourse
to United States Steel, bears interest on prevailing short-
term market rates plus 1%. USSK is obligated to pay a .25%
commitment fee on undrawn amounts. At December 31, 2001,
there were no borrowings against this facility.

- --------------------------------------------------------------------------------
11. Long-Term Debt

Interest December 31
- -------------------------------------------------------------------------------------------------------------------------------
(In millions) Rates - % Maturity 2001 2000
-----------------------------------------------------------------------------------------------------------

Senior Notes 10 3/4 2008 $ 535 $ -
Senior Quarterly Income Debt Securities 10 2031 49 -
Obligations relating to Industrial Development and
Environmental Improvement Bonds and Notes 1 17/25-6 7/8 2009 - 2033 471 -
Inventory facility 2004 - -
Fairfield Caster Lease 2002 - 2012 84 -
All other obligations, including other capital leases 6 -
USSK loan 8 1/2 2010 325 -
USSK credit facility - -
Marathon debt attributed to United States Steel - 2,387
------ -------
Total 1,470 2,387
Less unamortized discount 4 12
Less amount due within one year 32 139
------ -------
Long-term debt due after one year $1,434 $ 2,236
-----------------------------------------------------------------------------------------------------------

Marathon debt attributed to United States Steel was
determined based on the cash flows of United States Steel
(see Note 2). Included in Marathon debt attributable to
United States Steel was an accounts receivable facility
accounted for as a secured borrowing. At December 31, 2000,
$350 million was outstanding under this facility. The
facility was terminated and repaid in 2001.

Senior Notes - $385 million and $150 million of Senior Notes
(Notes) were issued on July 27, 2001 and September 11, 2001,
respectively. Interest is payable semi-annually commencing
February 1, 2002. Up to 35% of the aggregate principal
amount of the Notes may be redeemed at any time prior to
August 1, 2004, with the proceeds of public offerings of
certain capital stock at a redemption price of 110.75% of
the principal amount plus accrued interest.

F-14

Senior Quarterly Income Debt Securities (SQUIDS) - On
December 19, 2001, SQUIDS were issued in an exchange for
certain preferred securities of Marathon. Interest is
payable quarterly commencing March 31, 2002. The SQUIDS will
be redeemable at the option of United States Steel, in whole
or in part, on or after December 31, 2006, at 100% of the
principal amount redeemed together with accrued but unpaid
interest to the redemption date.

Obligations relating to Industrial Development and
Environmental Improvement Bonds and Notes - Under the
Financial Matters Agreement (see Note 2), United States
Steel assumed and will discharge all principal, interest and
other duties of Marathon under these obligations, including
any amounts due upon any defaults or accelerations of any of
the obligations, other than defaults or accelerations caused
by any action of Marathon. The agreement also provides that
on or before the tenth anniversary of the Separation, United
States Steel will provide for the discharge of Marathon from
any remaining liability under any of these obligations. At
December 31, 2001, $141 million of the $471 million were
supported by letter of credit arrangements that could become
short-term obligations under certain circumstances,
including the ability of the remarketing agent to remarket
the bonds.

Inventory facility - On November 30, 2001, United States
Steel entered into a revolving credit facility that provides
for borrowings of up to $400 million which expires on
December 31, 2004. The facility is secured by all domestic
inventory and related assets, including receivables other
than those sold under the Receivables Purchase Agreement
(see Note 22). The amount outstanding under the facility
will not exceed the permitted "borrowing base" calculated on
percentages of the values of eligible inventory. At December
31, 2001, $250 million was available to United States Steel
under this facility. Interest on borrowings will be
calculated based on either LIBOR or J. P. Morgan Chase's
prime rate using spreads determined by credit ratings.

Fairfield Caster Lease - United States Steel is the lessee
of a slab caster at the Fairfield Works facility in Alabama.
The sublease is accounted for as a capital lease. Marathon
is the obligor under the lease. Under the Financial Matters
Agreement, United States Steel assumed and will discharge
all obligations under this lease. This lease is an
amortizing financing with a final maturity of 2012, subject
to additional extensions.

USSK loan - USSK has a loan with a group of financial
institutions which is nonrecourse to United States Steel.
The loan is subject to annual repayments of $20 million
beginning in 2003, with the balance due in 2010. Mandatory
prepayments of the loan may be required based upon a cash
flow formula or a change in control of United States Steel.
The amount of the mandatory prepayment under the cash flow
formula, payable April 1, 2002, is $26 million.

USSK credit facility - USSK has a $40 million credit
facility that expires in December 2004. The facility, which
is nonrecourse to United States Steel, bears interest on
prevailing market rates plus .90%. USSK is obligated to pay
a .25% commitment fee on undrawn amounts.

Covenants - The Notes, SQUIDS, USSK loan, USSK credit
facility and the Inventory facility may be declared
immediately due and payable in the event of a change in
control of United States Steel, as defined in the related
agreements. In such event, United States Steel may also be
required to either repurchase the leased Fairfield Caster
for $96 million or provide a letter of credit to secure the
remaining obligation. Additionally, the Notes contain
various other restrictive covenants, the majority of which
will not apply upon the attainment of an investment grade
rating, including restrictions on the payment of dividends,
limits on additional borrowings, including limiting the
amount of borrowings secured by inventories and the accounts
receivable securitization, limits on sale/leaseback, limits
on the use of funds from asset sales and sale of the stock
of subsidiaries, and restrictions on our ability to make
investments in joint ventures or make certain acquisitions.
The Inventory facility imposes additional restrictions
including financial covenants that require that United
States Steel meet interest expense coverage and leverage
ratios beginning on September 30, 2002, limitations on
capital expenditures, and restrictions on investments. If
these covenants are breached, creditors would be able to
declare their obligations immediately due and payable and
foreclose on any collateral.

Debt Maturities - Aggregate maturities of long-term debt
are as follows (In millions):

Year ended December 31,
Total 2002 2003 2004 2005 2006 Later Years
-----------------------------------------------------------------------------------------------------

$ 1,470 $ 32 $ 26 $ 25 $ 25 $ 26 $ 1,336

F-15

- --------------------------------------------------------------------------------
12. Pensions and Other Postretirement Benefits

United States Steel has noncontributory defined benefit
pension plans covering substantially all U.S. employees.
Benefits under these plans are based upon years of service
and final average pensionable earnings, or a minimum benefit
based upon years of service, whichever is greater. In
addition, pension benefits are also provided to most U.S.
salaried employees based upon a percent of total career
pensionable earnings. United States Steel also participates
in multiemployer plans, most of which are defined benefit
plans associated with coal operations.
United States Steel also has defined benefit retiree
health care and life insurance plans (other benefits)
covering most U.S. employees upon their retirement. Health
care benefits are provided through comprehensive hospital,
surgical and major medical benefit provisions or through
health maintenance organizations, both subject to various
cost sharing features. Life insurance benefits are provided
to nonunion retiree beneficiaries primarily based on
employees' annual base salary at retirement. For U.S. union
retirees, life insurance benefits are provided primarily
based on fixed amounts negotiated in labor contracts with
the appropriate unions.

Pension Benefits Other Benefits
------------------------ ----------------------
(In millions) 2001 2000 2001 2000
-----------------------------------------------------------------------------------------------------------

Change in benefit obligations
Benefit obligations at January 1 $ 6,921 $ 6,716 $ 2,149 $ 1,896
Service cost 89 76 15 12
Interest cost 496 505 161 147
Plan amendments 4 - - -
Actuarial losses 469 430 261 260
Plan merger and acquisition 106/(a)/ - 152/(a)/ -
Settlements, curtailments and termination benefits 21/(b)/ - - -
Benefits paid (748) (806) (183) (166)
-------- ------- -------- -------
Benefit obligations at December 31 $ 7,358 $ 6,921 $ 2,555 $ 2,149
-----------------------------------------------------------------------------------------------------------
Change in plan assets
Fair value of plan assets at January 1 $ 9,312 $ 9,995 $ 842 $ 281
Actual return on plan assets (26) 139 21 26
Acquisition 62 (1) - -
Employer contributions - - 17 576/(c)/
Trustee distributions/(d)/ (17) (16) - -
Benefits paid from plan assets (748) (805) (152) (41)
-------- ------- -------- -------
Fair value of plan assets at December 31 $ 8,583 $ 9,312 $ 728 $ 842
-----------------------------------------------------------------------------------------------------------
Funded status of plans at December 31 $ 1,225/(e)/ $ 2,391/(e)/ $ (1,827) $(1,307)
Unrecognized net gain from transition (1) (2) - -
Unrecognized prior service cost 629 719 7 12
Unrecognized actuarial (gains) losses 866 (474) 57 (241)
Additional minimum liability (32)/(f)/ (7)/(f)/ - -
-------- ------- -------- -------
Prepaid (accrued) benefit cost $ 2,687 $ 2,627 $ (1,763) $(1,536)
-----------------------------------------------------------------------------------------------------------

/(a)/ Reflects merger of Transtar benefit plans and LTV
Steel's tin mill employee obligations and recognition
of the obligation associated with retiree medical
benefits for the pre-1989 Lorain Works' retirees which
had been assumed by USS/Kobe Steel Company (USS/Kobe)
in 1989 at the formation of the joint venture.
Republic Technologies International Holdings, LLC
(Republic) became responsible for all of USS/Kobe's
employee benefit liabilities, except for active
employees of the tubular processing facility, when
USS/Kobe was merged into Republic in 1999. Republic
filed for bankruptcy in April 2001, as discussed in
Note 16. Subsequently, Republic stopped reimbursing
United States Steel for the pre-1989 Lorain Works'
retiree medical benefits. Due to these events, United
States Steel recorded an obligation for payment of the
benefits and an associated receivable from Republic
for the reimbursement of these payments. These pre-
1989 Lorain Works' retiree medical benefits are the
subject of a pending request for payment as
administrative expenses in the bankruptcy proceedings;
however, even if the petition is successful,
Republic's ability to pay is uncertain; therefore, a
reserve has been established for a portion of the
receivable.
/(b)/ Recognizes increases due principally to a non-union
voluntary early retirement program offered in
conjunction with the Separation and a shutdown of the
majority of the Fairless Plant.
/(c)/ Includes contributions of $530 million to a Voluntary
Employee Benefit Association trust, comprised of $30
million in contractual requirements and an elective
contribution of $500 million. Also includes a $30
million elective contribution to the non-union retiree
life insurance trust.
/(d)/ Represents transfers of excess pension assets to fund
retiree health care benefits accounts under Section
420 of the Internal Revenue Code.

/(e)/ Includes a plan that has accumulated benefit
obligations in excess of plan assets: 2001 2000
-------- ---------

Aggregate accumulated benefit obligations $ (58) $ (40)
Aggregate projected benefit obligations (PBO) (69) (49)
Aggregate plan assets - -

Of the $69 million PBO total, $8 million represents
the portion of pension benefits applicable to Marathon
employees' corporate service with USX. Such amount
will be reimbursed by Marathon and is reflected as a
receivable on the balance sheet. The aggregate
accumulated benefit obligation is included in employee
benefits in the balance sheet.
/(f)/ Additional minimum liability recorded was offset by
the following:

Intangible asset $ - $ 1
======== ========

Accumulated other comprehensive income (losses):
Beginning of year $ (4) $ (7)
Change during year (net of tax) (16) 3
-------- --------
Balance at end of year $ (20) $ (4)
------------------------------------------------------------------------------------

F-16

Pension Benefits Other Benefits
----------------------------------- ------------------------------------
(In millions) 2001 2000 1999 2001 2000 1999
--------------------------------------------------------------------------------------------------------------------

Components of net periodic
benefit cost (credit)
Service cost $ 89 $ 76 $ 87 $ 15 $ 12 $ 15
Interest cost 496 505 473 161 147 133
Expected return on plan assets (837) (841) (781) (60) (24) (21)
Amortization - net transition gain (1) (67) (67) - - -
- prior service costs 97 98 83 4 4 4
- actuarial (gains) losses 2 (44) 6 (3) (29) (12)
Multiemployer and
other plans - - - 12/(a)/ 9/(a)/ 7/(a)/
Settlement and
termination (gains)
losses 34/(b)/ - (35)/(b)/ - - -
------- ----- ----- ------ ------- -- ----
Net periodic benefit
cost (credit) $ (120) $(273) $(234) $ 129 $ 119 $ 126
--------------------------------------------------------------------------------------------------------------------

/(a)/ Represents payments to a multiemployer health care benefit
plan created by the Coal Industry Retiree Health Benefit Act
of 1992 based on assigned beneficiaries receiving benefits.
The present value of this unrecognized obligation is broadly
estimated to be $76 million, including the effects of future
medical inflation, and this amount could increase if
additional beneficiaries are assigned.
/(b)/ Relates primarily to voluntary early retirement programs.

