Edgar Filing: UNITED STATES STEEL CORP

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

FORM 10-Q/A

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2003

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from ____________ to _____________

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

Delaware 1-16811 25-1897152
-------------- ----------- ------------------
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)

600 Grant Street, Pittsburgh, PA 15219-2800
--------------------------------------- ----------
(Address of principal executive offices) (Zip Code)

(412) 433-1121
------------------------------
(Registrant's telephone number,
including area code)

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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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes..X..No.....

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes..X..No.....

Common stock outstanding at October 31, 2003 - 103,277,374 shares

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EXPLANATORY NOTE

This amendment is to amend Item 1 of Part I and Item 1 of Part II of the
registrant's report on Form 10-Q for the quarterly period ended September 30,
2003 to amend the description of the allocation of the purchase price in
footnote 3 to the financial statements and to revise the disclosure regarding
asbestos litigation. The full text of Item 1 of Part I and Item 1 of Part II are
set forth in this Amendment to Form 10-Q.

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Part I - Financial Information:

UNITED STATES STEEL CORPORATION
STATEMENT OF OPERATIONS (Unaudited)
-----------------------------------

Third Quarter Nine Months
Ended Ended
September 30 September 30
(Dollars in millions, except per share amounts) 2003 2002 2003 2002
-----------------------------------------------------------------------------------------------------------------------------------

REVENUES AND OTHER INCOME:
Revenues...................................................................... $ 2,267 $ 1,648 $ 5,993 $ 4,381
Revenues from related parties................................................. 239 257 722 716
Income (loss) from investees.................................................. (2) 2 (10) 11
Net gains on disposal of assets............................................... 4 2 27 7
Other income.................................................................. - 5 45 40
----- ----- ----- -----
Total revenues and other income............................................. 2,508 1,914 6,777 5,155
----- ----- ----- -----
COSTS AND EXPENSES:
Cost of revenues (excludes items shown below)................................. 2,743 1,611 6,566 4,518
Selling, general and administrative expenses.................................. 319 74 590 245
Depreciation, depletion and amortization...................................... 140 89 317 266
----- ----- ----- -----
Total costs and expenses.................................................... 3,202 1,774 7,473 5,029
----- ----- ----- -----
INCOME (LOSS) FROM OPERATIONS................................................... (694) 140 (696) 126
Net interest and other financial costs.......................................... 26 32 106 85
----- ----- ----- -----
INCOME (LOSS) BEFORE INCOME TAXES, EXTRAORDINARY
LOSS AND CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE....................................................... (720) 108 (802) 41
Provision (benefit) for income taxes............................................ (366) 2 (418) (9)
----- ----- ----- -----
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS AND
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE........................... (354) 106 (384) 50
Extraordinary loss, net of tax.................................................. - - (52) -
Cumulative effect of change in accounting principle,
net of tax.................................................................... - - (5) -
----- ----- ----- -----
NET INCOME (LOSS)............................................................... (354) 106 (441) 50
Dividends on preferred stock.................................................... (4) - (11) -
----- ----- ----- -----
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK.................................... $ (358) $ 106 $ (452) $ 50
===== ===== ===== =====

Selected notes to financial statements appear on pages 7-32.

UNITED STATES STEEL CORPORATION
STATEMENT OF OPERATIONS (Continued) (Unaudited)
COMMON STOCK DATA
------------------------------------------------

COMMON STOCK DATA:
Per share - basic and diluted:
Income (loss) before extraordinary loss and
cumulative effect of change in
accounting principle......................................................... $ (3.47) $ 1.04 $ (3.84) $ .52
Extraordinary loss, net of tax................................................ - - (.50) -
Cumulative effect of change in accounting
principle, net of tax........................................................ - - (.05) -
------- ------- ------- -------
Net income (loss)............................................................. $ (3.47) $ 1.04 $ (4.39) $ .52
======= ======= ======= =======
Weighted average shares, in thousands
- Basic........................................................................ 103,321 101,926 103,096 95,767
- Diluted...................................................................... 103,321 101,926 103,096 95,769

Dividends paid per share........................................................ $ .05 $ .05 $ .15 $ .15

PRO FORMA AMOUNTS ASSUMING CHANGE IN ACCOUNTING
PRINCIPLE WAS APPLIED RETROACTIVELY:
Income (loss) before extraordinary loss and
cumulative effect of change in
accounting principle, as reported............................................. $ (354) $ 106 $ (384) $ 50
SFAS No. 143 pro forma effect.................................................. - (1) 5 (2)
------- ------- ------- -------
Income (loss) before extraordinary loss and
cumulative effect of change in
accounting principle, adjusted................................................. $ (354) $ 105 $ (379) $ 48
Per share adjusted - basic and diluted......................................... (3.47) 1.03 (3.80) .50
Net income (loss) adjusted...................................................... (354) 105 (431) 48
Per share adjusted - basic and diluted......................................... (3.47) 1.03 (4.30) .50

Selected notes to financial statements appear on pages 7-32.

UNITED STATES STEEL CORPORATION
BALANCE SHEET (Unaudited)
-------------------------------

September 30 December 31
(Dollars in millions) 2003 2002
-----------------------------------------------------------------------------------------------------------------------

ASSETS
Current assets:
Cash and cash equivalents..................................................... $ 160 $ 243
Receivables, less allowance of $129 and $57................................... 1,126 796
Receivables from related parties.............................................. 148 138
Inventories................................................................... 1,394 1,030
Deferred income tax benefits.................................................. 203 217
Other current assets.......................................................... 35 16
------ ------
Total current assets........................................................ 3,066 2,440
Investments and long-term receivables,
less allowance of $3 and $2................................................... 303 341
Long-term receivables from related parties...................................... 6 6
Property, plant and equipment, less accumulated
depreciation, depletion and amortization of
$7,089 and $7,095............................................................. 3,367 2,978
Pension asset................................................................... 1,518 1,654
Intangible pension asset........................................................ 374 414
Other intangible assets, net.................................................... 39 -
Deferred income tax benefits.................................................... 366 -
Other noncurrent assets......................................................... 202 144
------ ------
Total assets................................................................ $ 9,241 $ 7,977
====== ======
LIABILITIES
Current liabilities:
Accounts payable.............................................................. $ 940 $ 677
Accounts payable to related parties........................................... 72 90
Payroll and benefits payable.................................................. 420 254
Accrued taxes................................................................. 344 281
Accrued interest.............................................................. 49 44
Long-term debt due within one year............................................ 28 26
------ ------
Total current liabilities................................................... 1,853 1,372
Long-term debt, less unamortized discount....................................... 1,853 1,408
Deferred income taxes........................................................... 2 223
Employee benefits............................................................... 3,539 2,601
Deferred credits and other liabilities.......................................... 349 346
------ ------
Total liabilities........................................................... 7,596 5,950
------ ------
Contingencies and commitments (See Note 23)..................................... - -
STOCKHOLDERS' EQUITY
Preferred stock -
7% Series B Mandatory Convertible
Preferred issued - 5,000,000 shares
and -0- shares (no par value, liquidation
preference $50 per share)..................................................... 231 -
Common stock issued - 103,296,600 shares and
102,485,246 shares............................................................ 103 102
Additional paid-in capital...................................................... 2,679 2,689
Retained earnings (deficit)..................................................... (399) 42
Accumulated other comprehensive loss............................................ (968) (803)
Deferred compensation........................................................... (1) (3)
------ ------
Total stockholders' equity.................................................. 1,645 2,027
------ ------
Total liabilities and stockholders' equity.................................. $ 9,241 $ 7,977
====== ======

Selected notes to financial statements appear on pages 7-32.

UNITED STATES STEEL CORPORATION
STATEMENT OF CASH FLOWS (Unaudited)
-----------------------------------

Nine Months Ended
September 30
(Dollars in millions) 2003 2002
--------------------------------------------------------------------------------------------------------------------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
OPERATING ACTIVITIES:
Net income (loss)..................................................................... $ (441) $ 50
Adjustments to reconcile to net cash provided from
operating activities:
Extraordinary loss, net of tax...................................................... 52 -
Cumulative effect of change in accounting principle, net of tax..................... 5 -
Depreciation, depletion and amortization............................................ 317 266
Pensions and other postretirement benefits.......................................... 638 (35)
Deferred income taxes............................................................... (408) (12)
Net gains on disposal of assets..................................................... (27) (7)
Income from sale of coal seam gas interests......................................... (34) -
Loss (income) from equity investees and distributions received...................... 35 -
Changes in:
Current receivables
- sold.......................................................................... 190 320
- repurchased................................................................... (190) (320)
- operating turnover............................................................ (74) (228)
Inventories....................................................................... 123 (97)
Current accounts payable and accrued expenses..................................... 266 193
All other - net..................................................................... (120) (54)
------ ------
Net cash provided from operating activities....................................... 332 76
------ ------
INVESTING ACTIVITIES:
Capital expenditures.................................................................. (205) (150)
Acquisition - National Steel Corporation assets....................................... (873) -
- U. S. Steel Balkan...................................................... (6) -
- U. S. Steel Kosice ..................................................... (37) (38)
Disposal of assets.................................................................... 76 12
Sale of coal seam gas interests....................................................... 34 -
Restricted cash - withdrawals....................................................... 42 3
- deposits ....................................................... (93) (60)
Investees - investments .............................................................. (4) (15)
- loans and advances ....................................................... - (3)
- repayments of loans and advances.......................................... 1 7
------ ------
Net cash used in investing activities............................................. (1,065) (244)
------ ------
FINANCING ACTIVITIES:
Issuance of long-term debt, net of deferred financing costs........................... 427 -
Repayment of long-term debt........................................................... (3) (31)
Settlement with Marathon Oil Corporation.............................................. - (54)
Preferred stock issued................................................................ 242 -
Common stock issued................................................................... 11 223
Dividends paid........................................................................ (26) (14)
------ ------
Net cash provided from financing activities....................................... 651 124
------ ------
EFFECT OF EXCHANGE RATE CHANGES ON CASH............................................... (1) 2
------ ------
NET DECREASE IN CASH AND CASH EQUIVALENTS............................................. (83) (42)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR........................................ 243 147
------ ------
CASH AND EQUIVALENTS AT END OF PERIOD................................................. $ 160 $ 105
====== ======
Cash used in operating activities included:
Interest and other financial costs paid (net of
amount capitalized)............................................................... $ (107) $ (105)
Income taxes paid to tax authorities............................................... (3) (4)

Selected notes to financial statements appear on pages 7-32.

UNITED STATES STEEL CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS
--------------------------------------
(Unaudited)

1. The information in these financial statements is unaudited but, in the
opinion of management, reflects all adjustments necessary for a fair
presentation of the results for the periods covered. All such
adjustments are of a normal recurring nature unless disclosed otherwise.
These financial statements, including selected notes, have been prepared
in accordance with the applicable rules of the Securities and Exchange
Commission and do not include all of the information and disclosures
required by accounting principles generally accepted in the United
States of America for complete financial statements. Certain
reclassifications of prior year data have been made to conform to 2003
classifications. Additional information is contained in the United
States Steel Corporation Annual Report on Form 10-K for the year ended
December 31, 2002.

