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United States Steel Corporation Reports Third Quarter 2002 Results

PRNewswire-FirstCall
PITTSBURGH
10.21.2002

United States Steel Corporation (NYSE: X) today issued the following:

                           Earnings Highlights
               (Dollars in millions except per share data)

                                          3Q 2002     2Q 2002   3Q 2001
  Revenues and other income                $1,914      $1,807    $1,660

  Net income (loss) per share               $1.04       $0.28    $(0.26)

  Net income (loss)                          $106         $27      $(23)
  Adjustments to remove special
   items (Pre-tax):
    Federal excise tax refund                  (3)        (33)
    Insurance recoveries related
     to USS-POSCO fire                         (2)         (6)      (21)
    Pension settlement loss                    10
    Asset impairments - receivables            14
    Costs related to Fairless shutdown         29
    Costs related to Separation                 1
    Tax effect of special items
     (at 35% statutory rate)                    2           5        (3)
  Net income (loss) adjusted for
   special items                             $103         $17      $(17)

  Net income (loss) - adjusted, per share   $1.00       $0.18    $(0.19)

  NOTE: Special items are discussed in Selected Notes to Financial Statement

United States Steel Corporation (NYSE: X) reported third quarter 2002 adjusted net income of $103 million, or $1.00 per share, significantly improved from the adjusted net income of $17 million, or 18 cents per share, reported in the second quarter 2002 and the third quarter 2001 adjusted net loss of $17 million, or 19 cents per share.

In third quarter 2002, U. S. Steel reported net income of $106 million, or $1.04 per share, including the effect of special items, which on an after tax basis increased net income by $3 million, or 4 cents per share. Second quarter 2002 net income of $27 million, or 28 cents per share, included special items, which increased net income by $10 million, or 10 cents per share. The third quarter 2001 net loss of $23 million, or 26 cents per share, included special items, which in total increased the net loss by $6 million, or 7 cents per share.

The income tax provision in third quarter 2002 and the tax benefit for the nine months reflect an estimated annual effective tax benefit rate for 2002 of approximately 31 percent.

Third quarter 2002 income from operations before special items was $135 million, substantially improved from income of $32 million in second quarter 2002 and a loss of $16 million in third quarter 2001.

U. S. Steel Chairman, CEO and President Thomas J. Usher said, "Our solid third quarter financial results were due largely to higher realized prices for both our domestic and U. S. Steel Kosice (USSK) operations, continued strong shipments and operating efficiencies. For the second consecutive quarter, our steel production facilities operated at high levels with domestic and USSK operations at 93.7 percent and 90.8 percent of capability, respectively. Aggressive actions to reduce our costs are paying off, and we're ahead of our $10-per-ton cost savings goal for the year."

U. S. Steel's Flat-rolled segment recorded third quarter 2002 income from operations of $61 million, or $23 per ton. This was a substantial improvement from the second quarter 2002 loss from operations of $26 million, or $10 per ton, and the third quarter 2001 loss of $97 million, or $42 per ton. The average realized price in third quarter 2002 was $428 per ton, up $26 per ton from the second quarter and $34 per ton from the year-earlier third quarter. Flat-rolled shipments for the third quarter held at the 2.6 million net ton level of second quarter 2002 and were up 12 percent from the 2.3 million net tons shipped in the 2001 third quarter.

The Tubular segment recorded income from operations of $4 million, or $19 per ton, versus income from operations of $6 million, or $28 per ton, in the second quarter, and $18 million, or $78 per ton, in third quarter 2001. Tubular shipments of 216,000 net tons were in line with second quarter 2002 shipments, but down 7 percent compared to the 2001 third quarter. The average realized price increased $27 per ton to $663 per ton from the second quarter, primarily due to product mix, but was down $15 per ton from third quarter last year.