Pension Benefits Other Benefits
------------------ ----------------
2001 2000 2001 2000
------------------------------------------------------------------------------

Weighted-average actuarial assumptions
at December 31:
Discount rate 7.0% 7.5% 7.0% 7.5%
Expected annual return on plan assets 8.9% 8.9% 8.0% 8.5%
Increase in compensation rate 4.0% 4.0% 4.0% 4.0%
------------------------------------------------------------------------------

For measurement purposes, an 8% annual rate of increase in the
per capita cost of covered health care benefits was assumed for
2002. The rate was assumed to decrease gradually to 5% for 2008
and remain at that level thereafter.
A one-percentage-point change in assumed health care cost
trend rates would have the following effects:

1-Percentage- 1-Percentage-
(In millions) Point Increase Point Decrease
----------------------------------------------------------------------------------------

Effect on total of service and interest cost components $ 19 $ (16)
Effect on other postretirement benefit obligations 222 (188)
----------------------------------------------------------------------------------------

United States Steel also contributes to several defined
contribution plans for its salaried employees and a small number
of wage employees. Company contributions to these plans, which for
the most part are based on a percentage of the employees' salary
depending on years of service, totaled $13 million in 2001, $11
million in 2000 and $10 million in 1999. Most union employees are
eligible to participate in a defined contribution plan where there
is no company match on savings. United States Steel also maintains
a supplemental thrift plan to provide benefits which are otherwise
limited by the Internal Revenue Service for qualified plans;
company costs under these plans totaled less than $1 million in
2001, 2000 and 1999.

- --------------------------------------------------------------------------------
13. Inventories

(In millions) December 31 2001 2000
------------------------------------------------------------------

Raw materials $ 184 $ 214
Semi-finished products 388 429
Finished products 202 210
Supplies and sundry items 96 93
------ -----
Total $ 870 $ 946
------------------------------------------------------------------

At December 31, 2001 and 2000, the LIFO method accounted for
91% of total inventory value. Current acquisition costs were
estimated to exceed the above inventory values at December 31 by
approximately $410 million in 2001 and $380 million in 2000. Cost
of revenues was reduced and income (loss) from operations was
improved by $24 million in 2001 and $3 million in 2000 as a result
of liquidations of LIFO inventories.

F-17

- --------------------------------------------------------------------------------
14. Income Taxes

Provisions (credits) for income taxes were:

2001 2000 1999
---------------------------- ----------------------------- ---------------------------------
(In millions) Current Deferred Total Current Deferred Total Current Deferred Total
----------------------------------------------------------------------------------------------------------------------

Federal $(326) $ 38 $(288) $(357) $ 340 $ (17) $ (84) $ 99 $ 15
State and local (23) (13) (36) (12) 49 37 1 8 9
Foreign 3 (7) (4) - - - 1 - 1
----- ----- ----- -------- -------- ----------- -------- -------- -----------
Total $(346) $ 18 $(328) $(369) $ 389 $ 20 $ (82) $ 107 $ 25
----------------------------------------------------------------------------------------------------------------------

A reconciliation of the federal statutory tax rate (35%) to
total provisions (credits) follows:

(In millions) 2001 2000 1999
-----------------------------------------------------------------------------------------------------------

Statutory rate applied to income (loss) before income taxes $(191) $ - $ 27
Excess percentage depletion (1) (3) (7)
Effects of foreign operations, including foreign tax credits (38) (5) (2)
State and local income taxes after federal income tax effects (23) 24 6
Credits other than foreign tax credits (3) (3) (3)
Nontaxable gain from ownership change (24) - -
Adjustments of prior years' federal income taxes (18) 5 -
Dispositions of investments (33) - -
Other 3 2 4
----- ----- ------
Total provisions (credits) $(328) $ 20 $ 25
------------------------------------------------------------------------------------------------------------------------

Deferred tax assets and liabilities resulted from the following:

(In millions) December 31 2001 2000
-------------------------------------------------------------------------------------------------------------------

Deferred tax assets:
Minimum tax credit carryforwards $ 3 $ 39
State tax loss carryforwards (expiring in 2009 through 2011) 2 55
Foreign tax loss carryforwards 20 21
Employee benefits 875 782
Receivables, payables and debt 99 52
Expected federal benefit for deducting state deferred income taxes 27 16
Contingencies and other accruals 98 71
Other 20 2
Valuation allowances:
Foreign (20) (21)
State (9) (34)
-------- --------
Total deferred tax assets/(a)/ 1,115 983
-------- --------
Deferred tax liabilities:
Property, plant and equipment 359 248
Prepaid pensions 1 ,095 1,046
Inventory 34 15
Investments in subsidiaries and equity investees 67 82
Other 74 61
-------- --------
Total deferred tax liabilities 1,629 1,452
-------- --------
Net deferred tax liabilities $ 514 $ 469
-------------------------------------------------------------------------------------------------------------------

/(a)/ United States Steel expects to generate sufficient future
taxable income to realize the benefit of its deferred tax
assets.

The consolidated tax returns of Marathon for the years 1992
through 1997 are under various stages of audit and administrative
review by the IRS. United States Steel believes it has made
adequate provision for income taxes and interest which may become
payable for years not yet settled.

Pretax loss in 2001 and 2000 included $103 million and $8
million of income, respectively, attributable to foreign sources.

Undistributed earnings of certain consolidated foreign
subsidiaries at December 31, 2001, amounted to $130 million. No
provision for deferred U.S. income taxes has been made for these
subsidiaries because United States Steel intends to permanently
reinvest such earnings in foreign operations. If such earnings were
not permanently reinvested, a deferred tax liability of
approximately $40 million would have been required.

F-18

Under the Slovak Income Tax Act, USSK is entitled to
claim an income tax credit of 100% of its tax liability
through 2004 and a 50% credit in 2005 through 2009. To
qualify for a tax credit in 2001, USSK must generate more
than 60% of its revenue from export sales; and commit to
reinvest all tax credits earned into qualifying capital
expenditures over a period of time as stipulated in the
Slovak Income Tax Act. Management believes that USSK has met
all necessary requirements for claiming a tax credit in
2001.

United States Steel and Marathon entered into a Tax
Sharing Agreement that reflects each party's rights and
obligations relating to payments and refunds of income,
sales, transfer and other taxes that are attributable to
periods beginning prior to and including the Separation Date
and taxes resulting from transactions effected in connection
with the Separation.

The Tax Sharing Agreement incorporates the general tax
sharing principles of the former tax allocation policy. In
general, United States Steel and Marathon, will make
payments between them such that, with respect to any
consolidated, combined or unitary tax returns for any
taxable period or portion thereof ending on or before the
Separation Date, the amount of taxes to be paid by each of
United States Steel and Marathon will be determined, subject
to certain adjustments, as if the former groups each filed
their own consolidated, combined or unitary tax return. The
Tax Sharing Agreement also provides for payments between
United States Steel and Marathon for certain tax adjustments
which may be made after the Separation. Other provisions
address, but are not limited to, the handling of tax audits,
settlements and return filing in cases where both United
States Steel and Marathon have an interest in the results of
these activities.

A preliminary settlement for the calendar year 2001
federal income taxes, which would have been made in March
2002 under the former tax allocation policy, was made
immediately prior to the Separation at a discounted amount
to reflect the time value of money. Under the preliminary
settlement for calendar year 2001, United States Steel
received $441 million from Marathon immediately prior to
Separation arising from the tax allocation policy. This
policy provides that United States Steel receive the benefit
of tax attributes (principally net operating losses and
various tax credits) that arose out of its business and
which were used on a consolidated basis.

Additionally, pursuant to the Tax Sharing Agreement,
United States Steel and Marathon have agreed through various
representations and covenants to protect the tax-free status
of the Separation. To the extent that a breach of a
representation or covenant results in corporate tax being
imposed, the breaching party, either United States Steel or
Marathon, will be responsible for the payment of the
corporate tax.

- --------------------------------------------------------------------------------
15. Transactions with Marathon

Revenues and purchases - United States Steel revenues for
sales to Marathon totaled $7 million in 2001 and $17 million
in both 2000 and 1999. United States Steel purchases from
Marathon totaled $30 million, $60 million and $41 million in
2001, 2000 and 1999, respectively. These transactions were
conducted under terms comparable to those with unrelated
parties.

Receivables from/payables to Marathon - At December 31, 2001
and 2000, amounts receivable or payable were included in the
balance sheet as follows:

(In millions) December 31 2001 2000
----------------------------------------------------------------------------------------------------------

Receivables:
Current:
Trade receivables $ - $ 2
Income tax settlement with Marathon (Note 1) 28 364
------- --------
Current receivables from Marathon 28 366
------- --------
Noncurrent:
Estimated future income tax settlements - 97
Reimbursements under nonqualified employee benefit plans (Note 12) 8 -
------- --------
Noncurrent receivables from Marathon 8 97
------- --------
Current payables:
Trade and income taxes - 5
Separation settlement payable (Note 2) 54 -
------- --------
Current payables to Marathon $ 54 $ 5
----------------------------------------------------------------------------------------------------------

F-19

- --------------------------------------------------------------------------------
16. Investments and Long-Term Receivables

(In millions) December 31 2001 2000
------------------------------------------------------------
Equity method investments $ 233 $ 325
Other investments 49 67
Receivables due after one year 8 5
Deposits of restricted cash 2 3
Other 54 39
------ ------
Total $ 346 $ 439
------------------------------------------------------------

Summarized financial information of investees accounted
for by the equity method of accounting follows:

(In millions) 2001 2000 1999
--------------------------------------------------------------------------------

Income data - year:
Revenues and other income $2,244 $3,484 $3,027
Operating income (loss) (97) 112 (57)
Net loss (208) (166) (193)
--------------------------------------------------------------------------------
Balance sheet data - December 31:
Current assets $ 705 $ 911
Noncurrent assets 1,604 2,196
Current liabilities 861 1,171
Noncurrent liabilities 1,340 1,307
--------------------------------------------------------------------------------

United States Steel acquired a 25% interest in VSZ during
2000. VSZ does not provide its shareholders with financial
statements prepared in accordance with accounting principles
generally accepted in the United States (USGAAP). Although
shares of VSZ are traded on the Bratislava Stock Exchange,
those securities do not have a readily determinable fair
value as defined under USGAAP. Accordingly, United States
Steel accounts for its investment in VSZ under the cost
method of accounting.