2. United States Steel Corporation (U. S. Steel) is engaged domestically in
the production, sale and transportation of steel mill products, coke and
taconite pellets (iron ore); steel mill products distribution; the
management of mineral resources; the management and development of real
estate; and engineering and consulting services and, through U. S. Steel
Kosice (USSK) and U. S. Steel Balkan (USSB) in the Slovak Republic and
Serbia, respectively, in the production and sale of steel mill products
and coke primarily for the central and western European markets. As
reported in Note 5, until June 30, 2003, U. S. Steel was also engaged in
the mining, processing and sale of coal.

3. On May 20, 2003, U. S. Steel acquired substantially all of the
integrated steelmaking assets of National Steel Corporation (National).
The facilities acquired include two integrated steel plants, Granite
City in Granite City, Illinois and Great Lakes, in Ecorse and River
Rouge, Michigan; the Midwest finishing facility in Portage, Indiana;
ProCoil, a steel-processing facility in Canton, Michigan; a 50% equity
interest in Double G Coatings, L.P. near Jackson, Mississippi; a
taconite pellet operation near Keewatin, Minnesota; and the Delray
Connecting Railroad. The acquisition of National's assets has made U. S.
Steel the largest steel producer in North America and has strengthened
U. S. Steel's overall position in providing value-added products to the
automotive, container and construction markets. Results of operations
include the operations of National from May 20, 2003.

The aggregate purchase price for National's assets was $1,269 million,
consisting of $839 million in cash and the assumption or recognition of
$430 million in liabilities. The $839 million in cash reflects $844
million paid to National at closing and transaction costs of $29
million, less a working capital adjustment of $34 million in accordance
with the terms of the Asset Purchase Agreement. The working capital
adjustment was collected in October 2003. The opening balance sheet
reflects certain direct obligations of National assumed by U. S. Steel
and certain employee benefit liabilities for employees hired from
National resulting from the new labor agreement with the United
Steelworkers of America (USWA). The new labor agreement and these
liabilities are discussed in more detail below.

UNITED STATES STEEL CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)

3. (Continued)

In connection with the acquisition of National's assets, U. S. Steel
reached a new labor agreement with the USWA, which covers employees at
the U. S. Steel facilities and the acquired National facilities. The
agreement was ratified by the USWA membership in May 2003, expires in
2008 and provides for a workforce restructuring through a Transition
Assistance Program (TAP). U. S. Steel calculated the estimated fair
value of the obligations recorded for benefits granted under the labor
agreement to former active National employees represented by the USWA
and hired by U. S. Steel. The liabilities included $145 million for
future retiree medical and retiree life costs, $17 million related to
future payments for employees who participate in the TAP, and $24
million for accrued vacation benefits. U. S. Steel also recognized a $17
million liability related to two irrevocable cash contributions to be
made to the Steelworkers Pension Trust (SPT) in 2003 and 2004 based on
the number of National's represented employees as of the date of the
acquisition, less the number of these employees estimated to participate
in the TAP. The SPT is a multiemployer pension plan to which U. S. Steel
will make contributions for all former National represented employees
who join U. S. Steel and, after July 1, 2003, for all new U. S. Steel
employees represented by the USWA.

The following is a summary of the allocation of the purchase price to
the assets acquired and liabilities assumed or recognized based on their
fair market values. Management determined that the fair value of the net
assets acquired was in excess of the purchase price, resulting in
negative goodwill. In accordance with Statement of Financial Accounting
Standards (SFAS) No. 141 "Business Combinations," the negative goodwill
was allocated as a pro rata reduction to the amounts that would have
otherwise been assigned to the acquired noncurrent assets, based on
their relative fair values.

Allocated
Purchase Price
--------------
(In millions)

Acquired assets:
Accounts receivable......................................................... $ 222
Inventory................................................................... 500
Other current assets........................................................ 22
Property, plant & equipment................................................. 480
Intangible assets........................................................... 42
Other noncurrent assets..................................................... 3
-----
Total assets.............................................................. 1,269
-----
Acquired liabilities:
Accounts payable............................................................ 157
Payroll and benefits payable................................................ 57
Other current liabilities................................................... 30
Employee benefits........................................................... 150
Other noncurrent liabilities................................................ 36
-----
Total liabilities......................................................... 430
-----
Purchase price-cash............................................................ $ 839
=====

UNITED STATES STEEL CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)

3. (Continued)

Refinements to the allocated purchase price are expected to be made as
additional information becomes available, primarily relating to
environmental contingencies. These contingencies were identified as of
the closing of the transaction and include matters that are currently
being negotiated with government agencies, and matters for which
technical studies are being completed. Relevant information that is
required to finalize the determination of the fair value of
environmental liabilities for opening balance sheet purposes is expected
to be received by May 2004.

The $42 million of intangible assets is primarily comprised of
proprietary software with a weighted average useful life of
approximately 6 years. U. S. Steel recognized $2 million and $3 million,
respectively, of amortization expense in the third quarter and nine
months of 2003 related to these intangible assets.

The following unaudited pro forma data for U. S. Steel includes the
results of operations of National as if it had been acquired at the
beginning of the periods presented, including the effects of the new
labor agreement as it pertains to the former National facilities and the
financings incurred to fund the acquisition. (See Notes 17 and 21.) The
unaudited pro forma data is based on historical information and does not
necessarily reflect the actual results that would have occurred nor is
it necessarily indicative of future results of operations.

Pro Forma Pro Forma
Nine Months Third Quarter
Ended Ended
September 30 September 30
(In millions, except per share data) 2003 2002 2002
---------------------------------------------------------------------------------------------------------------------

Revenues and other income..................................... $ 7,783 $ 7,067 $2,573
Income (loss) before extraordinary loss and cumulative effect
cumulative effect of change
in accounting principle..................................... (378) 60 137
Per share - basic..................................... (3.79) .49 1.30
- diluted................................... (3.79) .49 1.13
Net income (loss), applicable to common stock................. (450) 47 132
Per share - basic..................................... (4.37) .49 1.30
- diluted................................... (4.37) .49 1.13

UNITED STATES STEEL CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)

4. On September 12, 2003, USSB, a wholly owned Serbian subsidiary of U. S.
Steel, acquired Sartid a.d. (In Bankruptcy), an integrated steel company
majority-owned by the Government of the Union of Serbia and Montenegro,
and certain of its subsidiaries (collectively "Sartid") out of
bankruptcy. Sartid, headquartered in the Republic of Serbia, primarily
manufactures hot-rolled, cold-rolled, and tin-coated flat-rolled steel
products, and complements the operations of USSK. The completion of this
purchase resulted in the termination of a toll conversion agreement, a
facility management agreement and a commercial and technical support
agreement with Sartid.

The aggregate purchase price was $33 million consisting of $23 million
in cash, transaction costs of $6 million and the recognition of $4
million in liabilities. In October 2003, $21 million of the cash portion
of the purchase price was disbursed and the remainder is expected to be
disbursed in the fourth quarter of 2003. Upon consummation of the
purchase of two small remaining subsidiaries of Sartid, a.d. (In
Bankruptcy), whose operations are currently being conducted by USSB
pursuant to an interim agreement, the transaction requires the following
commitments by USSB; (i) spending during the first five years for
working capital, the repair, rehabilitation, improvement, modification
and upgrade of facilities and community support and economic development
of up to $157 million, subject to certain conditions; (ii) a stable
employment policy for three years assuring employment of the
approximately 9,000 employees, excluding natural attrition and
terminations for cause; and (iii) an agreement not to sell, transfer or
assign a controlling interest in the former Sartid assets to any third
party without government consent for a period of five years. USSB did
not assume or acquire any pre-acquisition liabilities including
environmental, tax, social insurance liabilities, product liabilities
and employee claims, other than $4 million in pension and other employee
related liabilities.

The acquisition was accounted for by the purchase method of accounting
under SFAS No. 141 and, accordingly, the statement of operations
includes the results of USSB beginning September 12, 2003. Prior to the
acquisition, the operating results of activities under facility
management and support agreements with Sartid were included in the
results of USSK.

UNITED STATES STEEL CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)

4. (Continued)

The following is a summary of the allocation of the purchase price to
the assets acquired and liabilities assumed or recognized based on their
fair market values. Based on appraisals, the fair value of the net
assets acquired was in excess of the purchase price, resulting in
negative goodwill. In accordance with SFAS No. 141, the negative
goodwill was allocated as a pro rata reduction to the amounts that would
have otherwise been assigned to the acquired noncurrent assets based on
their relative fair values.

Allocated
Purchase Price
--------------
(In millions)

Acquired assets:
Accounts receivable.................................................... $ 1
Inventory.............................................................. 6
Property, plant & equipment............................................ 26
------
Total assets......................................................... 33
------
Acquired liabilities:
Employee benefits...................................................... 4
------
Total liabilities.................................................... 4
------
Purchase price-cash...................................................... $ 29
======

From 1992 to 1995 and again from 1999 to October 2000 political and
economic sanctions were enforced against Serbia by the United Nations.
As a result of operating under the sanctions and government control,
these facilities have been operating at levels well below capacity and
are in disrepair. The limited financial data available for Sartid is not
reliable nor is it believed that reliable historical financial
statements could be prepared from the data that exists. In addition, any
historical information provided would not reflect a market-based
operation. Therefore, U. S. Steel management believes that historical
financial information for Sartid is irrelevant to investors and
consequently, no historical information for Sartid is presented nor will
it be provided in future filings. In addition, pro forma financial data
is not presented for the current or prior years because there is no
reliable historical information on which to base pro forma amounts.

5. On June 30, 2003, U. S. Steel completed the sale of the coal mines and
related assets of U. S. Steel Mining Company, LLC (Mining Sale) to
PinnOak Resources, LLC (PinnOak), which is not affiliated with U. S.
Steel. PinnOak acquired the Pinnacle No. 50 mine complex located near
Pineville, West Virginia and the Oak Grove mine complex located near
Birmingham, Alabama. In conjunction with the sale, U. S. Steel and
PinnOak entered into a long-term coal supply agreement, which runs
through December 31, 2006.

UNITED STATES STEEL CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)

5. (Continued)

The gross proceeds from the sale were $56 million, of which $50 million
was received at closing and $6 million, relating to an adjustment to the
purchase price based on inventory levels at June 30, 2003, is due to be
received in the fourth quarter of 2003. U. S. Steel recognized a pretax
gain of $13 million on the sale in the second quarter of 2003. In
addition, EITF 92-13, "Accounting for Estimated Payments in Connection
with the Coal Industry Retiree Health Benefit Act of 1992" requires that
enterprises that no longer have operations in the coal industry must
account for their entire obligation related to the multiemployer health
care benefit plans created by the Act as a loss in accordance with SFAS
No. 5, "Accounting for Contingencies." Accordingly, U. S. Steel
recognized the present value of these obligations in the amount of $85
million, resulting in the recognition of an extraordinary loss of $52
million, net of tax of $33 million in the second quarter of 2003. See
further information in Note 23.