The USSK segment recorded income from operations of $40 million, or $40 per ton, for the quarter, compared with $26 million, or $24 per ton, in the second quarter and $39 million, or $38 per ton, in third quarter 2001. USSK's third quarter shipments totaled 1.0 million net tons, versus 1.1 million net tons in the 2002 second quarter and 1.0 million net tons in the 2001 third quarter. USSK's average realized steel price was $33 per ton higher than in the 2002 second quarter and was up $34 per ton from the 2001 third quarter. USSK's raw steel capability utilization in the third quarter declined from the second quarter rate primarily due to planned maintenance outages scheduled to coincide with normal seasonal customer demand patterns.

Units comprising U. S. Steel's Other Businesses recorded income from operations of $30 million, compared with $26 million in the second quarter and $24 million in third quarter 2001. For the latest quarter, the coal, coke and iron ore units reported income from operations of $17 million, up from $11 million and $14 million in the second quarter 2002 and third quarter 2001, respectively.

Available sources of liquidity at the end of the quarter were $794 million, an increase of $79 million from the prior quarter primarily due to improved operations.

Looking ahead, shipments for the Flat-rolled segment in the fourth quarter are expected to decline moderately from third quarter levels, particularly in hot-rolled sheet, reflecting lower demand due to customer efforts to control inventories. However, the fourth quarter average realized price is expected to improve slightly from the third quarter due mainly to lower hot-rolled shipments and higher participation of value-added products, including electrogalvanized products from Double Eagle Steel Coating Co., which resumed operations on September 10, 2002. For full-year 2002, Flat-rolled shipments are expected to approximate 9.8 million net tons. Costs in the fourth quarter will be negatively affected by two scheduled blast furnace repair outages and higher prices for natural gas and scrap.

For the Tubular segment, fourth quarter shipments are projected to be down versus the third quarter, and the average realized price is expected to be slightly lower than in the third quarter due mainly to product mix. Shipments for full-year 2002 are expected to be approximately 800,000 net tons as a recovery in North America drilling activity appears unlikely before next year.

USSK's fourth quarter shipments are expected to be in line with the third quarter, and shipments for the full year are projected to be approximately 4.0 million net tons. USSK's average realized price in the fourth quarter is expected to be above the third quarter primarily as a result of a recently announced price increase for most products.

An unfavorable pension settlement effect, currently estimated at approximately $100 million (pretax), will be recognized in the fourth quarter for the qualified non-union plan. This loss, which is an accelerated recognition of deferred actuarial effects, will be triggered by increased current year lump-sum distributions due to the higher than expected number of normal salaried retirements and last year's voluntary early retirement program that was completed in June 2002. This settlement will also require a remeasurement of the plan and, as a result, pension expense in the fourth quarter is expected to increase by approximately $15 million compared to the third quarter. Also, as previously disclosed, U. S. Steel may record an additional minimum pension liability in the fourth quarter for the qualified plan for union employees (See Note 9 of Selected Notes to Financial Statement).

U. S. Steel recently announced that it has signed a letter of intent to sell its raw materials and transportation businesses to an entity formed by affiliates of Apollo Management, L.P. The transaction is subject to the negotiation of definitive agreements and other customary conditions, including approvals from the board of directors, lenders and regulatory agencies. The parties plan to reach definitive agreements by year-end 2002 with closing expected to follow in the first quarter of 2003.

Under terms of the letter of intent, it is anticipated that U. S. Steel would receive approximately $500 million in cash and retain about a 20 percent interest in the new company, with the new company assuming all collective bargaining agreements, certain employee benefit obligations and certain other liabilities. U. S. Steel currently estimates the transaction could result in a pre-tax loss of up to $300 million.