In 1999, United States Steel and Kobe Steel, Ltd. (Kobe
Steel) completed a transaction that combined the steelmaking
and bar producing assets of USS/Kobe Steel Company
(USS/Kobe) with companies controlled by Blackstone Capital
Partners II. The combined entity was named Republic
Technologies International, LLC and is a wholly owned
subsidiary of Republic Technologies International Holdings,
LLC (Republic). As a result of this transaction, United
States Steel recorded $47 million in charges related to the
impairment of the carrying value of its investment in
USS/Kobe and costs related to the formation of Republic.
These charges were included in income (loss) from investees
in 1999. In addition, United States Steel made a $15 million
equity investment in Republic. United States Steel owned 50%
of USS/Kobe and now owns 16% of Republic. United States
Steel accounted for its investment in Republic under the
equity method of accounting. During the first quarter of
2001, United States Steel discontinued applying the equity
method of accounting since investments in and advances to
Republic had been reduced to zero. On April 2, 2001,
Republic filed a voluntary petition with the U.S. Bankruptcy
Court to reorganize its operations under Chapter 11 of the
U.S. Bankruptcy Code. As a result of Republic's action,
United States Steel recorded a pretax charge of $74 million
for potentially uncollectible receivables from Republic and
recognized certain debt obligations of $14 million
previously assumed by Republic. Due to further financial
deterioration of Republic during the balance of 2001, United
States Steel recorded a pretax charge of $68 million in the
fourth quarter of 2001, related to a portion of the
remaining Republic receivables exposure and retiree medical
cost reimbursements owed by Republic. Summary financial
information of Republic is included in the table above.

United States Steel operates and sells coke and by-
products through the Clairton 1314B Partnership, L.P. in
which it is the sole general partner. United States Steel is
responsible for purchasing, operations and product sales and
accounts for its 10% interest in the partnership under the
equity method of accounting. United States Steel's share of
profits and losses was 1.75% for the years ended December
31, 2001, 2000 and 1999 and will increase to 45.75% when a
specified rate of return level is met by the limited
partners. The partnership at times had operating cash
shortfalls in 2001, after payment of distributions to the
partners, that were funded with loans from United States
Steel. As of December 31, 2001, the partnership owed United
States Steel $3 million, which was repaid in January 2002.
An unamortized deferred gain from the formation of the
partnership of $150 million is included in deferred credits
and other liabilities in the balance sheet. The gain will
not be recognized in income as long as United States Steel
has a commitment to fund cash shortfalls of the partnership.

F-20

Dividends and partnership distributions received from
equity investees were $17 million in 2001, $10 million in
2000 and $2 million in 1999.

United States Steel purchases of transportation services
and semi-finished steel from equity investees totaled $261
million, $566 million and $361 million in 2001, 2000 and
1999, respectively. At December 31, 2001 and 2000, United
States Steel payables to these investees totaled $31 million
and $66 million, respectively. Transtar, a provider of
transportation services and formerly an equity investee, was
acquired on March 23, 2001, as discussed in Note 5.

United States Steel revenues for steel and raw material
sales to equity investees totaled $852 million, $958 million
and $831 million in 2001, 2000 and 1999, respectively. At
December 31, 2001 and 2000, United States Steel receivables
from these investees were $228 million and $177 million,
respectively. Generally, these transactions were conducted
under long-term, market-based contractual arrangements.

- --------------------------------------------------------------------------------
17. Leases

Future minimum commitments for capital leases (including
sale-leasebacks accounted for as financings) and for
operating leases having remaining noncancelable lease terms
in excess of one year are as follows:

Capital Operating
(In millions) Leases Leases
-----------------------------------------------------------------------------------------------

2002 $ 14 $ 92
2003 13 79
2004 11 71
2005 11 46
2006 11 37
Later years 74 188
Sublease rentals - (96)
-------- --------
Total minimum lease payments 134 $ 417

Less imputed interest costs 44
--------
Present value of net minimum lease payments
included in long-term debt (see Note 11) $ 90
-----------------------------------------------------------------------------------------------
Operating lease rental expense:

(In millions) 2001 2000 1999
-----------------------------------------------------------------------------------------------

Minimum rental $ 133 $ 132 $ 124
Contingent rental 18 17 18
Sublease rentals (17) (6) (6)
----- ----- -----
Net rental expense $ 134 $ 143 $ 136
-----------------------------------------------------------------------------------------------

United States Steel leases a wide variety of facilities
and equipment under operating leases, including land and
building space, office equipment, production facilities and
transportation equipment. Most long-term leases include
renewal options and, in certain leases, purchase options.

- --------------------------------------------------------------------------------
18. Preferred Securities

Marathon was the issuer and obligor of the following
preferred securities:

. 8 3/4% Cumulative Monthly Income Preferred Shares
(MIPS) issued by a wholly owned subsidiary of
Marathon
. 6 3/4% Convertible Quarterly Income Preferred
Securities of USX Capital Trust I (QUIPS)
. 6.50% Cumulative Convertible Preferred Stock
(Preferred Stock)

All of the outstanding QUIPS and Preferred Stock and a
portion of the MIPS were historically attributed to United
States Steel. In December 2001, $49 million of these
securities were exchanged for SQUIDS issued by United States
Steel as part of the financings incurred by United States
Steel related to the Separation.

On December 31, 2001, Marathon redeemed the outstanding
MIPS for cash. At the time of Separation, the QUIPS and
Preferred Stock were retained by Marathon and were redeemed
or repaid by Marathon in January 2002.

F-21

- --------------------------------------------------------------------------------
19. Stockholder Rights Plan

On December 31, 2001, United States Steel adopted a new
Stockholder Rights Plan and declared a dividend distribution
of one right for each share of common stock issued pursuant
to the Plan of Reorganization in connection with the
Separation. Each right becomes exercisable, at a price of
$110, after any person or group has acquired, obtained the
right to acquire or made a tender or exchange offer for 15%
or more of the outstanding voting power represented by the
outstanding Voting Stock, except pursuant to a qualifying
all-cash tender offer for all outstanding shares of Voting
Stock which results in the offeror owning shares of Voting
Stock representing a majority of the voting power (other
than Voting Stock beneficially owned by the offeror
immediately prior to the offer). If the rights become
exercisable, each right will entitle the holder, other than
the acquiring person or group, to purchase one one-hundredth
of a share of Series A Junior Preferred Stock or, upon the
acquisition by any person of 15% or more of the outstanding
voting power represented by the outstanding Voting Stock
(or, in certain circumstances, other property), common stock
having a market value of twice the exercise price. After a
person or group acquires 15% or more of the outstanding
voting power, if United States Steel engages in a merger or
other business combination where it is not the surviving
corporation or where it is the surviving corporation and the
Voting Stock is changed or exchanged, or if 50% or more of
United States Steel's assets, earnings power or cash flow
are sold or transferred, each right will entitle the holder
to purchase common stock of the acquiring entity having a
market value of twice the exercise price. The rights and the
exercise price are subject to adjustment. The rights will
expire on December 31, 2011, unless such date is extended or
the rights are earlier redeemed by United States Steel
before they become exercisable. Under certain circumstances,
the Board of Directors has the option to exchange one share
of the respective class of Voting Stock for each exercisable
right.

- --------------------------------------------------------------------------------
20. Income Per Common Share

Prior to December 31, 2001, the businesses comprising United
States Steel were an operating unit of Marathon and did not
have any public equity securities outstanding. In connection
with the Separation, United States Steel was capitalized
through the issuance of 89.2 million shares of common stock.
Basic and diluted net income (loss) per share for all
periods presented are calculated by dividing net income
(loss) for the period by the number of outstanding common
shares at December 31, 2001, the date of the Separation. In
addition, the potential common stock related to employee
options to purchase 3,520,000 shares of common stock have
been excluded from the computation of diluted net income
(loss) per share for all periods presented because their
effect was antidilutive. These common stock equivalents will
be included in future periods if their effect is dilutive.

2001 2000 1999
----------------------------------------------------------------------------------------
Computation of Income Per Share
-------------------------------

Net income (loss) (millions):
Income (loss) before extraordinary losses $ (218) $ (21) $ 51
Extraordinary losses - - 7
------ ----- -----
Net income (loss) applicable to common stock $ (218) $ (21) $ 44
====== ===== =====
Per share basic and diluted:
Income (loss) before extraordinary losses $(2.45) $(.24) $ .57
Extraordinary losses - - .08
------ ----- -----
Net income (loss) $(2.45) $(.24) $ .49
====== ===== =====

- --------------------------------------------------------------------------------
21. Stock-Based Compensation Plans

The United States Steel Corporation 2002 Stock Plan, which
became effective January 1, 2002, replaces the USX
Corporation 1990 Stock Plan as a stock-based compensation
plan for key management employees of United States Steel.
The 2002 Stock Plan authorizes the Compensation and
Organization Committee of the board of directors to grant
restricted stock, stock options and stock appreciation
rights to key management employees. Up to 10,000,000 shares
are available for grants during the five-year term of the
Plan. In addition, awarded shares that do not result in
shares being issued are available for subsequent grant, and
any ungranted shares from prior years' annual allocations
are available for subsequent grant during the years the 2002
Plan is in effect.

Stock options represent the right to purchase shares of
stock at the market value of the stock at date of grant.
Certain options contain the right to receive cash and/or
common stock equal to the excess of the fair market value of
shares of common stock, as determined in accordance with the
plan, over the option price of shares. Under the 2002 Stock
Plan, no stock options may be exercised prior to one year or
after eight years from the date of grant. Under the former
USX Corporation 1990 Stock Plan, stock options expired ten
years from the date they were granted.

F-22

In connection with the Separation, all options to
purchase Steel Stock were converted into options to purchase
United States Steel common stock with identical terms; the
remaining vesting periods and term of the options were
continued.

The following is a summary of stock option activity under
the former USX Corporation 1990 Stock Plan:

Shares Price/(a)/
------------------------------------------------------------
Balance December 31, 1998 1,992,570 $35.50
Granted 656,400 28.22
Exercised (2,580) 24.92
Canceled (20,005) 38.51
---------
Balance December 31, 1999 2,626,385 33.67
Granted 915,470 23.00
Exercised (400) 24.30
Canceled (62,955) 38.19
---------
Balance December 31, 2000 3,478,500 30.78
Granted 1,089,555 19.89
Exercised - -
Canceled (89,520) 32.56
---------
Balance December 31, 2001 4,478,535 28.09
------------------------------------------------------------
/(a)/ Weighted-average exercise price.

The following table represents outstanding stock options
issued under the former USX Corporation 1990 Stock Plan at
December 31, 2001:

Outstanding Exercisable
---------------------------------------------------- -------------------------------
Number Weighted-Average Weighted- Number Weighted-
Range of of Shares Remaining Average of Shares Average
Exercise Prices Under Option Contractual Life Exercise Price Under Option Exercise Price
---------------------------------------------------------------------------------------------------------

$19.89-28.22 2,660,180 8.6 years $23.02 1,570,625 $25.19
31.69-34.44 998,830 4.3 32.54 998,830 32.54
37.28-44.19 819,525 5.1 39.17 819,525 39.17
--------- ---------
Total 4,478,535 7.0 28.09 3,388,980 30.73
---------------------------------------------------------------------------------------------------------

The following net income and per share data represent the
difference between stock-based compensation valued at fair
value on the date of grant and recognized compensation
costs.

(In millions, except per share data) 2001 2000 1999
---------------------------------------------------------------------------------------------------------

Net income (loss)
- As reported $ (218) $ (21) $ 44
- Pro forma (221) (23) 42
Basic and diluted net income (loss) per share
- As reported (2.45) (.24) .49
- Pro forma (2.48) (.26) .47
---------------------------------------------------------------------------------------------------------

The above pro forma amounts were based on a Black-Scholes
option-pricing model, which included the following
information and assumptions:

2001 2000 1999
---------------------------------------------------------------------------------------------------------

Weighted-average grant-date exercise price per share $ 19.89 $23.00 $28.22
Expected annual dividends per share $ .20 $ 1.00 $ 1.00
Expected life in years 5 5 3
Expected volatility 40% 37% 37%
Risk-free interest rate 4.9% 6.5% 5.6%
---------------------------------------------------------------------------------------------------------
Weighted-average grant-date fair value of options granted
during the year, as calculated from above $ 7.69 $ 6.63 $ 6.95
---------------------------------------------------------------------------------------------------------

Restricted stock represents stock granted for such
consideration, if any, as determined by the Compensation and
Organization Committee, subject to forfeiture provisions and
restrictions on transfer. Those restrictions may be removed
as conditions such as performance, continuous service and
other criteria are met. Restricted stock is issued at the
market price per share at the date of grant and vests over
service periods that range from one to five years.