6. U. S. Steel has various stock-based employee compensation plans. The
Company accounts for these plans under the recognition and measurement
principles of APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations. No stock-based employee
compensation cost is reflected in net income for stock options or stock
appreciation rights (SARs) at the date of grant, as all options and SARs
granted had an exercise price equal to the market value of the
underlying common stock. When the stock price exceeds the grant price,
SARs are adjusted for changes in the market value and compensation
expense is recorded. The following tables illustrate the effect on net
income and earnings per share if the Company had applied the fair value
recognition provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation."

Third Quarter Ended
September 30
(In millions, except per share data) 2003 2002
----------------------------------------------------------------------------------------------------------------------

Net income (loss)...................................................................... $ (354) $ 106
Add: Stock-based employee compensation expense included in
reported net income (loss), net of related tax effects............................... 2 -
Deduct: Total stock-based employee compensation expense
determined under fair value methods for all awards,
net of related tax effects.............................. ............................. (1) (1)
------ ------
Pro forma net income (loss)............................................................ $ (353) $ 105
====== ======
Basic and diluted net income (loss) per share:
- As reported........................................................................ $ (3.47) $ 1.04
- Pro forma.......................................................................... (3.46) 1.03

UNITED STATES STEEL CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)

6. (Continued)

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

Third Quarter Ended
September 30
2003 2002
-------------------------------------------------------------------------------------------------------------------

Weighted average grant date exercise price per share....................................... $ 14.38 $ 20.42
Expected annual dividends per share........................................................ $ .20 $ .20
Expected life in years..................................................................... 5 5
Expected volatility........................................................................ 45.3 43.4
Risk-free interest rate.................................................................... 2.4 4.4

Weighted-average grant date fair value of options granted
during the period, as calculated from above.............................................. $ 5.41 $ 8.29

Nine Months Ended
September 30
(In millions, except per share data) 2003 2002
-------------------------------------------------------------------------------------------------------------------

Net income (loss).......................................................................... $ (441) $ 50
Add: Stock-based employee compensation expense included
in reported net loss, net of related tax effects......................................... 3 -
Deduct: Total stock-based employee compensation expense
determined under fair value methods for all awards, net
of related tax effects................................................................... (3) (3)
------ ------
Pro forma net income (loss)................................................................ $ (441) $ 47
====== ======
Basic and diluted net income (loss) per share:
- As reported............................................................................ $ (4.39) $ .52
- Pro forma.............................................................................. (4.39) .49

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

Nine Months Ended
September 30
2003 2002
-------------------------------------------------------------------------------------------------------------------

Weighted average grant date exercise price per share....................................... $ 16.97 $ 20.22
Expected annual dividends per share........................................................ $ .20 $ .20
Expected life in years..................................................................... 5 5
Expected volatility........................................................................ 44.5 42.0
Risk-free interest rate.................................................................... 3.3 4.6

Weighted-average grant date fair value of options granted
during the period, as calculated from above.............................................. $ 6.65 $ 8.07

UNITED STATES STEEL CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)

7. In November 2002, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others." The Interpretation elaborates on the disclosure
to be made by a guarantor about obligations under certain guarantees
that it has issued. It also clarifies that at the inception of a
guarantee, the company must recognize liability for the fair value of
the obligation undertaken in issuing the guarantee. The initial
recognition and measurement provisions apply on a prospective basis to
guarantees issued or modified after December 31, 2002. The disclosure
requirements were adopted for the 2002 annual financial statements. U.
S. Steel is applying the remaining provisions of the Interpretation
prospectively as required.

FASB Interpretation No. 46, "Consolidation of Variable Interest
Entities," was issued in January 2003 and addresses consolidation by
business enterprises of variable interest entities that do not have
sufficient equity investment to permit the entity to finance its
activities without additional subordinated financial support from other
parties or whose equity investors lack the characteristics of a
controlling financial interest. The FASB delayed the application of this
Interpretation until December 31, 2003. At this time U. S. Steel has not
completed its assessment of the effects of the application of this
Interpretation on either its financial position or results of
operations.

In April 2003, the FASB issued SFAS No. 149, "Accounting for Derivative
Instruments and Hedging Activities." The Statement amends and clarifies
accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities
under SFAS No. 133. The amendments set forth in SFAS No. 149 improve
financial reporting by requiring that contracts with comparable
characteristics be accounted for similarly. SFAS No. 149 is effective
for contracts entered into or modified after June 30, 2003, except for
certain outlined exceptions. This Statement was adopted with no initial
impact.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity." SFAS No. 150 changes the accounting for certain financial
instruments that, under previous guidance, could be classified as equity
or "mezzanine" equity, by now requiring these instruments be classified
as liabilities (or assets in some circumstances) in the balance sheet.
Further, SFAS No. 150 requires disclosure regarding the terms of those
instruments and settlement alternatives. The guidance in the Statement
is generally effective for all financial instruments entered into or
modified after May 31, 2003, and is otherwise effective at the beginning
of the first interim period beginning after June 15, 2003. This
Statement was adopted with no initial impact.

UNITED STATES STEEL CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)

8. In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 established a new accounting model
for the recognition and measurement of retirement obligations associated
with tangible long-lived assets. SFAS No. 143 requires that an asset
retirement obligation be capitalized as part of the cost of the related
long-lived asset and subsequently allocated to expense using a
systematic and rational method. SFAS No. 143 requires pro forma
disclosure of the amount of the liability for obligations as if the
statement had been applied during all periods affected, using current
information, current assumptions and current interest rates. In
addition, the effect of adopting a new accounting principle on net
income and on the related per share amounts is required to be shown on
the face of the statement of operations for all periods presented under
Accounting Principles Board Opinion No. 20, "Accounting Changes."

On January 1, 2003, the date of adoption, U. S. Steel recorded asset
retirement obligations (AROs) of $14 million (in addition to $15 million
already accrued), compared to the associated long-lived asset, net of
accumulated depreciation, of $7 million that was recorded, resulting in
a cumulative effect of adopting this Statement of $5 million, net of tax
of $2 million. The obligations recorded on January 1, 2003, and the
amounts acquired from National primarily relate to mine and landfill
closure and post-closure costs.

The following table reflects changes in the carrying values of AROs for
the nine months ended September 30, 2003, and the pro forma impacts for
the year ended December 31, 2002, as if SFAS No. 143 had been adopted on
January 1, 2002:

Nine Months (Pro Forma)
Ended Year Ended
(In millions) Sept. 30, 2003 Dec. 31, 2002
-------------------------------------------------------------------------------------------------------------

Balance at beginning of period..................................... $ 29 $ 26
Liabilities acquired with National's assets........................ 2 -
Accretion expense.................................................. 2 3
Liabilities removed with Mining Sale............................... (14) -
------- ------
Balance at end of period........................................... $ 19 $ 29
======= ======

Certain asset retirement obligations related to disposal costs of fixed
assets at our steel facilities have not been recorded because they have
an indeterminate settlement date. These asset retirement obligations
will be initially recognized in the period in which sufficient
information exists to estimate fair value.

9. U. S. Steel has five reportable segments: Flat-rolled, Tubular, U. S.
Steel Europe (USSE), Straightline Source (Straightline) and USS Real
Estate (Real Estate). Effective with the acquisition of Sartid, the U.
S. Steel Kosice (USSK) segment was renamed U. S. Steel Europe (USSE)
and includes the operating results of USSB.

Effective with the third quarter of 2003, the composition of the
Flat-rolled segment was changed to include the results of the coke
operations that were previously reported in Other Businesses. This
change reflects the recent management consolidations. Comparative
results for 2002 have been conformed to the current year presentation.

UNITED STATES STEEL CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)

9. (Continued)

The Flat-rolled segment includes the operating results of U. S. Steel's
domestic integrated steel mills and equity investees involved in the
production of sheet, plate and tin mill products, as well as all
domestic coke production facilities. These operations are principally
located in the United States and primarily serve customers in the
transportation (including automotive), appliance, service center,
conversion, container and construction markets. Effective May 20, 2003,
the Flat-rolled segment includes the operating results of Granite City,
Great Lakes, the Midwest finishing facility, ProCoil and U. S. Steel's
equity interest in Double G Coatings, which were acquired from National.

The Tubular segment includes the operating results of U. S. Steel's
domestic tubular production facilities and prior to May 2003, included
U. S. Steel's equity interest in Delta Tubular Processing (Delta). These
operations produce and sell both seamless and electric resistance weld
tubular products and primarily serve customers in the oil, gas and
petrochemical markets. In May 2003, U. S. Steel sold its interest in
Delta.

The USSE segment includes the operating results of USSK, U. S. Steel's
integrated steel mill in the Slovak Republic; and, effective September
12, 2003, the former Sartid facilities in Serbia, now operated as USSB.
Prior to September 12, 2003, this segment included the operating results
of activities under facility management and support agreements with
Sartid. These agreements were terminated in conjunction with the
acquisition of these assets. USSE operations produce and sell sheet,
plate, tin, tubular, precision tube and specialty steel products, as
well as coke. USSE primarily serves customers in the central and western
European construction, conversion, appliance, transportation, service
center, container, and oil, gas and petrochemical markets. In June 2003,
USSK sold its equity interest in Rannila Kosice, s.r.o.

The Straightline segment includes the operating results of U. S. Steel's
technology-enabled distribution business that serves steel customers
primarily in the eastern and central United States. Straightline
competes in the steel service center marketplace using a nontraditional
business process to sell, process and deliver flat-rolled steel products
in small to medium sized order quantities primarily to job shops,
contract manufacturers and original equipment manufacturers across an
array of industries.

The Real Estate segment includes the operating results of U. S. Steel's
domestic mineral interests that are not assigned to other operating
units; timber properties; and residential, commercial and industrial
real estate that is managed or developed for sale or lease. In April of
2003, U. S. Steel sold certain coal seam gas interests in Alabama. Prior
to the sale, income generated from these interests was reported in the
Real Estate segment.

All other U. S. Steel businesses not included in reportable segments are
reflected in Other Businesses. These businesses are involved in the
production and sale of iron-bearing taconite pellets; transportation
services; and engineering and consulting services. Prior to the Mining
Sale on June 30, 2003, Other Businesses were involved in the mining,
processing and sale of coal. Effective May 20, 2003, Other Businesses
include the operating results of the Keewatin, Minnesota taconite pellet
operations and the Delray Connecting Railroad, which were acquired from
National.

