Certain sections of Management's Discussion and Analysis include forward-looking statements concerning trends or events potentially affecting the businesses of United States Steel Corporation (U. S. Steel). These statements typically contain words such as "anticipates," "believes," "estimates," "expects," "intends" or similar words indicating that future outcomes are not known with certainty and are subject to risk factors that could cause these outcomes to differ significantly from those projected. In accordance with "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, these statements are accompanied by cautionary language identifying important factors, though not necessarily all such factors that could cause future outcomes to differ materially from those set forth in forward-looking statements. For discussion of risk factors affecting the businesses of U. S. Steel, see Item 1A. Risk Factors and "Supplementary Data - Disclosures About Forward-Looking Statements" in U. S. Steel's Annual Report on Form 10-K for the year ended December 31, 2008, and Item 1A. Risk Factors in this Form 10-Q. References in this Quarterly Report on Form 10-Q to "U. S. Steel," "the Company," "we," "us" and "our" refer to U. S. Steel and its consolidated subsidiaries unless otherwise indicated by the context. As discussed in this Quarterly Report on Form 10-Q, we are unable to predict the timing or strength of economic recovery; therefore, in calculating many of the accruals and estimates required to be made, we have assumed a relatively static operating environment.

U. S. Steel has been and continues to be adversely impacted by the current global recession. Our raw steel capability utilization rate in the first nine months of 2009 was 43 percent for North American operations and 65 percent for European operations. As further described below, we incurred an operating loss of $1,355 million in the first nine months of 2009 and we expect an operating loss in the fourth quarter due primarily to continued low operating rates and idled facility carrying costs. See page 12 of our Annual Report on Form 10-K for the year ended December 31, 2008 and pages 29-30 of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 for the numerous actions we have taken to enhance our liquidity, maintain a solid balance sheet and position us for growth over the long term.

CRITICAL ACCOUNTING ESTIMATES

The following critical accounting estimates should be read in conjunction with those included in our Annual Report on Form 10-K for the year ended December 31, 2008.

Inventories - Inventories are carried at the lower of cost or market on a worldwide basis.

LIFO (last-in, first-out) is the predominant method of inventory costing for inventories in the United States and FIFO (first-in, first-out) is the predominant method used in Canada and Europe. The LIFO method of inventory costing was used on 43 percent and 39 percent of consolidated inventories at September 30, 2009 and December 31, 2008, respectively.

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

Income from investees includes U. S. Steel's proportionate share of income from equity method investments, which is generally recorded a month in arrears, except for significant and unusual items which are recorded in the period of occurrence. Gains or losses from changes in ownership of unconsolidated investees are recognized in the period of change. Unrealized profits and losses on transactions with equity investees have been eliminated in consolidation unless it has been determined that the inventory value is not recoverable.

U. S. Steel evaluates impairment of its equity method investments whenever circumstances indicate that a decline in value below carrying value is other than temporary. Under these circumstances, we would adjust the investment down to its estimated fair value, which would become its new carrying value.

Goodwill - Goodwill represents the excess of the cost over the fair value of acquired identifiable tangible and intangible assets and liabilities assumed from businesses acquired. Goodwill is tested for impairment at the reporting unit level annually in the third quarter and whenever events or circumstances indicate that the carrying value may not be recoverable. The evaluation of impairment involves comparing the estimated fair value of the associated reporting unit to its carrying value, including goodwill.

We have two reporting units that have a significant amount of goodwill. Our Flat-rolled reporting unit was allocated goodwill from the Stelco and Lone Star acquisitions in 2007. These amounts reflect the benefits we expect the Flat-rolled reporting unit to realize from expanding our flexibility in meeting our customers' needs and running our Flat-rolled facilities at higher operating rates to source our semi-finished product needs. Our Texas Operations reporting unit, which is part of our Tubular operating segment, was allocated goodwill from the Lone Star acquisition, reflecting the benefits we expect the reporting unit to realize from the expansion of our tubular operations.

U. S. Steel completed its annual goodwill impairment test during the third quarter of 2009 and determined that there was no goodwill impairment for either reporting unit. Fair value was determined in accordance with the guidance in Accounting Standards Codification (ASC) Topic 820 on fair value, which requires consideration of the income, market and cost approaches as applicable. For the 2009 annual goodwill impairment test, U. S. Steel used fair values estimated under the income approach and the market approach. U. S. Steel did not utilize the cost approach as relevant data was not available.

The income approach is based upon projected future cash flows discounted to present value using factors that consider the timing and risk associated with the future cash flows. Fair value for the Flat-rolled and Texas Operations reporting units was estimated using probability weighted scenarios of future cash flow projections based on management's long range estimates of market conditions over a multiple year horizon. A three percent perpetual growth rate was used to arrive at an estimated future terminal value. A discount rate of 11 percent was used for both reporting units which was based upon the cost of capital of other comparable steel companies, which we view as the most likely market participants, as of the date of our goodwill impairment test.