Deferred compensation is charged to equity when the
restricted stock is granted and subsequently adjusted for
changes in the market value of the underlying stock. The
deferred compensation is expensed over the balance of the
vesting period and adjusted if conditions of the restricted
stock grant are not met.

F-23

The following table presents information on restricted
stock grants made under the former USX Corporation 1990
Stock Plan:

2001 2000 1999
------------------------------------------------------------------------------

Number of shares granted 54,372 305,725 18,272
Weighted-average grant-date fair value per share $ 19.89 $ 23.00 $ 28.22
------------------------------------------------------------------------------

United States Steel also has a restricted stock plan for
certain salaried employees who are not officers of the
Corporation. Participants in the plan are awarded restricted
stock by the Salary and Benefits Committee based on their
performance within certain guidelines. 50% of the awarded
stock vests at the end of two years from the date of grant
and the remaining 50% vests in four years from the date of
grant. Prior to vesting, the employee has the right to vote
such stock and receive dividends thereon. The nonvested
shares are not transferable and are retained by the
Corporation until they vest.

Deferred compensation is charged to equity when the
restricted stock is granted. The deferred compensation is
expensed over the balance of the vesting period and adjusted
if conditions of the restricted stock grant are not met.

The following table presents information on restricted
stock grants under the nonofficer plan:

2001
------------------------------------------------------------
Number of shares granted 390,119
Weighted-average grant-date fair value per share $ 18.97
------------------------------------------------------------

United States Steel has a deferred compensation plan for
non-employee directors of its Board of Directors. The plan
permits participants to defer up to 100% of their annual
retainers in the form of common stock units, and it requires
non-employee directors to defer at least half of their
annual retainers in the form of common stock units. Common
stock units are book entry units equal in value to a share
of stock. With respect to common stock units relating to
Steel Stock issued under the USX Corporation Deferred
Compensation Plan for Non-Employee Directors, during 2001,
5,235 units were issued, during 2000, 4,872 units were
issued, and during 1999, 3,798 units were issued. Common
stock units relating to Steel Stock were converted into
United States Steel common stock units in connection with
the Separation.

Total stock based compensation expense was $6 million in
2001 and $1 million in both 2000 and 1999.

- --------------------------------------------------------------------------------
22. Sale of Accounts Receivable

On November 28, 2001, United States Steel entered into a
five-year, Receivables Purchase Agreement with a group of
financial institutions. United States Steel established a
wholly owned subsidiary, U. S. Steel Receivables LLC (USSR),
which is a special-purpose, bankruptcy-remote entity that
acquires, on a daily basis, eligible trade receivables
generated by United States Steel and certain of its
subsidiaries. The purchases by USSR will be financed through
the sale of an undivided percentage ownership interest in
such receivables to certain commercial paper conduits.
United States Steel has agreed to continue servicing the
sold receivables at market rates. Because United States
Steel receives adequate compensation for these services, no
servicing asset or liability has been recorded.

Fundings under the facility are limited to the lesser of
a funding base, comprised of eligible receivables, or $400
million. As of December 31, 2001, $258 million was available
to be sold under this facility. USSR did not sell any
ownership interests in the receivables to the commercial
paper conduits during 2001; therefore, no sales of accounts
receivable were recorded and no amounts were excluded from
the balance sheet under these arrangements.

While the term of the facility is five years, the
facility also terminates on the occurrence and failure to
cure certain events, including, among others, certain
defaults with respect to the inventory facility and other
debt obligations, any failure of USSR to maintain certain
ratios related to the collectability of the receivables, and
failure to extend the commitments of the commercial paper
conduits which currently terminate on November 27, 2002.

- --------------------------------------------------------------------------------
23. Property, Plant and Equipment

December 31
-------------------
(In millions) Useful Lives 2001 2000
---------------------------------------------------------------------------------------------------

Land and depletable property - $ 193 $ 161
Buildings 35 years 572 602
Machinery and equipment 4-22 years 9,080 8,409
Leased assets 3-25 years 105 98
------ ------
Total 9,950 9,270
Less accumulated depreciation, depletion and amortization 6,866 6,531
------ ------
Net $3,084 $2,739
---------------------------------------------------------------------------------------------------

F-24

Amounts in accumulated depreciation, depletion and
amortization for assets acquired under capital leases
(including sale-leasebacks accounted for as financings) were
$88 million and $79 million at December 31, 2001 and 2000,
respectively.

On August 14, 2001, United States Steel announced its
intention to permanently close the cold rolling and tin mill
operations at its Fairless Works. In 2001, a pretax charge
of $38 million was recorded related to the shutdown of these
operations, of which $18 million is included in
depreciation, depletion and amortization and $20 million is
included in cost of revenues.

During 2000, United States Steel recorded $71 million of
impairments relating to coal assets located in West Virginia
and Alabama. The impairment was recorded as a result of a
reassessment of long-term prospects after adverse geological
conditions were encountered. The charge is included in
depreciation, depletion and amortization.

- --------------------------------------------------------------------------------
24. Derivative Instruments

The following table sets forth quantitative information by
class of derivative instrument at December 31, 2001:

Fair Carrying
Value Amount
Assets Assets
(In millions) (Liabilities)/(a)/ (Liabilities)
----------------------------------------------------------
Non-Hedge Designation:
OTC commodity swaps/(b)/ $ (5) $ (5)
----------------------------------------------------------
/(a)/ The fair value amounts are based on exchange-traded
index prices and dealer quotes.
/(b)/ The OTC swap arrangements vary in duration with
certain contracts extending into 2003.

- --------------------------------------------------------------------------------
25. Fair Value of Financial Instruments

Fair value of the financial instruments disclosed herein is
not necessarily representative of the amount that could be
realized or settled, nor does the fair value amount consider
the tax consequences of realization or settlement. The
following table summarizes financial instruments, excluding
derivative financial instruments disclosed in Note 24, by
individual balance sheet account. United States Steel's
financial instruments at December 31, 2001, and its December
31, 2000 specifically attributed and allocated financial
instruments were:

2001 2000
--------------------- ---------------------
Fair Carrying Fair Carrying
(In millions) December 31 Value Amount Value Amount
---------------------------------------------------------------------------------------------------------

Financial assets:
Cash and cash equivalents $ 147 $ 147 $ 219 $ 219
Receivables 802 802 975 975
Receivables from Marathon 28 28 366 366
Investments and long-term receivables 42 41 137 137
------ ------ ------ ------
Total financial assets $1,019 $1,018 $1,697 $1,697
---------------------------------------------------------------------------------------------------------
Financial liabilities:
Notes payable $ - $ - $ 70 $ 70
Accounts payable 638 638 755 755
Accrued interest 48 48 47 47
Payable to Marathon 54 54 5 5
Long-term debt (including amounts due within one year) 1,122 1,375 2,375 2,287
Preferred stock of subsidiary and trust
preferred securities - - 182 249
------ ------ ------ ------
Total financial liabilities $1,862 $2,115 $3,434 $3,413
--------------------------------------------------------------------------------------------------------

Fair value of financial instruments classified as current
assets or liabilities approximates carrying value due to the
short-term maturity of the instruments. Fair value of
investments and long-term receivables was based on
discounted cash flows or other specific instrument analysis.
The cost method investment in VSZ was excluded from
investments and long-term receivables because the fair value
was not readily determinable. United States Steel is subject
to market risk and liquidity risk related to its
investments; however, these risks are not readily
quantifiable. Fair value of preferred stock of subsidiary
and trust preferred securities was based on market prices.
Fair value of long-term debt instruments was based on market
prices where available or current borrowing rates available
for financings with similar terms and maturities.

Financial guarantees are United States Steel's only
unrecognized financial instrument. It is not practicable to
estimate the fair value of this form of financial instrument
obligation because there are no quoted market prices for
transactions which are similar in nature. For details
relating to financial guarantees, see Note 26.

F-25

- --------------------------------------------------------------------------------
26. Contingencies and Commitments

United States Steel is the subject of, or party to, a number
of pending or threatened legal actions, contingencies and
commitments involving a variety of matters, including laws
and regulations relating to the environment. Certain of
these matters are discussed below. The ultimate resolution
of these contingencies could, individually or in the
aggregate, be material to the consolidated financial
statements. However, management believes that United States
Steel will remain a viable and competitive enterprise even
though it is possible that these contingencies could be
resolved unfavorably.

Environmental matters - United States Steel is subject to
federal, state, local and foreign laws and regulations
relating to the environment. These laws generally provide
for control of pollutants released into the environment and
require responsible parties to undertake remediation of
hazardous waste disposal sites. Penalties may be imposed for
noncompliance. Accrued liabilities for remediation totaled
$138 million and $137 million at December 31, 2001 and 2000,
respectively. It is not presently possible to estimate the
ultimate amount of all remediation costs that might be
incurred or the penalties that may be imposed.

For a number of years, United States Steel has made
substantial capital expenditures to bring existing
facilities into compliance with various laws relating to the
environment. In 2001 and 2000, such capital expenditures
totaled $15 million and $18 million, respectively. United
States Steel anticipates making additional such expenditures
in the future; however, the exact amounts and timing of such
expenditures are uncertain because of the continuing
evolution of specific regulatory requirements.

Guarantees - Guarantees of the liabilities of unconsolidated
entities of United States Steel totaled $32 million at
December 31, 2001, and $82 million at December 31, 2000. In
the event that any defaults of guaranteed liabilities occur,
United States Steel has access to its interest in the assets
of the investees to reduce potential losses resulting from
these guarantees. As of December 31, 2001, the largest
guarantee for a single such entity was $23 million.

Contingencies related to Separation from Marathon - United
States Steel is contingently liable for debt and other
obligations of Marathon in the amount of approximately $359
million as of December 31, 2001. Marathon is not limited by
agreement with United States Steel as to the amount of
indebtedness that it may incur and, in the event of the
bankruptcy of Marathon, the holders of the industrial
revenue bonds and such other obligations may declare them
immediately due and payable. If such event occurs, United
States Steel may not be able to satisfy such obligations.

Other contingencies - United States Steel is contingently
liable to its Chairman, Chief Executive Officer and
President for a $3 million retention bonus. The bonus is
payable on the third anniversary of the Separation and is
subject to certain performance measures.

Commitments - At December 31, 2001 and 2000, United States
Steel's contract commitments to acquire property, plant and
equipment totaled $84 million and $206 million,
respectively. Additionally, spending commitments under lease
agreements totaled $2.4 million at December 31, 2001.

USSK has a commitment to the Slovak government for a
capital improvements program of $700 million, subject to
certain conditions, over a period commencing with the
acquisition date of November 24, 2000 and ending on December
31, 2010. USSK is required to report periodically to the
Slovak government on its status toward meeting this
commitment. The first reporting period ends on December 31,
2003. The remaining commitments under this capital
improvements program as of December 31, 2001 and 2000, were
$634 million and $695 million, respectively.

United States Steel entered into a 15-year take-or-pay
arrangement in 1993, which requires United States Steel to
accept pulverized coal each month or pay a minimum monthly
charge of approximately $1 million. Charges for deliveries
of pulverized coal totaled $23 million in 2001, 2000 and
1999. If United States Steel elects to terminate the
contract early, a maximum termination payment of $89 million
as of December 31, 2001, which declines over the duration of
the agreement, may be required.