*****

This release contains forward-looking statements with respect to market conditions, costs, shipments and prices, potential asset sales, pension issues and customer matters. Some factors, among others, that could affect full-year 2002 market conditions, costs, shipments and prices include import levels, future product demand, prices and mix, global and company steel production, plant operating performance, domestic natural gas prices and usage, the resumption of operation of steel facilities sold under the bankruptcy laws, and U.S. and European economic performance and political developments. Steel shipments and prices can be affected by imports and actions of the U.S. Government and its agencies. Factors that may affect USSK results are similar to domestic factors, including excess world supply, plus foreign currency fluctuations, matters peculiar to international marketing such as tariffs, and completion of facility projects at USSK. Factors that may impact the occurrence and timing of the sale of the raw materials and transportation businesses to affiliates of Apollo Management, L.P. include the availability of financing to the buyer, completion of definitive documentation, and approvals from the board of directors, lenders and regulatory agencies. Factors that may affect the amount of the expected unfavorable pension settlement and resulting expenses for the qualified plan for non-union employees and the amount of any additional minimum liability for the qualified plan for union employees include, among others, pension fund investment performance, liability changes and interest rates. In accordance with "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, cautionary statements identifying important factors, but not necessarily all factors, that could cause actual results to differ materially from those set forth in the forward-looking statements have been included in the Form 10-K of U. S. Steel for the year ended December 31, 2001, and in subsequent filings for U. S. Steel.

A Statement of Operations and Preliminary Supplemental Statistics for U. S. Steel are attached.

The company will conduct a conference call on third quarter earnings on Monday, October 21 at 11 a.m. EDT. To listen to the webcast of the conference call, visit the U. S. Steel web site, www.ussteel.com, and click on the "Investors" button. Replays of the webcast will be available through October 28.

For more information on U. S. Steel, visit our web site at www.ussteel.com.

                     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)             2002       2001        2002     2001
  ------------------------------------------------------------------------
  REVENUES AND OTHER INCOME:
    Revenues                    $1,905     $1,645      $5,097    $4,888
    Income from investees            2         11          11        51
    Net gains on disposal
     of assets                       2          4           7        20
    Other income                     5          -          40         2
                                ------     ------      ------    ------
      Total revenues and
       other income              1,914      1,660       5,155     4,961
                                ------     ------      ------    ------
  COSTS AND EXPENSES:
    Cost of revenues             1,611      1,540       4,518     4,714
    Selling, general and
     administrative expenses        74         51         245       154
    Depreciation, depletion
     and amortization               89         94         266       246
                                ------     ------      ------    ------
      Total costs and expenses   1,774      1,685       5,029     5,114
                                ------     ------      ------    ------
  INCOME (LOSS) FROM OPERATIONS    140        (25)        126      (153)
  Net interest and other
   financial costs                  32         38          85        74
                                ------     ------      ------    ------
  INCOME (LOSS) BEFORE
   INCOME TAXES                    108        (63)         41      (227)
  Provision (credit) for
   income taxes                      2        (40)         (9)     (183)
                                ------     ------      ------    ------
  NET INCOME (LOSS)               $106       $(23)        $50      $(44)
                                ======     ======      ======    ======
  COMMON STOCK DATA:
    Net income (loss), per share
     - Basic and diluted         $1.04      $(.26)       $.52     $(.50)

  Weighted average shares,
   in thousands
    - Basic                    101,926     89,223      95,767    89,223
    - Diluted                  101,926     89,223      95,769    89,223

  Dividends paid per share:
    United States Steel
     Corporation Common Stock     $.05          -        $.15         -
    USX - U. S. Steel Group
     Common Stock                    -       $.10           -      $.45

  Note:  Net income (loss) per common share for the periods of 2002 are
         based on the weighted average number of common shares outstanding
         during the periods.  Net loss per common share for the periods of
         2001 are based on outstanding common shares at December 31, 2001,
         the date of the Separation.

 The following notes are an integral part of this financial statement.