UNITED STATES STEEL CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)

9. (Continued)

The chief operating decision maker evaluates performance and determines
resource allocations based on a number of factors, the primary measure
being income (loss) from operations. Income (loss) from operations for
reportable segments and Other Businesses does not include net interest
and other financial costs, the income tax provision (benefit), or items
not allocated to segments. Information on segment assets is not
disclosed as it is not reviewed by the chief operating decision maker.

The accounting principles applied at the operating segment level in
determining income (loss) from operations are generally the same as
those applied at the consolidated financial statement level.
Intersegment sales and transfers for some operations are accounted for
at cost, while others are accounted for at market-based prices, and are
eliminated at the corporate consolidation level. All corporate-level
selling, general and administrative expenses and costs related to
certain former businesses are allocated to the reportable segments and
Other Businesses based on measures of activity that management believes
are reasonable.

The results of segment operations for the third quarter of 2003 and
2002 are:

Total
Flat- Straight- Real Reportable
(In millions) rolled Tubular USSE line Estate Segments
------------------------------------------------------------------------------------------------------------------------------
Third Quarter 2003
------------------

Revenues and other
income:
Customer...................... $ 1,820 $ 149 $ 440 $ 36 $ 19 $ 2,464
Intersegment.................. 55 - 4 - 3 62
Equity income
(loss)(a).................... 1 - - - - 1
Other......................... (1) - 1 - 3 3
------ ------ ------ ------ ------ ------
Total........................ $ 1,875 $ 149 $ 445 $ 36 $ 25 $ 2,530
====== ====== ====== ====== ====== ======
Income (loss)
from operations................ $ (50) $ (10) $ 35 $ (15) $ 12 $ (28)
====== ====== ====== ====== ====== ======

Third Quarter 2002
------------------

Revenues and other
income:
Customer.................... $ 1,261 $ 148 $ 322 $ 26 $ 22 $ 1,779
Intersegment................ 60 - 2 - 2 64
Equity income
(loss)(a).................. 4 - - - - 4
Other....................... - - - - 2 2
------ ------ ------ ------ ------ ------
Total...................... $ 1,325 $ 148 $ 324 $ 26 $ 26 $ 1,849
====== ====== ====== ====== ====== ======
Income (loss)
from operations............ $ 57 $ 3 $ 40 $ (11) $ 16 $ 105
====== ====== ====== ====== ====== ======

(a) Represents equity in earnings (losses) of unconsolidated investees.

UNITED STATES STEEL CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)

9. (Continued)

Total
Reportable Other Reconciling Total
(In millions) Segments Businesses Items Corp.
-----------------------------------------------------------------------------------------------------------------------
Third Quarter 2003
------------------

Revenues and other income:
Customer................................................ $ 2,464 $ 42 $ - $ 2,506
Intersegment............................................ 62 189 (251) -
Equity income (loss)(a)................................. 1 (3) - (2)
Other................................................... 3 1 - 4
------ ------ ------ ------
Total.................................................. $ 2,530 $ 229 $ (251) $ 2,508
====== ====== ====== ======
Income (loss) from operations............................. $ (28) $ (2) $ (664) $ (694)
====== ====== ====== ======

Third Quarter 2002
------------------

Revenues and other income:
Customer................................................ $ 1,779 $ 126 $ - $ 1,905
Intersegment............................................ 64 166 (230) -
Equity income (loss)(a)................................. 4 (4) 2 2
Other................................................... 2 2 3 7
------ ------ ------ ------
Total.................................................. $ 1,849 $ 290 $ (225) $ 1,914
====== ====== ====== ======
Income (loss) from operations............................. $ 105 $ 30 $ 5 $ 140
====== ====== ====== ======

(a)Represents equity in earnings (losses) of unconsolidated investees.

The following is a schedule of reconciling items for the third quarter
of 2003 and 2002:

Revenues Income (Loss)
And From
Other Income Operations
(In millions) 2003 2002 2003 2002
------------------------------------------------------------------------------------------------------------------------

Elimination of intersegment revenues......................... $ (251) $ (230) * *
------ ------
Items not allocated to segments:
Workforce reduction charge.................................. $ - - $ (618) $ -
Asset impairments........................................... - - (46) -
Federal excise tax refund................................... - 3 - 3
Insurance recoveries related to USS-POSCO fire.............. - 2 - 2
------ ------ ------ ------
- 5 (664) 5
------ ------ ------ ------
Total reconciling items...................................... $ (251) $ (225) $ (664) $ 5
====== ====== ====== ======

* Elimination of intersegment revenues is offset by the elimination of
intersegment cost of revenues within income (loss) from operations at
the corporate consolidation level.

UNITED STATES STEEL CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)

9. (Continued)

The results of segment operations for the nine months of 2003 and 2002
are:

Total
Flat- Straight- Real Reportable
(In millions) Rolled Tubular USSE line Estate Segments
--------------------------------------------------------------------------------------------------------------------------------
Nine Months 2003
------------------

Revenues and other
income:
Customer...................... $ 4,539 $ 425 $ 1,333 $ 96 $ 70 $ 6,463
Intersegment.................. 157 - 11 - 8 176
Equity income
(loss)(a)................... 11 - 1 - - 12
Other........................ 7 5 3 - 7 22
------ ------ ------ ------ ------ ------
Total.......................... $ 4,714 $ 430 $ 1,348 $ 96 $ 85 $ 6,673
====== ====== ====== ====== ====== ======
Income (loss)
from operations.............. $ (144) $ (20) $ 166 $ (49) $ 42 $ (5)
====== ====== ====== ====== ====== ======

Nine Months 2002
------------------

Revenues and other
income:
Customer..................... $ 3,434 $ 415 $ 823 $ 51 $ 53 $ 4,776
Intersegment................. 147 - 2 - 6 155
Equity income
(loss)(a)................... (5) - 1 - - (4)
Other........................ (1) - 3 - 6 8
------ ------ ------ ------ ------ ------
Total......................... $ 3,575 $ 415 $ 829 $ 51 $ 65 $ 4,935
====== ====== ====== ====== ====== ======
Income (loss)
from operations............... $ (57) $ 10 $ 65 $ (28) $ 37 $ 27
====== ====== ====== ====== ====== ======

(a) Represents equity in earnings (losses) of unconsolidated investees.

UNITED STATES STEEL CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)

9. (Continued)

Revenues and other income:
Customer...................................................... $ 6,463 $ 252 $ - $ 6,715
Intersegment.................................................. 176 453 (629) -
Equity income (loss)(a)....................................... 12 (11) (11) (10)
Other......................................................... 22 3 47 72
------ ------ ------ ------
Total........................................................ $ 6,673 $ 697 $ (593) $ 6,777
====== ====== ====== ======
Income (loss) from operations................................... $ (5) $ (38) $ (653) $ (696)
====== ====== ====== ======

Nine Months 2002
------------------

Revenues and other income:
Customer...................................................... $ 4,776 $ 321 $ - $ 5,097
Intersegment.................................................. 155 434 (589) -
Equity income (loss)(a)....................................... (4) (5) 20 11
Other......................................................... 8 3 36 47
------ ------ ------ ------
Total........................................................ $ 4,935 $ 753 $ (533) $ 5,155
====== ====== ====== ======
Income (loss) from operations................................... $ 27 $ 59 $ 40 $ 126
====== ====== ====== ======

(a)Represents equity in earnings (losses) of unconsolidated investees.

The following is a schedule of reconciling items for the nine months of 2003
and 2002:

Elimination of intersegment revenues............................ $ (629) $ (589) * *
------ ------
Items not allocated to segments:
Workforce reduction charges.................................... $ - - $ (618) $ (10)
Asset impairments ............................................. (11) - (57) (14)
Income from sale of coal seam gas interests.................... 34 - 34 -
Gain on sale of coal mining assets............................. 13 - 13 -
Litigation items............................................... - - (25) 9
Federal excise tax refund...................................... - 36 - 36
Insurance recoveries related to USS-POSCO fire................. - 20 - 20
Costs related to Fairless shutdown............................. - - - (1)
------ ------ ------ ------
36 56 (653) 40
------ ------ ------ ------
Total reconciling items......................................... $ (593) $ (533) $ (653) $ 40
====== ====== ====== ======

* Elimination of intersegment revenues is offset by the elimination of
intersegment cost of revenues within income (loss) from operations at
the corporate consolidation level.

UNITED STATES STEEL CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)

10. In the nine months of 2003, U. S. Steel sold certain coal seam gas
interests in Alabama for net cash proceeds of $34 million, which is
reflected in other income.

In the second and third quarters of 2002, U. S. Steel recognized pretax
gains of $33 million and $3 million, respectively, associated with the
recovery of black lung excise taxes that were paid on coal export sales
during the period 1993 through 1999. These gains are included in other
income in the statement of operations and resulted from a 1998 federal
district court decision that found such taxes to be unconstitutional. Of
the $36 million recognized, $11 million represents the interest
component of the gain.

11. In the third quarter of 2003, U. S. Steel recorded curtailment
expenses of $310 million for pensions and $64 million for other
postretirement benefits related to employee reductions under the TAP
for union employees (excluding former National employees retiring
under the TAP), other retirements, layoffs and pending asset
dispositions. Termination benefit charges of $34 million were recorded
primarily for enhanced pension benefits provided to U. S. Steel
employees retiring under the TAP. Of the above total charges, $336
million was recorded in cost of revenues and $72 million was recorded
in selling, general and administrative expenses. Further charges of
$105 million for early retirement cash incentives related to the TAP,
excluding amounts associated with former National employees, were
recorded in cost of revenues. Selling, general and administrative
expenses for the nine months of 2003 and nine months of 2002 also
included pension settlement losses of $97 million and $10 million,
respectively, related to retirements of salaried personnel. Selling,
general and administrative expenses in the third quarter of 2003 also
included $8 million for an accrual for salaried benefits under the
layoff benefit plan.

12. Net interest and other financial costs include amounts related to the
remeasurement of USSK's and USSB's net monetary assets into the U.S.
dollar, which is their functional currency. During the third quarter and
nine months of 2003, net gains of $8 million and $5 million,
respectively, were recorded as compared with net gains of $1 million and
$14 million, respectively, in the third quarter and nine months of 2002.
Additionally, net interest and other financial costs in the third
quarter and nine months of 2003 included a favorable adjustment of $13
million related to interest accrued for prior years' income taxes.

13. U. S. Steel records depreciation on a modified straight-line method
for domestic steel-producing assets based upon production levels.
Applying modification factors decreased expenses by $4 million and $1
million for the third quarter of 2003 and 2002, respectively, and $15
million and $4 million for the nine months of 2003 and 2002,
respectively.

UNITED STATES STEEL CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)

14. Income from investees for the nine months of 2003 included an $11
million impairment of a cost method investment. Income from investees
for the nine months of 2002 includes a pretax gain of $20 million for U.
S. Steel's share of insurance recoveries related to the May 31, 2001
fire at the USS-POSCO joint venture.

