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 af