F-26

- --------------------------------------------------------------------------------
27. Subsequent Event

On January 17, 2002, United States Steel announced that it
had entered into an Option Agreement with NKK Corporation
(NKK) of Japan. The agreement grants United States Steel an
option to purchase, either directly or through a subsidiary,
all of NKK's stock in National Steel Corporation and to
restructure a $100 million loan previously made to National
Steel by an NKK subsidiary. The NKK stock in National Steel
represents approximately 53% of National's outstanding
shares. The option expires on June 15, 2002.

If the option is exercised, NKK will receive warrants to
purchase 4 million shares of United States Steel common
stock in exchange for its National Steel shares. The
warrants will be exercisable through June 2007 at a price
equal to 150% of the average closing price for United States
Steel's common stock during a 60-day period prior to the
issuance of the warrants. In connection with any exercise of
the option, the NKK subsidiary loan to National Steel would
be restructured into an unsecured, non-interest bearing $30
million note, with a 20-year term, convertible into 1
million shares of United States Steel common stock. The NKK
convertible note will remain part of a restructured National
Steel. United States Steel will have the right to convert in
the first five years if the price of the stock exceeds $30
per share. In the next five-year period, both parties have
the right to cause conversion if the price exceeds $30 per
share and in the final ten years, either party has the right
to cause conversion. In addition, United States Steel will,
if it exercises the option, offer to acquire the remaining
shares of National Steel in exchange for either warrants
with no less value than those provided to NKK or United
States Steel stock based upon an exchange ratio of .086
shares of United States Steel common stock for each share of
National Steel stock. The minority shareholder option to
receive warrants will not be available unless a sufficient
number of those shareholders elect to receive warrants to
permit such warrants to be listed on the New York Stock
Exchange.

Also, NKK and United States Steel have agreed to enter
into discussions for the purpose of developing a business
alliance to support Japanese auto manufacturers in North
America.

Although United States Steel has the ability to exercise
the option at any time during its term, it is United States
Steel's current intent not to exercise the option or to
consummate a merger with National Steel unless a number of
significant conditions are satisfied, including a
substantial restructuring of National Steel's debt and other
obligations. Other significant conditions include the
resolution of key contingencies related to the consolidation
of the domestic steel industry, the financial viability of
National Steel and satisfactory general market conditions.

F-27

Selected Quarterly Financial Data (Unaudited)

2001 2000
----------------------------------------- ---------------------------------------
(In millions, except per share data) 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
- ----------------------------------------------------------------------------------------------------------------------------

Revenues and other income:
Revenues $1,398 $1,645 $1,733 $1,510 $1,417 $1,462 $1,629 $1,582
Other income (loss) 16 15 4 54 (4) 13 27 6
------ ------ ------ ------ ------ ------ ------ ------
Total 1,414 1,660 1,737 1,564 1,413 1,475 1,656 1,588
Income (loss)
from operations (252) (25) (27) (101) (159) 60 112 91
Net income (loss) (174) (23) (30) 9 (139) 19 56 43
- ----------------------------------------------------------------------------------------------------------------------------
Common stock data/(a)/:
Net income (loss) per share/(b)/
- basic (1.95) (.26) (.34) .10 (1.56) .21 .64 .47
- diluted (1.95) (.26) (.34) .10 (1.57) .21 .64 .47
Dividends paid per share .10 .10 .10 .25 .25 .25 .25 .25
Price range of
common stock/(c)/
- Low 13.00 13.08 13.72 14.00 12.69 14.88 18.25 20.63
- High 18.75 21.70 22.00 18.00 18.31 19.69 26.88 32.94
- ----------------------------------------------------------------------------------------------------------------------------

/(a)/ Dividends and price range information represent Steel Stock. See Note 1 of
the Notes to Financial Statements.
/(b)/ Earnings per share for all periods is based on the outstanding common
shares at December 31, 2001. See Note 20 of the Notes to Financial
Statements.
/(c)/ Composite tape.

Principal Unconsolidated Investees (Unaudited)

December 31, 2001
Company Country Ownership Activity
- ----------------------------------------------------------------------------------------------------------------

Acero Prime, S.R.L. de CV Mexico 44% Steel Processing
Chrome Deposit Corporation United States 50% Chrome Coating Services
Clairton 1314B Partnership, L.P. United States 10%/(a)/ Coke & Coke By-Products
Delta Tubular Processing United States 50% Steel Processing
Double Eagle Steel Coating Company United States 50% Steel Processing
Feralloy Processing Company United States 49% Steel Processing
Olympic Laser Processing United States 50% Steel Processing
PRO-TEC Coating Company United States 50% Steel Processing
Republic Technologies International, LLC United States 16% Steel Products
USS-POSCO Industries United States 50% Steel Processing
Worthington Specialty Processing United States 50% Steel Processing
- ----------------------------------------------------------------------------------------------------------------

/(a)/ Interest in profits and losses is currently 1.75%. This interest will
increase to 45.75% when the limited partners achieve certain rate of
return levels. See Note 16 of the Notes to Financial Statements.

Supplementary Information on Mineral Reserves Other Than Oil and Gas
(Unaudited)

Mineral Reserves

United States Steel operates two underground coal mining complexes, the #50 Mine
and Pinnacle Preparation Plant in West Virginia, and the Oak Grove Mine and
Concord Preparation Plant in Alabama. United States Steel also operates one iron
ore surface mining complex consisting of the open pit Minntac Mine and Pellet
Plant in Minnesota.

Production History

The following table provides a summary, by mining complex, of minerals
production in millions of tons for each of the last three years:

2001 2000 1999
- --------------------------------------------------------------------------------
Coal:
#50 Mine/Pinnacle Preparation Plant 3.2 3.3 4.1
Oak Grove Mine/Concord Preparation Plant 1.8 2.2 2.1
---- ---- ----
Total coal production 5.0 5.5 6.2
==== ==== ====
Iron Ore Pellets:
Minntac Mine and Pellet Plant 14.5 16.3 14.3
- --------------------------------------------------------------------------------

F-28

Supplementary Information on Mineral Reserves Other Than Oil and Gas
(Unaudited) continued

Adverse mining conditions in the form of unforeseen geologic conditions
encountered at both coal mining operations in the year 2000 resulted in changes
to the mining plans in 2001. Coal production was diminished and mining costs
were elevated. Force majeure conditions were declared with respect to contracted
coal deliveries in 2000 with certain contracts fulfilled by purchased
substitutes and other contracts fulfilled by extension of delivery time into
2001. These adverse mining conditions did not affect reserves reported as of
December 31, 2001.

No recent adverse events affected iron ore pellet production other than
fluctuations in market demand.

Coal Reserves

United States Steel had 774.8 million short tons of recoverable coal reserves
classified as proven and probable at December 31, 2001. Proven and probable
reserves are defined by sites for inspection, sampling and measurement generally
less than 1 mile apart, such that continuity between points and subsequent
economic evaluation can be assured.

Independent outside entities have reviewed United States Steel's coal reserve
estimates on properties comprising approximately 70% of the stated coal
reserves.

The following table summarizes our proven and probable coal reserves as of
December 31, 2001, the status of the reserves as assigned or unassigned, our
property interest in the reserves and certain characteristics of the reserves:

As
Proven and Reserve Control Coal Characteristics Received/(c)/ As
Probable --------------- -------------------------------- BTU Per Received/(c)/
Location Reserves/(a)(b)/ Owned Leased Grade Volatility Pound % Sulfur
- ------------------------------------------------------------------------------------------------------------------------------------

Assigned Reserves/(d)/:
Oak Grove Mine, AL 49.8 49.8 - Metallurgical Low *12,000 **1.0%
#50 Mine, WV 85.2 73.5 11.7 Metallurgical Low *12,000 **1.0%
----- ----- -------
Total Assigned 135.0 123.3 11.7
----- ----- -------
Unassigned Reserves/(e)/:
Alabama 123.4 123.4 - Metallurgical Low to High *12,000 **1.0%
Alabama/(b)(f)/ 45.3 45.3 - Steam Low to High *12,000 0.7%-2.5%
Alabama 31.9 - 31.9 Metallurgical Medium *12,000 **1.0%
Illinois/(f)/ 374.8 374.8 - Steam High 11,600 2.3%
Indiana, Pennsylvania,
Tennessee, West
Virginia/(f)/ 64.4 64.4 - Metallurgical/Steam Low to High 11,600-13,000 1.0%-3.0%
----- ----- -------
Total unassigned 639.8 607.9 31.9
----- ----- -------
Total Proven and Probable 774.8 731.2 43.6
- -----------------------------------------------------------------------------------------------------------------------------------

* Represents the Greater Than symbol
** Represents the Less Than symbol

/(a)/ The amounts in this column reflect recoverable tons. Recoverable tons
represent the amount of product that could be used internally or delivered
to a customer after considering mining and preparation losses. Neither
inferred reserves nor resources which exist in addition to proven and
probable reserves were included in these figures. In 2001, reserves
decreased due to production, the sale and lease of reserves to others and
engineering revisions.
/(b)/ All of United States Steel's recoverable reserves would be recovered
utilizing underground mining methods, with the exception of 15.2 million
short tons of owned, unassigned, recoverable, steam grade reserves in
Alabama which would be recovered utilizing surface mining methods.
/(c)/ "As received" means the quality parameters stated are with the expected
product moisture content and quality values that a customer can reasonably
expect to receive upon delivery.
/(d)/ Assigned Reserves means recoverable coal reserves which have been
committed by United States Steel to our operating mines and plant
facilities.
/(e)/ Unassigned Reserves represent coal which has not been committed, and which
would require new mines and or plant facilities before operations could
begin on the property.
/(f)/ Represents non-compliance steam coal as defined by Phase II of the Clean
Air Act, having sulfur content in excess of 1.2 pounds per million Btu's.

Iron Ore Reserves

United States Steel had 695.4 million short tons of recoverable iron ore
reserves classified as proven and probable at December 31, 2001. Proven and
probable reserves are defined by sites for inspection, sampling, and measurement
generally less than 1,000 feet apart, such that continuity between points and
subsequent economic evaluation can be assured. Recoverable tons mean the tons of
product that can be used internally or delivered to a customer after considering
mining and benefication or preparation losses. Neither inferred reserves nor
resources which exist in addition to proven and probable reserves were included
in these figures. In 2001, reserves decreased due to production and engineering
revisions.

All 695.4 million tons of proven and probable reserves are assigned, which
means that they have been committed by United States Steel to its one operating
mine, and are of blast furnace pellet grade. United States Steel owns 212.2
million of these tons and leases the remaining 483.2 million tons. United States
Steel does not own, or control by lease, any unassigned iron ore reserves.

Independent outside entities, including lessors, have reviewed United States
Steel's estimates on approximately 75% of the stated iron ore reserves.