15. Comprehensive Income

Third Quarter Nine Months
Ended Ended
Sept. 30 Sept. 30
(In millions) 2003 2002 2003 2002
---------------------------------------------------------------------------------------------------------

Net income (loss)............................................ $ (354) $ 106 $(441) $ 50
Other comprehensive income (loss):
Changes in (net of tax):
Minimum pension liability .................................. (167) - (160) 7
Foreign currency translation adjustments.................... - - 1 1
State tax valuation allowance............................... - - (6) -
- - - -
---- ---- ---- ----
Comprehensive income (loss).................................. $ (521) $ 106 $(606) $ 58
==== ==== ==== ====

The change in the minimum pension liability recorded in the third
quarter 2003 reflects $(169) million for the union pension plan and $2
million for the non-union excess-supplemental pension plan. These plans
were remeasured in the third quarter 2003. See further information in
Note 11.

16. The income tax benefit in the nine months of 2003 reflected an estimated
annual effective tax rate of 49%. The first nine months of 2003 included
a $14 million favorable effect relating to an adjustment of prior years'
taxes, in addition to a $4 million deferred tax benefit relating to the
reversal of a state valuation allowance.

The tax benefit in the nine months of 2003 is based on an estimated
annual effective rate, which requires management to make its best
estimate of annual forecasted pretax income (loss) for the year. During
the year, management regularly updates forecast estimates based on
changes in various factors such as prices, shipments, product mix, plant
operating performance and cost estimates, including pension and other
postretirement benefits. To the extent that actual pretax results for
domestic and foreign income in 2003 vary from forecast estimates applied
at the end of the most recent interim period, the actual tax benefit
recognized in 2003 could be materially different from the forecasted
annual tax benefit as of the end of the third quarter.

The income tax benefit in the nine months of 2002 reflected an estimated
annual effective tax benefit rate for 2002 of approximately 31% and
included a $4 million deferred tax charge related to a newly enacted
state tax law.

UNITED STATES STEEL CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)

16. (Continued)

As of September 30, 2003, U. S. Steel had net federal and state
deferred tax assets of $470 million and $92 million, respectively,
which are expected to increase during the fourth quarter. Although U.
S. Steel has experienced domestic losses in the current and prior year,
management believes that it is more likely than not that tax planning
strategies generating future taxable income can be utilized to realize
the deferred tax assets recorded at September 30, 2003. Tax planning
strategies include the implementation of the previously announced plan
to dispose of non-strategic assets, as well as the ability to elect
alternative tax accounting methods to provide future taxable income to
assure realization of the anticipated deferred tax assets. During the
fourth quarter, U. S. Steel intends to merge two of its defined benefit
pension plans. Depending on the discount rate in effect on the
measurement date and the growth in plan assets during the fourth
quarter, the additional minimum pension liability determination at year
end may increase federal and state deferred tax assets substantially or
may result in a net deferred tax liability if a significant reversal of
federal and state deferred tax assets occurs. The amount of the
realizable deferred tax assets at September 30, 2003, and those
expected to be recognized in the fourth quarter of the year could be
adversely affected to the extent that losses continue in the future, if
future events affect the ability to implement tax planning strategies
or if further charges result from an increase in the minimum pension
liability. Management will reassess the need for a valuation allowance
at December 31, 2003.

The Slovak Income Tax Act provides an income tax credit which is
available to USSK if certain conditions are met. In order to claim the
tax credit in any year, 60% of USSK's sales must be export sales and
USSK must reinvest the tax credits claimed in qualifying capital
expenditures during the five years following the year in which the tax
credit is claimed. The provisions of the Slovak Income Tax Act permit
USSK to claim a tax credit of 100% of USSK's tax liability for years
2000 through 2004 and 50% for the years 2005 through 2009. Management
believes that USSK fulfilled all of the necessary conditions for
claiming the tax credit for the years for which it was claimed and
anticipates meeting such requirements in 2003. As a result of claiming
these tax credits and management's intent to reinvest earnings in
foreign operations, virtually no income tax provision is recorded for
USSK income.

In October 2002, a tax credit limit was negotiated by the Slovak
government as part of the Accession Treaty governing the Slovak
Republic's entry into the European Union (EU). The Treaty limits to $500
million the total tax credit to be granted to USSK during the period
2000 through 2009. The impact of the tax credit limit is expected to be
minimal since Slovak tax laws have been modified and tax rates have been
reduced since the acquisition of USSK. The Treaty also places limits
upon USSK's flat-rolled production and export sales to the EU, allowing
for modest growth each year through 2009. The limits upon export sales
to the EU take effect upon the Slovak Republic's entry into the EU,
which is expected to occur in May 2004. A question has recently arisen
with respect to the effective date of the production limits. Slovak
Republic representatives have stated their belief that the Treaty
intended that these limits take effect upon entry into the EU, whereas
the European Commission has taken the position that the flat-rolled
production limitations apply as of 2002. Discussions between
representatives of the Slovak Republic and the European Commission are
ongoing. Although it is not possible to predict the outcome of those
discussions, an agreement resolving this issue may be reached prior to
the end of 2003. That agreement could result in a reduction in USSK's
tax credit and/or the acceleration of the restrictions upon USSK's
flat-rolled production and/or sales into the EU. At this time, it is not
possible to predict the impact of such a settlement upon U. S. Steel's
financial position, results of operations or cash flows.

UNITED STATES STEEL CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)

17. In February 2003, U. S. Steel sold 5 million shares of 7% Series B
Mandatory Convertible Preferred Shares (no par value, liquidation
preference $50 per share) (Series B Preferred) for net proceeds of $242
million. The Series B Preferred have a dividend yield of 7%, a 20%
conversion premium (for an equivalent conversion price of $15.66 per
common share) and will mandatorily convert into shares of U. S. Steel
common stock on June 15, 2006. The net proceeds of the offering were
used for general corporate purposes and to fund a portion of the cash
purchase price for the acquisition of National's assets. The number of
common shares that could be issued upon conversion of the 5 million
shares of Series B Preferred ranges from approximately 16.0 million
shares to 19.2 million shares, based upon the timing of the conversion
and the average market price of U. S. Steel's common stock. Preferred
stock dividends of $11 million paid during 2003 reduced the paid-in
capital of the Series B Preferred because of the retained deficit.

18. Revenues from related parties and receivables from related parties
primarily reflect sales of steel products, raw materials and fees for
providing various management and other support services to equity and
certain other investees. Generally, transactions are conducted under
long-term market-based contractual arrangements.

Receivables from related parties at September 30, 2003 and December 31,
2002, also included $16 million and $28 million, respectively, due from
Marathon Oil Corporation (Marathon) for tax settlements in accordance
with the tax sharing agreement.

Long-term receivables from related parties at September 30, 2003 and
December 31, 2002, reflect amounts due from Marathon related to
contractual reimbursements for the retirement of participants in the
non-qualified employee benefit plans. These amounts will be paid by
Marathon as participants retire.

Accounts payable to related parties reflect balances due to PRO-TEC
Coating Company (PRO-TEC) under an agreement whereby U. S. Steel
provides marketing, selling and customer service functions, including
invoicing and receivables collection, for PRO-TEC. U. S. Steel, as
PRO-TEC's exclusive sales agent, is responsible for credit risk
associated with the receivables. Payables to PRO-TEC under the agreement
were $62 million and $42 million at September 30, 2003 and December 31,
2002, respectively.

Accounts payable to related parties at September 30, 2003 and December
31, 2002, also included amounts related to the purchase of outside
processing services from equity investees. At December 31, 2002,
accounts payable to related parties also included the net present value
of the second and final $37 million installment of contingent
consideration payable to VSZ a.s. related to the acquisition of USSK,
which was paid in July 2003.

UNITED STATES STEEL CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)

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

(In millions)
----------------------------
September 30 December 31
2003 2002
------------ -----------

Raw materials............................................................ $ 221 $ 228
Semi-finished products................................................... 613 472
Finished products........................................................ 499 271
Supplies and sundry items................................................ 61 59
------ ------
Total.................................................................. $ 1,394 $ 1,030
====== ======

Costs of revenues decreased by $11 million and increased by $2 million
in the nine months of 2003 and 2002, respectively, as a result of
liquidations of LIFO inventories.

20. Net income (loss) per common share was calculated by adjusting net
income (loss) for dividend requirements of preferred stock and is based
on the weighted average number of common shares outstanding during the
quarter.

Diluted net income (loss) assumes the exercise of stock options and
conversion of preferred stock, provided in each case, the effect is
dilutive. For the third quarters ended September 30, 2003 and 2002, the
potential common stock related to employee options to purchase 6,776,877
shares and 5,073,601 shares of common stock, respectively, and
15,964,000 shares applicable to the conversion of preferred stock at
September 30, 2003, have been excluded from the computation of diluted
net income (loss) because the effect was antidilutive. For the nine
months ended September 30, 2003 and 2002, the potential common stock
related to employee options to purchase 6,871,324 shares and 5,071,380
shares of common stock, respectively, and 13,624,952 shares applicable
to the conversion of preferred stock at September 30, 2003, have been
excluded from the computation of diluted net income (loss) because their
effect was antidilutive.

21. On May 20, 2003, U. S. Steel entered into a new revolving credit
facility that provides for borrowings of up to $600 million that
replaced a similar $400 million facility entered into on November 30,
2001. The new facility, which is secured by a lien on U. S. Steel's
inventory and receivables (to the extent not sold under the Receivables
Purchase Agreement) expires in May 2007 and contains a number of
covenants that require lender consent to incur debt or make capital
expenditures above certain limits; sell assets used in the production of
steel or steel products or incur liens on assets; and limit dividends
and other restricted payments if the amount available for borrowings
drops below certain levels. The facility also contains a fixed charge
coverage ratio, calculated as the ratio of operating cash flow to cash
charges as defined in the agreement, which effectively reduces
availability by $100 million if not met. At September 30, 2003, $530
million was available under this facility.

At September 30, 2003, USSK had no borrowings against its $50 million
credit facilities. In addition, USSK had $3 million of customs
guarantees outstanding, reducing availability under these facilities to
$47 million. These facilities expire in the fourth quarter of 2004.

UNITED STATES STEEL CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)

21. (Continued)

At September 30, 2003, in the event of a change in control of U. S.
Steel, debt obligations totaling $1,335 million may be declared
immediately due and payable. In such event, U. S. Steel may also be
required to either repurchase the leased Fairfield slab caster for $84
million or provide a letter of credit to secure the remaining
obligation.