The market approach is based upon an analysis of valuation metrics for companies comparable to our reporting units. Fair value for the Flat-rolled and Texas Operations reporting units was estimated using an appropriate valuation multiple based on this analysis, estimated normalized earnings and an estimated control premium.

In order to validate the reasonableness of the estimated fair values of our reporting units, a reconciliation of the aggregate fair values of all reporting units to market capitalization, using a reasonable control premium, was performed as of the valuation date. We further validated the reasonableness of the estimated fair values of our reporting units using other valuation metrics that included data from U. S. Steel's historical transactions as well as published industry analyst reports.

As of September 30, 2009, the Flat-rolled and Texas Operations reporting units have $853 million and $834 million of goodwill, respectively. The 2009 annual goodwill impairment test showed that the estimated fair values of our Flat-rolled and Texas Operations reporting units exceeded their carrying values by approximately $1.0 billion and $234 million, respectively. A 50 basis point increase in the

discount rate, a critical assumption in which even a minor change can have a significant impact on the estimated fair value of the reporting unit, would decrease the fair value of the Flat-rolled and Texas Operations reporting units by $676 million and $112 million, respectively, but would still result in no goodwill impairment charge.

The estimates of fair value of a reporting unit under the income approach are determined based on a discounted cash flow analysis. A discounted cash flow analysis requires us to make various judgmental assumptions, including assumptions about the timing and amount of future cash flows, growth rates and discount rates. If business conditions deteriorate or other factors have an adverse effect on our estimates of discounted future cash flows or assumed growth rates, or if we experience a sustained decline in our market capitalization, future tests of goodwill impairment may result in an impairment charge.

RESULTS OF OPERATIONS

Net sales by segment for the third quarter and first nine months of 2009 and
2008 are set forth in the following table:



                                                           Quarter                         Nine Months
                                                            Ended                             Ended
                                                        September 30,       %             September 30,          %
(Dollars in millions, excluding intersegment sales)    2009      2008     Change         2009        2008      Change
Flat-rolled                                           $ 1,745   $ 4,325      -60 %    $    4,648   $  11,505      -60 %
USSE                                                      822     1,598      -49 %         2,088       4,714      -56 %
Tubular                                                   234     1,333      -82 %           906       2,866      -68 %

Total sales from reportable segments                    2,801     7,256      -61 %         7,642      19,085      -60 %
Other Businesses                                           16        56      -71 %            52         167      -69 %

Net sales                                             $ 2,817   $ 7,312      -61 %    $    7,694   $  19,252      -60 %

Management's analysis of the percentage change in net sales for U. S. Steel's reportable business segments for the quarter ended September 30, 2009 versus the quarter ended September 30, 2008 is set forth in the following table:

Quarter Ended September 30, 2009 versus Quarter Ended September 30, 2008

                            Steel Products Sales (a)
                                                                   Coke &           Net
                     Volume      Price      Mix      FX (b)      Other Sales       Change
       Flat-rolled      -38 %      -16 %      0 %        -3 %            -3%          -60 %
       USSE              -9 %      -33 %     -1 %        -4 %            -2%          -49 %
       Tubular          -66 %      -11 %      1 %         0 %            -6%          -82 %

(a) Excludes intersegment sales

(b) Foreign currency effects

Sales for all three reportable segments in the 2009 periods were negatively affected by the impacts of the global recession.

Net sales were $2,817 million in the third quarter of 2009, compared with $7,312 million in the same quarter last year. The decrease in sales for the Flat-rolled segment primarily reflected lower shipments and lower average realized prices, which decreased by $302 per ton. The decrease in sales for the European segment was primarily due to lower average realized prices and lower shipments. Average

realized prices for USSE decreased $471 per ton from the same period last year. The decrease in sales for the Tubular segment resulted primarily from lower shipments and lower average realized prices, which decreased by $916 per ton.

Management's analysis of the percentage change in net sales for U. S. Steel's reportable business segments for the nine months ended September 30, 2009 versus the nine months ended September 30, 2008 is set forth in the following table:

Nine Months Ended September 30, 2009 versus Nine Months Ended September 30, 2008

                            Steel Products Sales (a)
                                                                   Coke &           Net
                     Volume      Price      Mix      FX (b)      Other Sales       Change
       Flat-rolled      -50 %       -4 %      0 %        -3 %            -3%          -60 %
       USSE             -31 %      -15 %      0 %        -7 %            -3%          -56 %
       Tubular          -64 %        1 %      1 %         0 %            -6%          -68 %

(a) Excludes intersegment sales

(b) Foreign currency effects

Net sales were $7,694 million in the first nine months of 2009, compared with $19,252 million in the same period last year. The decrease in sales for the Flat-rolled segment primarily reflected lower shipments and lower average realized prices, which decreased $115 per ton from the same period last year. The decrease in sales for the European segment was primarily due to lower shipments and lower average realized prices. Average realized prices for USSE decreased $321 per ton from the same period last year. The decrease in sales for the Tubular segment resulted primarily from lower shipments.