F-29

Five-Year Operating Summary

(Thousands of net tons, unless otherwise noted) 2001 2000 1999 1998 1997
------------------------------------------------------------------------------------------------------

Raw Steel Production
Gary, IN 6,114 6,610 7,102 6,468 7,428
Mon Valley, PA 1,951 2,683 2,821 2,594 2,561
Fairfield, AL 2,028 2,069 2,109 2,152 2,361
--------------------------------------
Domestic Steel 10,093 11,362 12,032 11,214 12,350
Kosice, Slovak Republic 4,051 382 - - -
--------------------------------------
Total 14,144 11,744 12,032 11,214 12,350
-----------------------------------------------------------------------------------------------------
Raw Steel Capability
Domestic Steel 12,800 12,800 12,800 12,800 12,800
U. S. Steel Kosice/(a)/ 5,000 467 - - -
--------------------------------------
Total 17,800 13,267 12,800 12,800 12,800
Production as % of total capability - Domestic 78.9 88.8 94.0 87.6 96.5
- USSK 81.0 81.8 - - -
-----------------------------------------------------------------------------------------------------
Coke Production
Domestic Steel/(b)/ 4,647 5,003 4,619 4,835 5,757
U. S. Steel Kosice 1,555 188 - - -
--------------------------------------
Total 6,202 5,191 4,619 4,835 5,757
-----------------------------------------------------------------------------------------------------
Coke Shipments - Domestic
Trade 2,070 2,069 1,694 2,562 2,995
Intercompany 2,661 2,941 2,982 2,228 2,762
--------------------------------------
Total 4,731 5,010 4,676 4,790 5,757
-----------------------------------------------------------------------------------------------------
Iron Ore Pellet Shipments
Trade 2,985 3,336 3,017 4,115 4,895
Intercompany 11,928 11,684 12,008 11,331 11,508
--------------------------------------
Total 14,913 15,020 15,025 15,446 16,403
-----------------------------------------------------------------------------------------------------
Coal Shipments
Trade 1,063 3,228 4,891 6,056 6,422
Intercompany 4,519 3,551 2,033 1,614 1,389
--------------------------------------
Total 5,582 6,779 6,924 7,670 7,811
-----------------------------------------------------------------------------------------------------
Steel Shipments by Product - Domestic Steel
Sheet and semi-finished steel products 6,411 7,409 8,114 7,608 8,170
Tubular products 1,022 1,145 410 603 947
Plate and tin mill products 2,368 2,202 2,105 2,475 2,526
--------------------------------------
Total 9,801 10,756 10,629 10,686 11,643
Total as % of domestic steel industry 9.9 9.9 10.0 10.5 11.0
-----------------------------------------------------------------------------------------------------
Steel Shipments by Product - U. S. Steel Kosice
Sheet and semi-finished steel products 2,937 206 - - -
Tubular products 138 12 - - -
Plate and tin mill products 639 99 - - -
--------------------------------------
Total 3,714 317 - - -
-----------------------------------------------------------------------------------------------------

/(a)/ Represents the operations of U. S. Steel Kosice, s.r.o.,
following the acquisition of the steelmaking operations and
related assets of VSZ a.s. on November 24, 2000.
/(b)/ The reduction in coke production after 1997 reflected United
States Steel's entry into a strategic partnership (the
Clairton 1314B Partnership, L.P.) with two limited partners
on June 1, 1997, to acquire an interest in three coke
batteries at its Clairton (Pa.) Works.

F-30

Five-Year Operating Summary CONTINUED

(Thousands of net tons, unless otherwise noted) 2001 2000 1999 1998 1997
---------------------------------------------------------------------------------------------

STEEL SHIPMENTS BY MARKET - DOMESTIC STEEL
Steel service centers 2,421 2,315 2,456 2,563 2,746
Transportation 1,143 1,466 1,505 1,785 1,758
Further conversion:
Joint ventures 1,328 1,771 1,818 1,473 1,568
Trade customers 1,153 1,174 1,633 1,140 1,378
Containers 779 702 738 794 856
Construction 794 936 844 987 994
Oil, gas and petrochemicals 895 973 363 509 810
Export 522 544 321 382 453
All other 766 875 951 1,053 1,080
--------------------------------------------
Total 9,801 10,756 10,629 10,686 11,643
---------------------------------------------------------------------------------------------
STEEL SHIPMENTS BY MARKET - U. S. STEEL KOSICE
Steel service centers 492 53 - - -
Transportation 194 13 - - -
Further conversion:
Joint ventures 30 2 - - -
Trade customers 958 70 - - -
Containers 234 17 - - -
Construction 1,034 82 - - -
Oil, gas and petrochemicals 168 24 - - -
All other 604 56 - - -
--------------------------------------------
Total 3,714 317 - - -
---------------------------------------------------------------------------------------------
AVERAGE STEEL PRICE PER TON
Domestic Steel $ 427 $ 450 $ 420 $ 469 $ 479
U. S. Steel Kosice 260 269 - - -
---------------------------------------------------------------------------------------------

F-31

Five-Year Financial Summary/(a)/

(Dollars in millions, except as noted) 2001 2000 1999 1998 1997
---------------------------------------------------------------------------------------------------------------------

Revenues and Other Income
Revenues by product:
Sheet & semi-finished steel products $ 3,163 $ 3,288 $ 3,433 $ 3,598 $ 3,923
Tubular products 755 754 221 382 596
Plate & tin mill products 1,273 977 919 1,164 1,197
Raw materials (coal, coke & iron ore) 485 626 549 744 796
Other/(b)/ 610 445 414 490 517
Income (loss) from investees 64 (8) (89) 46 69
Net gains on disposal of assets 22 46 21 54 57
Other income (loss) 3 4 2 (1) 1
----------------------------------------------------------
Total revenues and other income $ 6,375 $ 6,132 $ 5,470 $ 6,477 $ 7,156
---------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations
Segment income (loss):
Domestic Steel $ (461) $ 98 $ 115 $ 497 $ 732
U. S. Steel Kosice (USSK) 123 2 - - -
Items not allocated to segments:
Net pension credits 146 266 193 186 144
Costs of former businesses (76) (86) (83) (100) (125)
Administrative expenses (22) (25) (17) (24) (33)
Asset impairments (166) (79) - - -
Gains (losses) related to equity investees 114 (36) (54) - -
Other (63) (36) (4) 20 55
----------------------------------------------------------
Total income (loss) from operations (405) 104 150 579 773
Net interest and other financial costs 141 105 74 42 87
Provision (credit) for income taxes (328) 20 25 173 234
---------------------------------------------------------------------------------------------------------------------
Net Income (Loss)/(c)/ (218) (21) 44 364 452
Per common share - basic & diluted (2.45) (.24) .49 4.08 5.07
---------------------------------------------------------------------------------------------------------------------
Balance Sheet Position at Year-End
Current assets $ 2,073 $ 2,717 $ 1,981 $ 1,275 $ 1,531
Net property, plant & equipment 3,084 2,739 2,516 2,500 2,496
Total assets 8,337 8,711 7,525 6,749 6,694
Short-term debt 32 209 13 25 67
Other current liabilities 1,227 1,182 1,271 991 1,267
Long-term debt 1,434 /(d)/ 2,236 902 464 456
Employee benefits 2,008 1,767 2,245 2,315 2,338
Preferred securities - 249 249 248 248
Stockholders' equity/(e)/ 2,506 1,919 2,056 2,093 1,782
--------------------------------------------------------------------------------------------------------------------
Cash Flow Data
Net cash from operating activities $ 669 /(f)/ $ (627) $ (80) $ 380 $ 476
Capital expenditures 287 244 287 310 261
Dividends paid/(g)/ 57 97 97 96 96
--------------------------------------------------------------------------------------------------------------------
Employee Data
Total employment costs $ 1,581 /(h)/ $ 1,197 /(i)/ $ 1,148 $ 1,305 $ 1,417
Average domestic employment cost
(dollars per hour) 33.88 28.70 28.35 30.42 31.56
Average number of domestic employees 21,078 19,353 19,266 20,267 20,683
Average number of USSK employees 16,083 16,256 /(j)/ - - -
Number of pensioners at year-end 91,003 94,339 97,102 /(k)/ 92,051 93,952
--------------------------------------------------------------------------------------------------------------------
Stockholder Data at Year-End/(e)/
Common shares outstanding (millions) 89.2 88.8 88.4 88.3 86.6
Registered shareholders (in thousands) 52.4 50.3 55.6 60.2 65.1
Market price of common stock $ 18.11 $ 18.00 $ 33.00 $ 23.00 $ 31.25
--------------------------------------------------------------------------------------------------------------------

/(a)/ See Notes 1 and 2 of the Notes to Financial Statements for
discussion of the basis of presentation and the December 31,
2001 Separation from Marathon.
/(b)/ Includes revenue from the sale of steel production by-
products, engineering and consulting services, real estate
development and resource management, and, beginning in 2001,
transportation services.
/(c)/ Earnings per share for all years is based on the
outstanding common shares at December 31, 2001.
/(d)/ Reflects the $900 million Value Transfer. See Note 2 of the
Notes to Financial Statements.
/(e)/ For periods prior to 2001, amounts represent Marathon's net
investment in United States Steel.
/(f)/ Reflects $819 million of tax settlements with Marathon. See
the Statement of Cash Flows.
/(g)/ Represents data pertaining to USX-U. S. Steel Group common
stock for periods prior to 2001.
/(h)/ Includes LTV Corporation's tin mill products business and
Transtar, Inc. subsidiaries from dates of acquisition, March
1, 2001 and March 23, 2001, respectively.
/(i)/ Includes USSK from date of acquisition on November 24,
2000.
/(j)/ Represents average head count from the date of acquisition.
/(k)/ Includes approximately 8,000 surviving spouse beneficiaries
added to the United States Steel pension plan in 1999.

F-32

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information concerning the directors of United States Steel required
by this item is incorporated by reference to the material appearing under the
heading "Election of Directors" in United States Steel's Proxy Statement dated
March 11, 2002, for the 2002 Annual Meeting of Stockholders.

The executive officers of United States Steel or its subsidiaries and
their ages as of February 1, 2002, are as follows:

Charles G. Carson, III.. 59 Vice President-Environmental Affairs
Roy G. Dorrance......... 56 Executive Vice President-Sheet Products
Albert E. Ferrara, Jr... 53 Senior Vice President and Treasurer
James D. Garraux........ 49 Vice President-Employee Relations
Charles C. Gedeon....... 61 Executive Vice President-Raw Materials & Diversified Businesses
John H. Goodish......... 53 President, U. S. Steel Kosice
Gretchen R. Haggerty.... 46 Senior Vice President and Controller
J. Paul Kadlic.......... 60 Executive Vice President-Sheet Products
Dan D. Sandman.......... 53 Vice Chairman and Chief Legal & Administrative Officer
Larry G. Schultz........ 52 Vice President-Investor Relations and Financial Analysis
Terrence D. Straub...... 56 Vice President-Governmental Affairs
John P. Surma, Jr....... 47 Vice Chairman and Chief Financial Officer
Stephan K. Todd......... 56 Vice President-Law
Thomas J. Usher......... 59 Chairman of the Board, Chief Executive Officer and President

With the exception of Mr. Surma, all of the executive officers
mentioned above have held responsible management or professional positions with
United States Steel or its subsidiaries for more than the past five years. Mr.
Surma was Assistant to the Chairman of USX Corporation effective September 1,
2001 and had been the President of Marathon Ashland Petroleum LLC ("MAP") since
January 2001. Prior to that, Mr. Surma served as the Senior Vice President,
Supply & Transportation for MAP, the President of Speedway SuperAmerica LLC, and
was named Senior Vice President, Finance & Accounting for Marathon Oil Company
in 1997. Immediately prior to joining Marathon Oil Company, he was a partner
with Price Waterhouse LLP.

45

Item 11. EXECUTIVE COMPENSATION

Information required by this item is incorporated by reference to the
material appearing under the heading "Executive Compensation" in United States
Steel's Proxy Statement dated March 11, 2002, for the 2002 Annual Meeting of
Stockholders.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information required by this item is incorporated by reference to the
material appearing under the heading "Security Ownership of Directors and
Executive Officers" in United States Steel's Proxy Statement dated March 11,
2002, for the 2002 Annual Meeting of Stockholders.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information required by this item is incorporated by reference to the
material appearing under the heading "Transactions" in United States Steel's
Proxy Statement dated March 11, 2002, for the 2002 Annual Meeting of
Stockholders.

46

PART IV

Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

A. Documents Filed as Part of the Report

1. Financial Statements
Financial Statements filed as part of this report are included in
Item 8- Financial Statements and Supplementary Data beginning on
page F-1.

2. Financial Statement Schedules and Supplementary Data
Schedule II - Valuation and Qualifying Accounts and Reserves is
included on page 52. All other schedules are omitted because
they are not applicable or the required information is
contained in the applicable financial statements or notes
thereto.

Report of Independent Accountants on Financial Statement
Schedule is included on page 53.