                     UNITED STATES STEEL CORPORATION
                  SELECTED NOTES TO FINANCIAL STATEMENT
                  -------------------------------------

   1. United States Steel Corporation (U. S. Steel) is engaged domestically
      in the production, sale and transportation of steel mill products,
      coal, coke and taconite pellets (iron ore); the management of mineral
      resources; the management and development of real estate; and
      engineering and consulting services and, through U. S. Steel Kosice
      in the Slovak Republic, in the production and sale of steel mill
      products and coke primarily for the Central European market.  Prior
      to December 31, 2001, the businesses of U. S. Steel comprised an
      operating unit of USX Corporation, now named Marathon Oil Corporation
      (Marathon).  Marathon had two outstanding classes of common stock:
      USX-Marathon Group common stock, which was intended to reflect the
      performance of Marathon's energy business, and USX-U. S. Steel Group
      common stock (Steel Stock), which was intended to reflect the
      performance of Marathon's steel business.  On December 31, 2001,
      U. S. Steel was capitalized through the issuance of 89.2 million
      shares of common stock to the holders of Steel Stock in exchange for
      all outstanding shares of Steel Stock on a one-for-one basis (the
      Separation).

      The accompanying Statement of Operations includes the third quarter
      and nine months of 2002 results of operations of U. S. Steel on a
      stand-alone basis, while the third quarter and nine months of 2001
      results of operations represent a carve-out presentation of the
      businesses comprising U. S. Steel and are not intended to be a
      complete presentation of the results of operations of U. S. Steel on
      a stand-alone basis.  The results of operations for the 2001 periods
      contain certain transactions related to interest and other financial
      costs that were attributed to U. S. Steel by Marathon based on U. S.
      Steel's cash flows and its capital structure.  Corporate general and
      administrative costs were allocated to U. S. Steel during the periods
      of 2001 based upon utilization or other methods that management
      believed to be reasonable and which considered certain measures of
      business activities, such as employment, investments and revenues.
      Income taxes were allocated to U. S. Steel during the periods of 2001
      in accordance with Marathon's tax allocation policy.  In general,
      such policy provided that the consolidated provision and related tax
      payments or refunds be allocated based principally upon the financial
      income, taxable income, credits, preferences and other amounts
      directly related to U. S. Steel.

      Effective January 1, 2002, net pension and other postretirement costs
      associated with active employees at our operating locations are
      reflected in cost of revenues.  Net costs and credits associated with
      corporate headquarters personnel and all retirees are reflected in
      selling, general and administrative expenses. Prior year data has
      been reclassified to conform to the current year presentation, which
      resulted in a decrease in cost of revenues and an increase in
      selling, general and administrative expenses of $41 million and
      $121 million for the third quarter and nine months of 2001,
      respectively.

   2. 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
      represented the interest component of the claim.

   3. On March 1, 2001, U. S. Steel completed the purchase of the tin mill
      products business of LTV Corporation (LTV), which is now operated as
      East Chicago Tin.  In this noncash transaction, U. S. Steel assumed
      approximately $66 million of certain employee-related obligations
      from LTV.  The acquisition was accounted for using the purchase
      method of accounting.  Results of operations for 2001 included the
      operations of East Chicago Tin from the date of acquisition.

      On March 23, 2001, Transtar, Inc. (Transtar) completed a
      reorganization with its two voting shareholders, U. S. Steel and
      Transtar Holdings, L.P. (Holdings), an affiliate of Blackstone
      Capital Partners L.P., which resulted in U. S. Steel becoming the
      sole owner of Transtar and certain of its subsidiaries while Holdings
      became the owner of the other subsidiaries.  U. S. Steel recorded
      $68 million in income from investees to reflect its share of the gain
      recognized by Transtar as a result of the reorganization.  Also, in
      connection with this transaction, U. S. Steel recognized a favorable
      deferred tax adjustment of $33 million related to its investment in
      the stock of Transtar which is included in the provision (credit) for
      income taxes. U. S. Steel previously accounted for its investment in
      Transtar under the equity method of accounting.