In May 2003, in connection with the National acquisition, U. S. Steel
issued $450 million of Senior Notes due May 15, 2010 (9 3/4% Senior
Notes). These notes have an interest rate of 9 3/4% per annum payable
semi-annually on May 15 and November 15, commencing November 15, 2003.
The 9 3/4% Senior Notes were issued under U. S. Steel's shelf
registration statement and were not listed on any national securities
exchange. Proceeds from the sale of the 9 3/4% Senior Notes were used to
finance a portion of the purchase price to acquire National's assets. In
2001, U. S. Steel issued $535 million of 10 3/4% Senior Notes. As of
September 30, 2003, the aggregate principal amount of 9 3/4% and 10 3/4%
Senior Notes outstanding was $450 million and $535 million,
respectively. As of December 31, 2002, the aggregate principal amount
outstanding of the 10 3/4% Senior Notes was $535 million.

In conjunction with issuing the 9 3/4% Senior Notes, U. S. Steel
solicited the consent of the holders of the 10 3/4% Senior Notes to
modify certain terms of the notes to conform to the terms of the 9 3/4%
Senior Notes. Those conforming changes modified the definitions of
Consolidated Net Income, EBITDA and Like-Kind Exchange, permitted
dividend payments on the 7.00% Series B Mandatory Convertible Preferred
Shares and expanded permitted investments to include loans made for the
purpose of facilitating like-kind exchange transactions. U. S. Steel
received the consent from holders of more than 90% of the principal
amount of the 10 3/4% Senior Notes and the amendments were effective
May 20, 2003.

The 9 3/4% and 10 3/4% Senior Notes impose certain restrictions that
limit U. S. Steel's ability to, among other things: incur debt; pay
dividends or make other payments from its subsidiaries; issue and sell
capital stock of its subsidiaries; engage in transactions with
affiliates; create liens on assets to secure indebtedness; transfer or
sell assets; and consolidate, merge or transfer all or substantially all
of U. S. Steel's assets or the assets of its subsidiaries.

U. S. Steel was in compliance with all of its debt covenants at
September 30, 2003.

22. On May 19, 2003, U. S. Steel entered into an amendment to the
Receivables Purchase Agreement, which increased fundings under the
facility to the lesser of eligible receivables or $500 million. During
the nine months ended September 30, 2003, U. S. Steel Receivables LLC
(USSR) sold to conduits and subsequently repurchased $190 million of
revolving interest in accounts receivable under the Receivables Purchase
Agreement. During the nine months ended September 30, 2002, USSR sold to
conduits and subsequently repurchased $320 million of revolving interest
in accounts receivable. As of September 30, 2003, $489 million was
available to be sold under this facility.

USSR pays the conduits a discount based on the conduits' borrowing costs
plus incremental fees. During the nine months ended September 30, 2003
and 2002, U. S. Steel incurred costs on the sale of its receivables of
$1 million and $2 million, respectively.

UNITED STATES STEEL CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)

22. (Continued)

While the facility expires in November 2006, the facility also
terminates on the occurrence and failure to cure certain events,
including, among others, certain defaults with respect to the Inventory
Facility and other debt obligations, any failure of USSR to maintain
certain ratios related to the collectibility of the receivables, and
failure to extend the commitments of the commercial paper conduits'
liquidity providers which currently terminate on November 26, 2003. U.
S. Steel is negotiating a renewal of the 364-day commitments of the
liquidity providers in accordance with the terms of the facility.

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

U. S. Steel accrues for estimated costs related to existing lawsuits,
claims and proceedings when it is probable that it will incur these
costs in the future.

ASBESTOS MATTERS - U. S. Steel is a defendant in a large number of cases
in which approximately 14,000 claimants actively allege injury resulting
from exposure to asbestos. Almost all these cases involve multiple
plaintiffs and multiple defendants. These claims fall into three major
groups: (1) claims made under certain federal and general maritime laws
by employees of the Great Lakes Fleet or Intercoastal Fleet, former
operations of U. S. Steel; (2) claims made by persons who performed work
at U. S. Steel facilities (referred to as "premises claims"); and (3)
claims made by industrial workers allegedly exposed to an electrical
cable product formerly manufactured by U. S. Steel. While U. S. Steel
has excess casualty insurance, these policies have multi-million dollar
self insured retentions and, to date, U. S. Steel has not received any
payments under these policies relating to asbestos claims. In most
cases, this excess casualty insurance is the only insurance applicable
to asbestos claims.

These cases allege a variety of respiratory and other diseases based on
alleged exposure to asbestos contained in a U. S. Steel electric cable
product or to asbestos on U. S. Steel's premises; approximately 200
plaintiffs allege they are suffering from mesothelioma. In many cases,
the plaintiffs cannot demonstrate that they have suffered any
compensable loss as a result of such exposure or that any injuries they
have incurred did in fact result from such exposure. Virtually all
asbestos cases seek monetary damages from multiple defendants. U. S.
Steel is unable to provide meaningful disclosure about the total amount
of such damages alleged in these cases for the following reasons: (1)
many cases do not claim a specific demand for damages, or contain a
demand that is stated only as being in excess of the minimum
jurisdictional limit of the relevant court; (2) even where there are
specific demands for damages, there is no meaningful way to determine
what amount of the damages would or could be assessed against any
particular defendant; (3) plaintiffs' lawyers often allege the same
amount of damages irrespective of the specific harm that has been
alleged, even though the ultimate outcome of any claim may depend upon
the actual disease, if any, that the plaintiff is able to prove and the
actual exposure, if any, to the U. S. Steel product or the duration of
exposure, if any, on U. S. Steel's premises. U. S. Steel believes the
amount of any damages alleged in the complaints initially filed in
these cases is not relevant in assessing its potential liability.

UNITED STATES STEEL CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)

23. (Continued)

Until March 2003, U. S. Steel was successful in all asbestos cases that
it tried to final judgment. On March 28, 2003, a jury in Madison County,
Illinois returned a verdict against U. S. Steel for $50 million in
compensatory damages and $200 million in punitive damages. The
plaintiff, an Indiana resident, alleged he was exposed to asbestos while
working as a U. S. Steel employee at Gary Works in Gary, Indiana from
1950 to 1981 and that he suffers from mesothelioma as a result. U. S.
Steel believes the plaintiff's exclusive remedy was provided by the
Indiana workers' compensation law and that this issue and other errors
at trial would have enabled U. S. Steel to succeed on appeal. However,
in order to avoid the delay and uncertainties of further litigation and
having to post an appeal bond equal to the amount of the verdict and to
allow U. S. Steel to actively pursue its acquisition activities and
other strategic initiatives, U. S. Steel settled this case and the
settlement was reflected in financial results for the first quarter of
2003.

PROPERTY TAXES - U. S. Steel is a party to several property tax disputes
involving its Gary Works property in Indiana, including claims for
refunds totaling approximately $65 million pertaining to tax years
1994-96 and 1999, and assessments totaling approximately $133 million in
excess of amounts paid for the 2000, 2001 and 2002 tax years. In
addition, interest may be imposed upon any final assessment. The
disputes involve property values and tax rates and are in various stages
of administrative appeal. U. S. Steel is vigorously defending against
the assessments and pursuing its claims for refunds.

ENVIRONMENTAL MATTERS - U. S. Steel is subject to federal, state, local
and foreign laws and regulations relating to the environment. These laws
generally provide for control of pollutants released into the
environment and require responsible parties to undertake remediation of
hazardous waste disposal sites. Penalties may be imposed for
noncompliance. Accrued liabilities for remediation totaled $125 million
and $135 million at September 30, 2003 and December 31, 2002,
respectively. Remediation liabilities at September 30, 2003, included
liabilities recorded for asset retirement obligations under SFAS No.
143. It is not presently possible to estimate the ultimate amount of all
remediation costs that might be incurred or the penalties that may be
imposed.

UNITED STATES STEEL CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)

23. (Continued)

For a number of years, U. S. Steel has made substantial capital
expenditures to bring existing facilities into compliance with various
laws relating to the environment. In the nine months of 2003 and for the
years 2002 and 2001, such capital expenditures totaled $15 million, $14
million and $15 million, respectively. U. S. Steel anticipates making
additional such expenditures in the future; however, the exact amounts
and timing of such expenditures are uncertain because of the continuing
evolution of specific regulatory requirements.

Throughout its history, U. S. Steel has sold numerous properties and
businesses and has provided various indemnifications with respect to
many of the assets that were sold. These indemnifications have been
associated with the condition of the property, the approved use, certain
representations and warranties, matters of title and environmental
matters. While the vast majority of indemnifications have not covered
environmental issues, there have been a few transactions in which U. S.
Steel indemnified the buyer for non-compliance with past, current and
future environmental laws related to existing conditions; however, most
recent indemnifications are of a limited nature only applying to
non-compliance with past and/or current laws. Some indemnifications only
run for a specified period of time after the transactions close and
others run indefinitely. The amount of potential liability associated
with these transactions is not estimable due to the nature and extent of
the unknown conditions related to the properties sold. Aside from
approximately $15 million of liabilities already recorded as a result of
these indemnifications due to specific environmental remediation cases
(included in the $125 million of accrued liabilities for remediation
discussed above), there are no other known liabilities related to these
indemnifications.

GUARANTEES - Guarantees of the liabilities of unconsolidated entities of
U. S. Steel totaled $30 million at September 30, 2003, including $7
million related to an equity interest acquired as part of the National
asset purchase, and $27 million at December 31, 2002. If any defaults of
guaranteed liabilities occur, U. S. Steel has access to its interest in
the assets of the investees to reduce potential losses resulting from
these guarantees. As of September 30, 2003, the largest guarantee for a
single such entity was $14 million, which represents the maximum
exposure to loss under a guarantee of debt service payments of an equity
investee. No liability has been recorded for these guarantees.

CONTINGENCIES RELATED TO SEPARATION FROM MARATHON - U. S. Steel was
contingently liable for debt and other obligations of Marathon in the
amount of approximately $68 million at September 30, 2003, compared to
$168 million at December 31, 2002. In the event of the bankruptcy of
Marathon, these obligations for which U. S. Steel is contingently liable
may be declared immediately due and payable. If such event occurs, U. S.
Steel may not be able to satisfy such obligations. No liability has been
recorded for these contingencies because management believes the
likelihood of occurrence is remote.

UNITED STATES STEEL CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)

23. (Continued)

If the Separation is determined to be a taxable distribution of the
stock of U. S. Steel, but there is no breach of a representation or
covenant by either U. S. Steel or Marathon, U. S. Steel would be liable
for any resulting taxes (Separation No-Fault Taxes) incurred by
Marathon. U. S. Steel's indemnity obligation for Separation No-Fault
Taxes survives until the expiration of the applicable statute of
limitations. The maximum potential amount of U. S. Steel's indemnity
obligation for Separation No-Fault Taxes at September 30, 2003 and
December 31, 2002, was estimated to be approximately $140 million. No
liability has been recorded for this indemnity obligation because
management believes that the likelihood of the Separation being
determined to be a taxable distribution of the stock of U. S. Steel is
remote.