Supplementary Data -
Disclosures About Forward-Looking Statements are provided
beginning on page 56.

B. Reports on Form 8-K

Form 8-K dated October 12, 2001, reporting under Item 5. Other
Events, as filed by USX Corporation, the press release titled
"United States Steel Announces Filing for Exchange Offer".

Form 8-K dated October 22, 2001, as amended, reporting under Item
5. Other Events, as filed by USX Corporation, USX-Marathon Group
and USX-U. S. Steel Group Earnings Releases.

Form 8-K dated October 25, 2001, reporting under Item 5. Other
Events, as filed by USX Corporation, the press release titled
"USX Shareholders Approve Plan of Reorganization".

Form 8-K dated November 2, 2001, reporting under Item 5. Other
Events, as filed by USX Corporation, the press release titled
"Marathon continues international growth strategy; announces plan
to acquire interests in Equatorial Guinea, West Africa".

Form 8-K dated November 5, 2001, reporting under Item 5. Other
Events, as filed by USX Corporation, the press release titled
"USX Capital LLC Calls Its MIPS".

Form 8-K dated November 7, 2001, reporting under Item 5. Other
Events, as filed by USX Corporation, the press release titled
"United States Steel To Commence Exchange Offers".

Form 8-K dated November 14, 2001, reporting under Item 9.
Regulation FD, as filed by USX Corporation, a description of a
presentation given by Clarence Cazalot to an analyst group.

Form 8-K dated November 28, 2001, reporting under Item 5. Other
Events, as filed by USX Corporation, the press release titled
"USX Capital Trust I Redeems Its QUIPS".

Form 8-K dated December 4, 2001, reporting under Item 5. Other
Events, as filed by USX Corporation, the press release titled "U.
S. Steel Developing Plan for Significant Consolidation in
Domestic Integrated Steel Industry".

Form 8-K dated December 9, 2001, reporting under Item 5. Other
Events, as filed by USX Corporation, the press release titled "U.
S. Steel, NKK Corporation and National Steel in Consolidation
Talks".

Form 8-K dated December 10, 2001, reporting under Item 5. Other
Events, as filed by USX Corporation, the press release titled
"United States Steel Extends and Decreases Minimum Condition to
Exchange Offers".

47

Form 8-K dated December 13, 2001, reporting under Item 5. Other Events,
as filed by USX Corporation, the press release titled "United States
Steel Discloses Updated Outlook".

Form 8-K dated December 17, 2001, reporting under Item 5. Other Events,
as filed by USX Corporation, the press release titled "United States
Steel Completes Exchange Offers".

Form 8-K dated December 17, 2001, reporting under Item 5. Other Events,
as filed by USX Corporation, the press release titled "Fire Halts
Production at Double Eagle Steel Coating Company".

Form 8-K dated December 31, 2001, reporting under Item 5. Other Events,
as filed by United States Steel Corporation, details of the Separation
from USX Corporation (renamed Marathon Oil Corporation) and related
exhibits.

Form 8-K dated January 17, 2002, reporting under Item 9. Regulation FD,
as filed by United States Steel Corporation, the press release titled "U.
S. Steel Announces Option Agreement with NKK Corporation for the Purchase
of NKK's Interest in National Steel Corporation".

Form 8-K dated January 18, 2002, reporting under Item 9. Regulation FD,
as filed by United States Steel Corporation, the press release titled
"United States Steel Discloses Updated Outlook".

Form 8-K dated February 8, 2002, reporting under Item 5. Other Events, as
filed by United States Steel Corporation, the press release titled "U. S.
Steel Announces Discount on Stock Purchases Through Dividend Reinvestment
Plan".

Form 8-K dated February 21, 2002, reporting under Item 9. Regulation FD,
as filed by United States Steel Corporation, the narration of a
presentation given by John Surma at United States Steel Gary Works.

Form 8-K dated March 1, 2002, reporting under Item 5. Other Events, as
filed by United States Steel Corporation, the audited Financial
Statements and Supplementary Data; and Management's Discussion and
Analysis of Financial Condition and Results of Operations for the fiscal
year ended December 31, 2001; and reports of independent accountants.

Form 8-K dated March 12, 2002, reporting under Item 9. Regulation FD, as
filed by United States Steel Corporation, the narration of a presentation
given by Tom Usher at the Morgan Stanley Mining, Paper and Packaging
Conference.

C. Exhibits

Exhibit No.

2. Plan of Acquisition, Reorganization, Arrangement
Liquidation or Succession

None

3. Articles of Incorporation and By-Laws
(a) United States Steel Corporation Certificate
of Incorporation dated December 31, 2001

(b) United States Steel Corporation By-Laws,
effective as of December 31, 2001........ Incorporated by reference
to Exhibit 99.2 to the
United States Steel Form
8-K dated December 31,
2001.

48

4. Instruments Defining the Rights of Security Holders,
Including Indentures
(a) Credit Agreement dated
as of November 30, 2001

(b) Security Agreement dated as of
November 30, 2001 among United
States Steel LLC and JPMorgan
Chase Bank, as Collateral Agent

(c) Intercreditor Agreement dated as of
November 30, 2001 by and among
JPMorgan Chase Bank, as a Funding
Agent; the Bank of Nova Scotia, as a
Funding Agent and as Receivables
Collateral Agent; JPMorgan Chase
Bank, as Lender Agent; U. S. Steel
Receivables LLC, as Transferor; and
United States Steel LLC, as Originator,
As Initial Servicer and as Borrower

(d) Rights Agreement, dated as of
December 31, 2001, between
United States Steel Corporation and
Mellon Investor Services, L.L.C.,
as Rights Agent........................... Incorporated by
reference to Exhibit 4
to United States
Steel's Form 8-A/A
filed on December 31,
2001.

(e) Form of Indenture among United States
Steel LLC, Issuer; USX Corporation,
Guarantor; and the Bank of New York,
Trustee................................... Incorporated by
reference to Exhibit
4.1 to United States
Steel LLC's
Registration Statement
on Form S-4/A (File No.
333-71454) filed on
November 1, 2001.

(f) Indenture dated July 27, 2001 among
United States Steel LLC and
United States Steel Financing Corp.,
Co-Issuers; USX Corporation, Guarantor;
and the Bank of New York, Trustee regarding
10-3/4% Notes Due August 1, 2008

(g) First Supplemental Indenture, dated
November 26, 2001 to the
Indenture dated July 27, 2001 among
United States Steel LLC and
United States Steel Financing Corp.,
Co-Issuers; USX Corporation, Guarantor;
and the Bank of New York, Trustee regarding
10-3/4% Notes Due August 1, 2008

(h) Certificate of Designation respecting the
Series A Junior Preferred Stock

Certain long-term debt instruments are omitted pursuant to Item
601(b)(4)(iii) of Regulation S-K. United States Steel agrees to furnish to the
Commission on request a copy of any instrument defining the rights of holders of
long-term debt of United States Steel and of any subsidiary for which
consolidated or unconsolidated financial statements are required to be filed.

49

10. Material Contracts

(a) United States Steel Corporation 2002
Stock Plan............................... Incorporated by reference
to Annex F to the USX
Proxy Statement dated
September 20, 2001.

(b) United States Steel Corporation Senior
Executive Officer Annual Incentive
Compensation Plan........................ Incorporated by reference
to Annex G to the USX
Proxy Statement dated
September 20, 2001.

(c) United States Steel Corporation Annual
Incentive Compensation Plan

(d) United States Steel Corporation
Non-Officer Restricted Stock Plan

(e) United States Steel Corporation Executive
Management Supplemental Pension
Program

(f) United States Steel Corporation
Supplemental Thrift Program

(g) United States Steel Corporation Deferred
Compensation Plan for Non-Employee
Directors

(h) Form of Severance Agreements between
the Corporation and its Officers

(i) Retention Agreement between United States
Steel Corporation and Thomas J. Usher,
executed August 8, 2001

(j) Agreement between United States Steel
Corporation and John P. Surma, executed
December 21, 2001

(k) Retention Agreement between United States
Steel Corporation and Dan D. Sandman, executed
September 14, 2001

(l) Tax Sharing Agreement between USX
Corporation (renamed Marathon Oil
Corporation) and United States Steel
Corporation.............................. Incorporated by reference
to Exhibit 99.3 to the
United States Steel Form
8-K dated December 31,
2001.

(m) Financial Matters Agreement between
USX Corporation (renamed Marathon
Oil Corporation) and United States Steel
Corporation.............................. Incorporated by reference
to Exhibit 99.5 to the
United States Steel Form
8-K dated December 31,
2001.

50

(n) Amended and Restated Receivables
Purchase Agreement, dated
November 28, 2001 among U. S. Steel
Receivables, as Seller; United States Steel
LLC, as initial Servicer; the persons party
Hereto as CP Conduit Purchasers,
Committed Purchasers and Funding Agents
And The Bank of Nova Scotia, as Collateral
Agent

(o) Purchase and Sale Agreement dated
November 28, 2001 among United States
Steel LLC, as initial Servicer and as
Originator; and U. S. Steel Receivables LLC
as purchaser and contributee

12.1 Computation of Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends

12.2 Computation of Ratio of Earnings to Fixed Charges

21. List of Significant Subsidiaries

23. Consent of PricewaterhouseCoopers LLP

51

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(Millions of Dollars)

Additions
-----------------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
Description of Period Expenses Accounts Deductions/(a)/ Period
- ---------------------------------------------------------------------------------------------------------------

Year ended December 31, 2001:
Reserves deducted in the
balance sheet from the assets
to which they apply:
Allowance for doubtful accounts $57 $112 $ 1 $ 5 $165
Investments and long-term
receivables reserve 38 38 - 1 75
Deferred tax valuation allowance:
State 34 - 28 /(b)/ 53 /(c)/ 9
Foreign 21 - - 1 20

Year ended December 31, 2000:
Reserves deducted in the
balance sheet from the assets
to which they apply:
Allowance for doubtful accounts $10 $ 11 $37 /(d)/ $ 1 $ 57
Investments and long-term
receivables reserve 3 36 /(e)/ - 1 38
Deferred tax valuation allowance:
State 41 - - 7 34
Foreign - - 21 /(d)/ - 21

Year ended December 31, 1999:
Reserves deducted in the
balance sheet from the assets
to which they apply:
Allowance for doubtful accounts $ 9 $ 2 $ 4 $ 5 $ 10
Investments and long-term
receivables reserve 10 - - 7 3
State deferred tax valuation
allowance 44 - - 3 41
- ---------------------------------------------------------------------------------------------------------------

/(a)/ Deductions for the allowance for doubtful accounts and long-term
receivables include amounts written off as uncollectible, net of
recoveries. Unless otherwise noted, reductions in the tax valuation
allowances reflect changes in the amount of deferred taxes expected to be
realized, resulting in credits to the provision for income taxes.
/(b)/ Reflects valuation allowances established for deferred tax assets
generated in the current period, primarily related to net operating
losses.
/(c)/ The reduction in the valuation allowance is related to net operating
losses previously attributed to United States Steel which were retained by
Marathon in connection with the Separation. The transfer of net operating
losses and the related valuation allowance was recorded as an adjustment
to Marathon's net investment.
/(d)/ Relates to the acquisition of U. S. Steel Kosice, s.r.o.
/(e)/ Includes $36 million classified as income (loss) from investees relating
to notes receivable from an equity investee.

52

Report of Independent Accountants on
Financial Statement Schedules

To the Stockholders of United States Steel Corporation:

Our audits of the consolidated financial statements referred to in our report
dated February 15, 2002, included in this Annual Report on Form 10-K also
included an audit of the financial statement schedule listed in Item 14(a)(2) of
this Form 10-K. In our opinion, this financial statement schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
February 15, 2002

53

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacity indicated on March 19, 2002.