   4. U. S. Steel has a 16% investment in Republic Technologies
      International Holdings, LLC (Republic) which was accounted for under
      the equity method of accounting until the first quarter of 2001 when
      investments in and advances to Republic were reduced to zero.  On
      April 2, 2001, Republic filed a voluntary petition with the U.S.
      Bankruptcy Court to reorganize its operations under Chapter 11 of the
      U.S. Bankruptcy Code.  In the first quarter of 2001 as a result of
      Republic's petition, U. S. Steel recorded a pretax charge reflected
      as a reduction in revenues of $74 million for potentially
      uncollectible trade receivables and recognized certain debt
      obligations of $14 million which had been previously assumed by
      Republic.  As a result of further deterioration of Republic's
      financial condition during the balance of 2001, an additional charge
      of $68 million was recorded in the fourth quarter of 2001 to reserve
      the remaining balance of pre-petition trade receivables and to
      reserve a portion of other receivables established for retiree
      medical claim payments made by U. S. Steel that were to be
      subsequently reimbursed by Republic.  These retiree medical cost
      reimbursements are the subject of a pending request for treatment as
      administrative expenses in the bankruptcy proceedings. On July 11,
      2002, after a protracted auction proceeding, the Bankruptcy Court
      issued an order approving the sale of substantially all of Republic's
      assets which sale appears to have not produced sufficient cash
      proceeds to satisfy all administrative claims.  As a result of this
      and other recent developments, U. S. Steel reassessed the likelihood
      of collecting the retiree medical cost reimbursements from Republic,
      even if U. S. Steel prevails in its claim for treatment as
      administrative expenses, and recorded a pretax charge of $14 million
      in the second quarter of 2002 to reserve the remaining balance of
      these receivables. This charge is included in selling, general and
      administrative expenses.

   5. The income tax benefit in the nine months of 2002 reflected an
      estimated annual effective tax benefit rate for 2002 of approximately
      31%.  A $4 million deferred tax charge related to a newly enacted
      state tax law was also recorded in the second quarter.  A pension
      settlement loss now projected for the fourth quarter of 2002, in
      addition to annual forecasted pretax income from domestic operations
      and from USSK, have been included in the development of U. S. Steel's
      estimated annual effective tax rate for 2002.
      The income tax benefit in the nine months of 2001 reflected an
      estimated annual effective tax rate for 2001 of approximately 45%.
      The tax benefit also included a $33 million deferred tax benefit
      related to the Transtar reorganization.  In addition, net interest
      and other financial costs in the nine months of 2001 included a
      favorable adjustment of $67 million and the credit for income taxes
      included an unfavorable adjustment of $15 million, both of which were
      related to prior years' taxes.

   6. Selling, general and administrative expenses for the nine months of
      2002 included a pretax settlement charge of $10 million related to
      retirements of personnel covered under the non tax-qualified pension
      plan and the executive management supplemental pension program.  Also
      included in this same period of 2002 is the $14 million pretax charge
      related to reserving Republic receivables, as discussed in Note 4.

      Selling, general and administrative expenses for the nine months of
      2001 included $9 million of costs, primarily for professional fees
      related to the Separation.

   7. Income from investees included pretax gains of $2 million and
      $21 million for the third quarter of 2002 and 2001, respectively, and
      $20 million and $23 million for the nine months of 2002 and 2001,
      respectively, for U. S. Steel's share of insurance recoveries related
      to the May 31, 2001 fire at the USS-POSCO joint venture.

   8. On August 14, 2001, U. S. Steel announced its intention to
      permanently close the cold rolling and tin mill operations at its
      Fairless Works.  In the third quarter of 2001, U. S. Steel recorded a
      pretax charge of $29 million relative to the shutdown, of which
      $12 million is included in depreciation, depletion and amortization
      and $17 million is included in cost of revenues.