OTHER CONTINGENCIES - U. S. Steel is contingently liable to its Chairman
and Chief Executive Officer for a $3 million retention bonus. The bonus
is payable upon the earlier of his retirement from active employment or
December 31, 2004, and is subject to certain performance measures.

Under certain operating lease agreements covering various equipment, U.
S. Steel has the option to renew the lease or to purchase the equipment
at the end of the lease term. If U. S. Steel does not exercise the
purchase option by the end of the lease term, U. S. Steel guarantees a
residual value of the equipment as determined at the lease inception
date (totaling approximately $51 million at both September 30, 2003 and
December 31, 2002). No liability has been recorded for these guarantees
as either management believes that the potential recovery of value from
the equipment when sold is greater than the residual value guarantee, or
the potential loss is not probable and/or estimable.

MINING SALE - U. S. Steel remains secondarily liable in the event that a
withdrawal from a multiemployer pension plan is triggered within five
years of the sale. A withdrawal is triggered when annual contributions
to the plan are substantially less than contributions made in prior
years. The maximum exposure for the fee that would be assessed upon a
withdrawal is $79 million. U. S. Steel recorded the fair value of this
liability as of June 30, 2003. U. S. Steel has agreed to indemnify the
purchaser for certain environmental matters, which are included in the
environmental matters discussion above.

TRANSTAR REORGANIZATION - The 2001 reorganization of Transtar was
intended to be tax-free for federal income tax purposes, with U. S.
Steel and Transtar Holdings, L.P. (Holdings) agreeing through various
representations and covenants to protect the reorganization's tax-free
status. If the reorganization is determined to be taxable, but there is
no breach of a representation or covenant by either U. S. Steel or
Holdings, U. S. Steel is liable for 44% of any resulting Holdings taxes
(Transtar No-Fault Taxes), and Holdings is responsible for 56% of any
resulting U. S. Steel taxes. U. S. Steel's indemnity obligation for
Transtar No-Fault Taxes survives until 30 days after the expiration of
the applicable statute of limitations. The maximum potential amount of
U. S. Steel's indemnity obligation for Transtar No-Fault Taxes at
September 30, 2003 and December 31, 2002, was estimated to be
approximately $70 million. No liability has been recorded for this
indemnity obligation because management believes that the likelihood of
the reorganization being determined to be taxable resulting in Transtar
No-Fault Taxes is remote.

UNITED STATES STEEL CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)

23. (Continued)

CLAIRTON 1314B PARTNERSHIP - U. S. Steel has a commitment to fund
operating cash shortfalls of the partnership of up to $150 million.
Additionally, U. S. Steel, under certain circumstances, is required to
indemnify the limited partners if the partnership product sales fail to
qualify for the credit under Section 29 of the Internal Revenue Code.
This indemnity will effectively survive until the expiration of the
applicable statute of limitations. The maximum potential amount of this
indemnity obligation at September 30, 2003 and December 31, 2002,
including interest and tax gross-up, was approximately $600 million.
Furthermore, U. S. Steel under certain circumstances has indemnified the
partnership for environmental obligations. See discussion of
environmental matters above. The maximum potential amount of this
indemnity obligation is not estimable. Management believes that the $150
million deferred gain related to the partnership, which is recorded in
deferred credits and other liabilities, is more than sufficient to cover
any probable exposure under these commitments and indemnifications.

SELF-INSURANCE - U. S. Steel is self-insured for certain exposures
including workers' compensation, auto liability and general liability,
as well as property damage and business interruption, within specified
deductible and retainage levels. Certain equipment that is leased by U.
S. Steel is also self-insured within specified deductible and retainage
levels. Liabilities are recorded for workers' compensation and personal
injury obligations. Other costs resulting from self-insured losses are
charged against income upon occurrence.

U. S. Steel uses surety bonds, trusts and letters of credit to provide
whole or partial financial assurance for certain obligations such as
workers' compensation. The total amount of active surety bonds, trusts
and letters of credit being used for financial assurance purposes was
approximately $140 million as of September 30, 2003 and $144 million as
of December 31, 2002, which reflects U. S. Steel's maximum exposure
under these financial guarantees, but not its total exposure for the
underlying obligations. Most of the trust arrangements and letters of
credit are collateralized by restricted cash that is recorded in other
noncurrent assets.

COMMITMENTS - At September 30, 2003 and December 31, 2002, U. S. Steel's
domestic contract commitments to acquire property, plant and equipment
totaled $34 million and $24 million, respectively.

USSK has a commitment to the Slovak government for a capital
improvements program of $700 million, subject to certain conditions,
over a period commencing with the acquisition date of November 24, 2000,
and ending on December 31, 2010. The remaining commitments under this
capital improvements program as of September 30, 2003 and December 31,
2002, were $477 million and $541 million, respectively.

U. S. Steel entered into a 15-year take-or-pay arrangement in 1993,
which requires it to accept pulverized coal each month or pay a minimum
monthly charge of approximately $1 million. If U. S. Steel elects to
terminate the contract early, a maximum termination payment of $77
million as of September 30, 2003, which declines over the duration of
the agreement, may be required.

UNITED STATES STEEL CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)

24. On September 30, 2003, U. S. Steel and International Steel Group Inc.
(ISG) reached an agreement to exchange the assets of U. S. Steel's
plate mill at Gary Works for the assets of ISG's No. 2 pickle line at
its Indiana Harbor Works. As a result of this non-monetary exchange,
which closed effective November 1, 2003, U. S. Steel recognized in the
third quarter of 2003, a pretax impairment charge of $46 million,
which was recorded in depreciation, depletion and amortization.

UNITED STATES STEEL CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
--------------------------------------------------
(Unaudited)

Nine Months Ended
September 30 Year Ended December 31
-------------------------- ---------------------------------------------------------------------------------

2003 2002 2002 2001 2000 1999 1998
---- ---- ---- ---- ---- ---- ----

(a) 1.34 1.04 (b) 1.05 2.10 5.15
==== ==== ==== ==== ==== ==== ====

(a) Earnings did not cover combined fixed charges and preferred stock
dividends by $789 million.
(b) Earnings did not cover combined fixed charges and preferred stock
dividends by $598 million.

UNITED STATES STEEL CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
-------------------------------------------------
(Unaudited)

Nine Months Ended
September 30 Year Ended December 31
---------------------------- ------------------------------------------------------------------------------

2003 2002 2002 2001 2000 1999 1998
---- ---- ---- ---- ---- ---- ----

(a) 1.34 1.04 (b) 1.13 2.33 5.89
==== ==== ==== ==== ==== ==== ====

(a) Earnings did not cover fixed charges by $767 million.
(b) Earnings did not cover fixed charges by $586 million.

Part II - Other Information:
----------------------------

Item 1. LEGAL PROCEEDINGS

Environmental Proceedings

In 1988, U. S. Steel and two other PRPs (Bethlehem Steel Corporation
and William Fiore) agreed to the issuance of an administrative order by the U.S.
Environmental Protection Agency (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 U.
S. Steel paid $3.8 million. The EPA indicated that further remediation of this
site 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, which was issued in 1997.
After a feasibility study by the Pennsylvania Department of Environmental
Protection (PADEP) and submission of a conceptual remediation plan in 2001 by U.
S. Steel, U. S. Steel submitted a revised remedial action plan on May 31, 2002.
U. S. Steel and the PADEP signed a Consent Order and Agreement on August 30,
2002, under which U. S. Steel is responsible for remediation of this site. On
March 18, 2003, the PADEP notified U. S. Steel that the public comment period
was concluded and the Consent Order and Agreement is final. U. S. Steel
estimates its future liability at the site to be $6.6 million.

On January 26, 1998, pursuant to an action filed by the EPA in the
United States District Court for the Northern District of Indiana titled United
States of America v. USX, U. S. Steel entered into a consent decree with the EPA
which resolved alleged violations of the Clean Water Act National Pollution
Discharge Elimination System (NPDES) permit at Gary Works and provides for a
sediment remediation project for a five mile section of the Grand Calumet River
that runs through and beyond Gary Works. Contemporaneously, U. S. 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, U. S. 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, U. S. Steel will pay the public trustees $1.0 million at the
end of the remediation project for future monitoring costs and U. S. 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. The sediment remediation project is an
approved final interim measure under the corrective action program for Gary
Works. As of September 30, 2003, project costs have amounted to $47.7 million
with another $2.7 million presently projected to complete the project, over the
next two months, and $0.5 million necessary to operate the water treatment plant
through March 2005. Construction began in January 2002 on a Corrective Action
Management Unit (CAMU) to contain the dredged material on company property and
construction was completed in February 2003. The water treatment plant, specific
to this project, was completed in November 2002, and placed into operation in
March 2003. Phase 1 removal of PCB-contaminated sediment was completed in
December 2002. Dredging resumed in February 2003 and will continue until
dredging on the river is concluded, which is expected to occur in December 2003.
Closure costs for the CAMU are estimated to be an additional $4.9 million.

Part II - Other Information (Continued):
----------------------------------------

On March 11, 2003, Gary Works received a notice of violation from the
EPA alleging construction of two desulfurization facilities without proper
installation permitting. Negotiations began April 24, 2003, and the cost of
settlement of this matter is currently indeterminable.

In December 1995, U. S. Steel reached an agreement in principle with
the EPA and the U.S. Department of Justice (DOJ) with respect to alleged
Resource Conservation and Recovery Act (RCRA) violations at Fairfield Works. A
consent decree was signed by U. S. Steel, the EPA and the DOJ and filed with the
United States District Court for the Northern District of Alabama (United States
of America v. USX Corporation) on December 11, 1997, under which U. S. Steel
will pay a civil penalty of $1.0 million, implement two Supplemental
Environmental Projects (SEPs) costing a total of $1.75 million and implement a
RCRA corrective action at the facility. One SEP was completed during 1998. The
second SEP was completed in 2003. 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 Phase I RCRA Facility
Investigation (RFI) work plan was approved for the site on September 16, 2002.
Field sampling for the work plan commenced immediately after approval and will
continue through the end of 2003. The cost to complete this study is estimated
to be $770,000.

On October 23, 1998, a final Administrative Order on Consent was issued
by the EPA addressing Corrective Action for Solid Waste Management Units
throughout Gary Works. This order requires U. S. Steel to perform an RFI and a
Corrective Measure Study at Gary Works. The Current Conditions Report, U. S.
Steel's first deliverable, was submitted to the EPA in January 1997 and was
approved by the EPA in 1998. Phase I RFI work plans have been approved for the
Coke Plant, the Process Sewers, and Background Soils at the site, along with the
approval of one self-implementing interim stabilization measure and a corrective
measure. Another eight Phase I RFI work plans have been submitted for EPA
approval, thereby completing the Phase I requirement, along with two Phase II
RFI work plans and one further self-implementing interim stabilization measure.
The costs to complete these studies and corrective measures are estimated to be
$4.8 million. Until the studies are completed, it is impossible to assess what
additional expenditures will be necessary.