UNITED STATES STEEL CORPORATION

By /s/ Gretchen R. Haggerty
--------------------------------------
Gretchen R. Haggerty
Senior Vice President and Controller

Signature Title
--------- -----

Chairman of the Board,
/s/ Thomas J. Usher Chief Executive Officer, President and Director
- ----------------------------
Thomas J. Usher
Vice Chairman and Chief Financial Officer
/s/ John P. Surma, Jr. and Director
- ----------------------------
John P. Surma, Jr.

/s/ Gretchen R. Haggerty Senior Vice President and Controller
- ----------------------------
Gretchen R. Haggerty

/s/ J. Gary Cooper Director
- ----------------------------
J. Gary Cooper

/s/ Robert J. Darnall Director
- ----------------------------
Robert J. Darnall

Vice Chairman and Chief Operating Officer
/s/ Roy G. Dorrance and Director
- ----------------------------
Roy G. Dorrance

/s/ Shirley Ann Jackson Director
- ----------------------------
Shirley Ann Jackson

/s/ Charles R. Lee Director
- ----------------------------
Charles R. Lee

/s/ Paul E. Lego Director
- ----------------------------
Paul E. Lego

/s/ John F. McGillicuddy Director
- ----------------------------
John F. McGillicuddy

Vice Chairman and Chief Legal &
/s/ Dan D. Sandman Adminstrative Officer and Director
- ----------------------------
Dan D. Sandman

/s/ Seth E. Schofield Director
- ----------------------------
Seth E. Schofield

/s/ John W. Snow Director
- ----------------------------
John W. Snow

/s/ Douglas C. Yearley Director
- ----------------------------
Douglas C. Yearley

54

GLOSSARY OF CERTAIN DEFINED TERMS

The following definitions apply to terms used in this document:

AD.......................... Antidumping
CAA......................... Clean Air Act
CERCLA...................... Comprehensive Environmental Response, Compensation,
and Liability Act
Clairton Partnership........ Clairton 1314B Partnership, L.P.
CMS......................... Corrective Measure Study
Commerce.................... U.S. Department of Commerce
CVD......................... Countervailing duty
CWA......................... Clean Water Act
DD&A........................ depreciation, depletion and amortization
DESCO....................... Double Eagle Steel Coating Company
DOE......................... Department of Energy
DOJ......................... U.S. Department of Justice
EPA......................... U.S. Environmental Protection Agency
ITC......................... International Trade Commission
Kobe........................ Kobe Steel Ltd.
LAER........................ Lowest Achievable Emission Rate
LTV......................... LTV Corporation
MACT........................ Maximum Achievable Control Technology
Marathon.................... Marathon Oil Corporation
Minntac..................... U. S. Steel's iron ore operations at Mt. Iron,
Minn.
NKK......................... NKK Corporation
NOV......................... Notice of Violation
NOx......................... Nitrogen Oxide
NPDES....................... National Pollutant Discharge Elimination System
PaDER....................... Pennsylvania Department of Environmental Resources
POSCO....................... Pohang Iron & Steel Co., Ltd.
PRO-TEC..................... PRO-TEC Coating Company, a United States Steel and
Kobe Steel Ltd. joint venture.
PRP......................... potentially responsible party
RCRA........................ Resource Conservation and Recovery Act
RFI......................... RCRA Facility Investigation
RI/FS....................... Remedial Investigation and Feasibility Study
RTI......................... RTI International Metals, Inc. (formerly RMI
Titanium Company)
Republic.................... Republic Technologies International, LLC
Separation.................. United States Steel being spun-off from USX
Corporation (renamed Marathon Oil Corporation)
SG&A........................ selling, general and administrative
SIP......................... State Implementation Plan
Steel Stock................. USX-U. S. Steel Group Common Stock
Trust Preferred Securities.. 6.75% Convertible Quarterly Income Preferred
Securities of USX Capital Trust I
USS-POSCO................... USS-POSCO Industries, United States Steel and
Pohang Iron & Steel Co., Ltd., joint venture.
USS/Kobe.................... United States Steel and Kobe Steel Ltd. joint
venture.
USSK........................ U. S. Steel Kosice s.r.o.
USWA........................ United Steelworkers of America
VSZ......................... VSZ a.s.
VSZ U. S. Steel s.r.o....... U. S. Steel and VSZ a.s. joint venture in Kosice,
Slovakia

55

Supplementary Data
Disclosures About Forward-looking Statements

United States Steel includes forward-looking statements concerning trends,
market forces, commitments, material events or other contingencies potentially
affecting the company in reports filed with the Securities and Exchange
Commission, external documents or oral presentations. In order to take advantage
of "safe harbor" provisions of the Private Securities Litigation Reform Act of
1995, United States Steel is filing the following cautionary language
identifying important factors (though not necessarily all such factors) that
could cause actual outcomes to differ materially from information set forth in
forward-looking statements made by, or on behalf of, United States Steel and its
representatives.

Cautionary Language Concerning Forward-looking Statements

Forward-looking statements with respect to United States Steel may include,
but are not limited to, comments about general business strategies, financing
decisions, projections of levels of revenues, income from operations or income
from operations per ton, net income or earnings per share; levels of capital,
environmental or maintenance expenditures; the success or timing of completion
of ongoing or anticipated capital or maintenance projects; levels of raw steel
production capability, prices, production, shipments, or labor and raw material
costs; the acquisition, idling, shutdown or divestiture of assets or businesses;
the effect of restructuring or reorganization of business components; the effect
of potential judicial proceedings on the business and financial condition; and
the effects of actions of third parties such as competitors, or foreign,
federal, state or local regulatory authorities.

Forward-looking statements typically contain words such as "anticipates",
"believes", "estimates", "expects", "forecasts", "predicts" or "projects", or
variations of these words, suggesting that future outcomes are uncertain. The
following discussion is intended to identify important factors (though not
necessarily all such factors) that could cause future outcomes to differ
materially from those set forth in forward-looking statements with respect to
United States Steel.

Liquidity Factors

United States Steel's ability to finance its future business requirements
through internally generated funds, proceeds from the sale of stock, borrowings
and other external financing sources is affected by its performance (as measured
by various factors, including cash provided from operating activities), the
state of worldwide debt and equity markets, investor perceptions and
expectations of past and future performance and actions, the overall U.S.
financial climate, and, in particular, with respect to borrowings, by United
States Steel's outstanding debt, credit ratings by investor services and
compliance with covenants associated with outstanding debt. To the extent that
United States Steel Management's assumptions concerning these factors prove to
be inaccurate, United States Steel's liquidity position could be materially
adversely affected.

Market Factors

United States Steel's expectations as to levels of production and revenues,
gross margins, income from operations and income from operations per ton are
based upon assumptions as to future product prices and mix, and levels of raw
steel production capability, production and shipments. These assumptions may
prove to be inaccurate.

The steel industry is characterized by excess world supply which has
restricted the ability of United States Steel and the industry to raise prices
during periods of economic growth and resist price decreases during economic
contraction.

Domestic flat-rolled steel supply has increased in recent years with the
completion and start-up of minimills that are less expensive to build than
integrated facilities, and are typically staffed by non-unionized work forces
with lower base labor costs and more flexible work rules. Through the use of
thin slab casting technology, minimill competitors are increasingly able to
compete directly with integrated producers of higher value-added products. Such
competition could adversely affect United States Steel's future product prices
and shipment levels.

56

USSK does business primarily in Central Europe and is subject to market
conditions in this area which are similar to domestic factors and also can be
influenced by matters peculiar to international marketing such as tariffs. USSK
is affected by the worldwide overcapacity in the steel industry and the cyclical
nature of demand for steel products and that demand's sensitivity to worldwide
general economic conditions. In particular, USSK is subject to economic
conditions and political factors in Europe, which if changed could negatively
affect its results of operations and cash flow. Political factors include, but
are not limited to, taxation, nationalization, inflation, currency fluctuations,
increased regulation, and quotas, tariffs and other protectionist measures. USSK
is also subject to foreign currency exchange risks because its revenues are
primarily in euros and its costs are primarily in Slovak koruna and U. S.
dollars.

The domestic steel industry has, in the past, been adversely affected by
unfairly traded imports. Steel imports to the United States accounted for an
estimated 24%, 27% and 26% of the domestic steel market in 2001, 2000 and 1999,
respectively. Foreign competitors typically have lower labor costs, and are
often owned, controlled or subsidized by their governments, allowing their
production and pricing decisions to be influenced by political and economic
policy considerations as well as prevailing market conditions. Levels of
imported steel following government action on Section 201 activities could
adversely affect future market prices and demand levels for domestic steel.

United States Steel also competes in many markets with producers of
substitutes for steel products, including aluminum, cement, composites, glass,
plastics and wood. The emergence of additional substitutes for steel products
could adversely affect future prices and demand for steel products.

The businesses of United States Steel are aligned with cyclical industries
such as the automotive, appliance, containers, construction and energy
industries. As a result, future downturns in the U.S. economy or any of these
industries could adversely affect the profitability of United States Steel.

Operating and Cost Factors

The operations of United States Steel are subject to planned and unplanned
outages due to maintenance, equipment malfunctions or work stoppages; and
various hazards, including explosions, fires and severe weather conditions,
which could disrupt operations or the availability of raw materials, resulting
in reduced production volumes and increased production costs.

Labor costs for United States Steel are affected by collective bargaining
agreements. United States Steel entered into a five year contract with the
United Steel Workers of America, effective August 1, 1999, covering
approximately 14,500 employees. The contract provided for increases in hourly
wages phased over the term of the agreement beginning in 2000 as well as pension
and benefit improvements for active and retired employees and spouses that will
result in higher labor and benefit costs for United States Steel each year
throughout the term of the contract. In addition, most USSK employees are
represented by OZ Metalurg, which on February 16, 2001 signed a Collective Labor
Agreement with USSK which, for nonwage issues, covers the years 2001 to 2004. An
amendment to this agreement was executed in February 2002, which covers all 2002
wage issues. Wage issues for the remainder of the term of the Collective Labor
Agreement are expected to be renegotiated annually. The agreement includes
improvements in the employees' social and wage benefits and work conditions. To
the extent that increased costs are not recoverable through the sales prices of
products, future income from operations would be adversely affected.

Income from operations for United States Steel includes periodic pension
credits (which are primarily noncash). The resulting net periodic pension
credits totaled $120 million, $273 million and $234 million in 2001, 2000 and
1999, respectively. Future net periodic pension credits can be volatile and are
dependent upon the future marketplace performance of plan assets, changes in
actuarial assumptions regarding such factors as a selection of a discount rate
and rate of return on assets, plan amendments affecting benefit payout levels
and profile changes in the beneficiary populations being valued. Changes in any
of these factors could cause net periodic pension credits to change. To the
extent that these credits decline in the future, income from operations would be
adversely affected.

United States Steel provides health care and life insurance benefits to
most employees upon retirement. Most of these benefits have not been prefunded.
The accrued liability for such benefits as of December 31, 2001, was $1,763
million. To the extent that competitors do not provide similar benefits, or have
been relieved of obligations to provide such benefits following bankruptcy
reorganization, the competitive position of United States Steel may be adversely
affected, depending on future costs of health care.

57

Legal and Environmental Factors

The profitability of United States Steel's operations could be affected by
a number of contingencies, including legal actions. The ultimate resolution of
these contingencies could, individually or in the aggregate, be material to the
United States Steel financial statements.

The businesses of United States Steel are subject to numerous environmental
laws. Certain current and former U. S. Steel Group operating facilities have
been in operation for many years and could require significant future accruals
and expenditures to meet existing and future requirements under these laws. To
the extent that competitors are not required to undertake equivalent costs in
their operations, the competitive position of United States Steel could be
adversely affected.

For further discussion of certain of the factors described herein, and
their potential effects on the businesses of United States Steel, see Item 1.
Business, Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations and Item 7A. Quantitative and Qualitative Disclosures
About Market Risk.

58