   9. Statement of Financial Accounting Standards No. 87 "Employer's
      Accounting for Pensions" provides that if, at any plan measurement
      date, the fair value of plan assets is less than the plan's
      accumulated benefit obligation (ABO), the sponsor must establish a
      minimum liability at least equal to the amount by which the ABO
      exceeds the fair value of the plan assets and any pension asset must
      be removed from the balance sheet.  The sum of the liability and
      pension asset is offset by the recognition of an intangible asset or
      as a direct charge to stockholders' equity, net of tax effects.  Such
      adjustments have no direct impact on earnings per share or cash.  As
      of September 30, 2002, the fair value of plan assets for the USS
      pension plan for union employees was $4.4 billion.  Based on asset
      values as of September 30, 2002 projected to year-end 2002, we
      estimate the ABO for this plan at the year-end measurement date would
      exceed the fair value of plan assets by approximately $500 million.
      The resulting required minimum liability adjustments would result in
      a charge to equity of approximately $750 million at December 31,
      2002.


                     UNITED STATES STEEL CORPORATION
             PRELIMINARY SUPPLEMENTAL STATISTICS (Unaudited)
             ------------------------------------------------

                                                 Quarter Ended
                                     September 30   June 30    September 30
  (Dollars in millions)                  2002         2002          2001
  -------------------------------------------------------------------------
  INCOME (LOSS) FROM OPERATIONS
  Flat-rolled Products                   $61          $(26)        $(97)
  Tubular Products                         4             6           18
  U. S. Steel Kosice                      40            26           39
  Other Businesses:
    Coal, Coke and Iron Ore               17            11           14
    Straightline                         (11)          (10)         (10)
    All Other                             24            25           20
                                       -----         -----        -----
  Income (Loss) from Operations
   before Special Items                  135            32          (16)
    Special Items:
      Federal excise tax refund            3            33            -
      Insurance recoveries related
       to USS-POSCO fire                   2             6           21
      Pension settlement loss              -           (10)           -
      Asset impairments - receivables      -           (14)           -
      Costs related to Fairless shutdown   -             -          (29)
      Costs related to Separation          -             -           (1)
                                       -----         -----        -----
        Total Income (Loss) from
         Operations                     $140           $47         $(25)

  CAPITAL EXPENDITURES
    Flat-rolled Products                  $6            $6          $12
    Tubular Products                      13            10            -
    U. S. Steel Kosice                    11            17           17
    Other Businesses                      16            15           27
                                       -----         -----        -----
      Total                              $46           $48          $56

  OPERATING STATISTICS
    Average realized price: ($/net ton)(a)
      Flat-rolled Products              $428          $402         $394
      Tubular Products                   663           636          678
      U. S. Steel Kosice                 290           257          256
    Steel Shipments:(a)(b)
      Flat-rolled Products             2,598         2,571        2,322
      Tubular Products                   216           217          232
      U. S. Steel Kosice               1,009         1,105        1,017
    Raw Steel-Production:(b)
      Domestic Facilities              3,022         2,998        2,689
      U. S. Steel Kosice               1,144         1,191        1,131
    Raw Steel-Capability Utilization:(c)
      Domestic Facilities              93.7%         93.9%        83.3%
      U. S. Steel Kosice               90.8%         95.5%        89.7%
    Domestic Ore Shipments(b)(d)       4,819         5,059        4,494
    Domestic Coke Shipments(b)(d)      1,342         1,356        1,190

  -----------
  (a)  Excludes intersegment transfers.
  (b)  Thousands of net tons.
  (c)  Based on annual raw steel production capability of 12.8 million net
       tons for domestic facilities and 5.0 million net tons for U. S. Steel
       Kosice.
  (d)  Includes intersegment transfers.

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SOURCE: United States Steel Corporation

CONTACT: Media: Mike Dixon or John Armstrong, +1-412-433-6870, or
Investors/Analysts, John Quaid, +1-412-433-1184, all of United States Steel

Web site: http://www.ussteel.com/

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