On February 12, 1987, U. S. 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 U. S. Steel to pay a penalty of
$50,000 and a monthly payment of $2,500 for five years. In 1990, U. S. Steel and
the PADER reached agreement to amend the Consent Order. Under the amended Order,
U. S. 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 $11.0 million with another $0.6 million presently
estimated to complete the project.

Part II - Other Information (Continued):
----------------------------------------

In 1997, USS/Kobe, a joint venture between U. S. Steel and Kobe Steel,
Ltd. (Kobe), was the subject of a multi-media audit by the EPA that included an
air, water and hazardous waste compliance review. USS/Kobe and the EPA entered
into a tolling agreement pending issuance of the final audit and commenced
settlement negotiations in July 1999. In August 1999, the steelmaking and bar
producing operations of USS/Kobe were combined with companies controlled by
Blackstone Capital Partners II to form Republic. The tubular operations of
USS/Kobe were transferred to a newly formed entity, Lorain Tubular Company, LLC
(Lorain Tubular), which operated as a joint venture between U. S. Steel and Kobe
until December 31, 1999, when U. S. Steel purchased all of Kobe's interest in
Lorain Tubular. U. S. Steel is continuing negotiations with the EPA, and has
made an offer of settlement that involves a cash penalty of $100,025 and a
supplemental environmental project to do PCB transformer replacement for a
combined amount of $774,025. Most of the matters raised by the EPA relate to
Republic's facilities; however, air discharges from U. S. Steel's #3 seamless
pipe mill have also been cited. U. S. Steel will be responsible for matters
relating to its facilities. The final report and citations from the EPA have not
been issued. Issues related to Republic have been resolved in its bankruptcy
proceedings.

Prior to U. S. Steel's acquisition of the Granite City, Great Lakes and
Midwest facilities, the DOJ had filed against National Steel Corporation proofs
of claim asserting noncompliance allegations under various environmental
statutes, including the Clean Air Act, RCRA, the Clean Water Act, the Emergency
Planning and Community Right to Know Act, CERCLA and the Toxic Substances
Control Act at these three facilities. The EPA had conducted inspections of the
facilities and entered into negotiations with National Steel Corporation toward
resolving these allegations with a consent decree. U. S. Steel is currently
engaged in discussions with the DOJ, the EPA and the State of Illinois related
to the conditions previously noted at these facilities. At Granite City Works,
the EPA had determined that ditches and dewatering beds currently in operation
were allegedly not in compliance with applicable waste oil management standards.
Dredging of the ditches and dewatering beds is expected to cost $1.3 million. U.
S. Steel is currently discussing with the EPA, the DOJ and the State of Illinois
appropriate measures to investigate and remediate the ditches and dewatering
beds. Air emissions from the steelmaking shop at Great Lakes are also under
discussion. It has not been determined what, if any, corrective action may be
necessary to address those emissions. Other, less significant issues are also
under discussion, including Ferrous Chloride Solution handling at Granite City
and Great Lakes, Spill Prevention Control and Countermeasures Plans at both
facilities, RCRA training at Great Lakes and other waste handling issues.

Part II - Other Information (Continued):
----------------------------------------

Asbestos Litigation

U. S. Steel is a defendant in approximately 3,750 active cases in
which, as of September 30, 2003, approximately 16,000 plaintiffs have filed
claims alleging injury resulting from exposure to asbestos. Almost all of these
cases involve multiple defendants (typically from fifty to more than one hundred
defendants). Over 15,000, or more than 90%, of the plaintiffs in cases in which
U. S. Steel is a defendant are in cases filed in Mississippi, Ohio and Texas,
jurisdictions which permit filings with massive numbers of plaintiffs. Based
upon our experience in such cases, the actual number of plaintiffs who
ultimately assert claims against U. S. Steel is likely to be a small fraction of
the total number of plaintiffs.

These claims against U. S. Steel fall into three major groups: (1)
claims made under certain federal and general maritime laws by employees of the
Great Lakes Fleet or Intercoastal Fleet, former operations of U. S. Steel; (2)
claims made by persons who allegedly were exposed to asbestos at U. S. Steel
facilities (referred to as "premises claims"); and (3) claims made by industrial
workers allegedly exposed to an electrical cable product formerly manufactured
by U. S. Steel. While U. S. Steel has excess casualty insurance, these policies
have multi-million dollar self-insured retentions. To date, U. S. Steel has not
received any payments under these policies relating to asbestos claims. In most
cases, this excess casualty insurance is the only insurance applicable to
asbestos claims.

These asbestos cases allege a variety of respiratory and other diseases
based on alleged exposure to asbestos. U. S. Steel is currently a defendant in
cases in which a total of approximately 200 plaintiffs allege that they are
suffering from mesothelioma. The potential for damages against defendants may be
greater in cases in which the plaintiffs can prove mesothelioma. In many such
cases in which claims have been asserted against U. S. Steel, the plaintiffs
have been unable to establish any causal relationship to U. S. Steel or its
products or premises. In addition, in many asbestos cases, the plaintiffs have
been unable to demonstrate that they have suffered any identifiable injury or
compensable loss at all; that any injuries that they have incurred did in fact
result from alleged exposure to asbestos; or that such alleged exposure was in
any way related to U. S. Steel or its products or premises.

In every asbestos case in which U. S. Steel is named as a party, the complaints
are filed against numerous named defendants and generally do not contain
allegations regarding specific monetary damages sought. To the extent that any
specific amount of damages is sought the amount applies to claims against all
named defendants and in no case is there any allegation of monetary damages
against U. S. Steel. Approximately 89% of the cases against U. S. Steel state
that the damages sought exceed the amount required to establish jurisdiction of
the court in which the case was filed. (Jurisdictional amounts generally range
from $25,000 to $75,000.) Approximately 4.0% do not specify any damages sought
at all, approximately 6% allege damages of $1.0 million or less, another 0.5%
allege damages between $2.0 million and $10.0 million, and 0.5% allege damages
over $10 million. We do not consider the amount of damages alleged, if any, in a
complaint to be relevant in assessing our potential exposure to asbestos
liabilities. The ultimate outcome of any claim depends upon a myriad of legal
and factual issues, including whether the plaintiff can prove actual disease, if
any; actual exposure, if any, to U. S. Steel products; or the duration of
exposure to asbestos, if any, on U. S. Steel's premises. We have noted over the
years that the form of complaint including its allegations, if any, concerning
damages often depends upon the form of complaint filed by particular law firms
and attorneys. Often the same damage allegation will be in multiple complaints
regardless of the number of plaintiffs, the number of defendants, or any
specific diseases or conditions alleged.

Part II - Other Information (Continued):
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U. S. Steel aggressively pursues grounds for the dismissal of U. S.
Steel from pending cases and litigates cases to verdict where it believes
litigation is appropriate. U. S. Steel also makes efforts to settle appropriate
cases for reasonable, and frequently nominal, amounts. For example, in 2000, U.
S. Steel settled 22 claims for a total of approximately $80,000, and had 4,157
claims dismissed or otherwise resolved and 3,860 new claims filed. At December
31, 2000, U. S. Steel had a total of approximately 30,700 active claims
outstanding. In 2001, U. S. Steel settled 11,166 claims for a total of
approximately $190,000, and had about 4,102 claims dismissed or otherwise
resolved and 1,679 new claims filed. At December 31, 2001, U. S. Steel had a
total of approximately 17,100 active claims outstanding. In 2002, U. S. Steel
settled 1,135 claims for a total of approximately $700,000, and had a total of
2,662 claims dismissed or otherwise resolved and 842 new claims filed. At
December 31, 2002, there were approximately 14,100 active claims outstanding,
and at September 30, 2003, there were approximately 16,000 active claims
outstanding.

On March 28, 2003, a jury in Madison County, Illinois returned a
verdict against U. S. Steel for $50 million in compensatory damages and $200
million in punitive damages. U. S. Steel believes that the court erred as a
matter of law by failing to find that the plaintiff's exclusive remedy was
provided by the Indiana workers' compensation law. U. S. Steel believes that
this issue and other errors at trial would have enabled U. S. Steel to succeed
on appeal. However, in order to avoid the delay and uncertainties of further
litigation and the posting of a large appeal bond in excess of the amount of the
verdict, U. S. Steel settled this case for an amount which was substantially
less than the compensatory damages award and which represented a small fraction
of the total award. This settlement is reflected in the results for the quarter
ended March 31, 2003 and for the nine months ended September 30, 2003.

Management views the verdict and resulting settlement in the Madison
County case as aberrational, and believes that the likelihood of similar results
in other cases is remote, although not impossible. U. S. Steel has not
experienced any material adverse change in its ability to resolve pending claims
as a result of the Madison County settlement.

The amount we have accrued for pending asbestos claims is not material
to U. S. Steel's financial position. We do not accrue for unasserted asbestos
claims because we believe it is not possible to determine whether any loss is
probable with respect to such claims or even to estimate the amount or range of
any possible losses. Among the reasons that we cannot reasonably estimate the
number and nature of claims against us is that the vast majority of pending
claims against us allege so-called "premises" liability based exposure on U. S.
Steel's current or former premises. These claims are made by an indeterminable
number of people such as truck drivers, railroad workers, salespersons,
contractors and their employees, government inspectors, customers, visitors and
even trespassers.

It is not possible to predict the ultimate outcome of asbestos-related
lawsuits, claims and proceedings due to the unpredictable nature of personal
injury litigation. Despite this uncertainty, and although our results of
operations and cash flows for a given period could be adversely affected by
asbestos-related lawsuits, claims and proceedings, management believes that the
ultimate resolution of these matters will not have a material adverse effect on
the Company's financial condition. Among the factors considered in reaching this
conclusion are: (1) that U. S. Steel has been subject to a total of
approximately 34,000 asbestos claims over the past 12 years that have been
administratively dismissed or are inactive due to the failure of the plaintiffs
to present any medical evidence supporting their claims; (2) that over the last
several years, the total number of pending claims has declined; (3) that it has
been many years since U. S. Steel employed maritime workers or manufactured
electric cable; and (4) U. S. Steel's history of trial

Part II - Other Information (Continued):
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outcomes, settlements and dismissals, including such matters since the Madison
County jury verdict and settlement in March 2003.

The foregoing statements of belief are forward-looking statements.
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.

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) EXHIBITS

31.1 Certification of Chief Executive Officer required by Item 307
of Regulation S-K as promulgated by the Securities and
Exchange Commission and pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002

31.2 Certification of Chief Financial Officer required by Item 307
of Regulation S-K as promulgated by the Securities and
Exchange Commission and pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002

32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002

32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002

UNITED STATES STEEL CORPORATION

By /s/ Larry G. Schultz
--------------------
Larry G. Schultz
Vice President & Controller

January 27, 2004