Operating expenses

Profit-based union payments

Results for the third quarter and first nine months of 2009 did not include any costs for profit-based payments to employees represented by the United Steelworkers (USW) because the provisions of the 2008 Collective Bargaining Agreements with the USW (the 2008 CBAs) provide for such payments only after a base threshold of operating income is earned. Results for the third quarter and first nine months of 2008 included costs of $109 million and $206 million, respectively. These costs are included in cost of sales on the statement of operations.

Profit-based payment amounts per the agreements with the USW are calculated as a percentage of consolidated income from operations (as defined in the agreements) and are paid as profit sharing to active USW-represented employees (excluding employees of U. S. Steel Canada (USSC)) based on 7.5 percent of profit between $10 and $50 per ton and 10 percent of profit above $50 per ton.

Pension and other benefits costs

Defined benefit and multiemployer pension plan costs totaled $52 million in the third quarter of 2009, compared to $21 million in the third quarter of 2008. Defined benefit and multiemployer pension plan costs totaled $219 million in the first nine months of 2009, compared to $50 million in the first nine months of 2008. Pension costs in the first nine months of 2009 included $65 million for settlement, termination and curtailment charges primarily related to several voluntary early retirement programs (VERPs) accepted by approximately 1,050 employees in the United States and Europe, and $10 million for pension curtailment charges in connection with the sale of a majority of the operating

assets of Elgin, Joliet and Eastern Railway Company (EJ&E). Excluding these charges, the increased expense in both periods mainly reflected the decreased funded status of the main U. S. Steel pension plan.

Costs related to defined contribution plans totaled $2 million and $22 million in the third quarter and first nine months of 2009, respectively, compared to $9 million and $26 million in the comparable periods in 2008. The first nine months of 2009 included $13 million for VERP-related benefits under these plans.

Other benefits costs, including multiemployer plans, totaled $45 million and $146 million in the third quarter and first nine months of 2009, respectively, compared to $39 million and $107 million in the corresponding periods of 2008. The increases in both periods reflected the benefit enhancements encompassed by the 2008 CBAs, partially offset by lower costs at USSC as a result of favorable claims experience. The increase in the nine month period also reflected termination charges of $13 million primarily related to the VERP that was offered in the first quarter of 2009.

Postemployment benefits

U. S. Steel recorded a credit of $8 million in the third quarter of 2009 and net charges of $107 million in the first nine months of 2009 related to the recognition of estimated future layoff benefits for employees associated with the temporary idling of certain facilities and reduced production at others. The favorable adjustments in the third quarter resulted from earlier than expected restarts of some idled facilities. The accrual was recorded in accordance with the guidance in ASC Topic 712, "Compensation - Nonretirement Postemployment Benefits," which requires that costs associated with ongoing benefit arrangements, such as supplemental unemployment benefits, salary continuance and the continuation of health care benefits and life insurance coverage, be recorded no later than the period when it becomes probable that the costs will be incurred and the costs are reasonably estimable.

Selling, general and administrative expenses

Selling, general and administrative expenses were $163 million in the third quarter of 2009, compared to $151 million in the third quarter of 2008. Selling, general and administrative expenses were $460 million in the first nine months of 2009, compared to $464 million in the same period of 2008. The changes in both periods mainly resulted from higher pension and other benefits costs as discussed above in "Pension and other benefits costs," offset by overhead cost reduction efforts. Pension and other benefit costs included in selling, general and administrative expenses increased by $29 million and $101 million in the third quarter and first nine months of 2009, respectively, compared to the same periods in 2008.

(Loss) income from operations by segment for the third quarter and first nine months of 2009 and 2008 is set forth in the following table:

                                    Quarter Ended                            Nine Months Ended
                                    September 30,             %                September 30,                %
(Dollars in millions)             2009         2008         Change         2009             2008          Change
Flat-rolled                      $ (370 )     $   846         -144 %     $  (1,154 )     $    1,411         -182 %
USSE                                  7           173          -96 %          (205 )            632         -132 %
Tubular                             (21 )         420         -105 %            18              648          -97 %

Total (loss) income from
reportable segments                (384 )       1,439         -127 %        (1,341 )          2,691         -150 %
Other Businesses                      5            22          -77 %            (5 )             56         -109 %

Segment (loss) income from
operations                         (379 )       1,461         -126 %        (1,346 )          2,747         -149 %
Retiree benefit expenses            (33 )          (6 )                        (99 )             (4 )
Other items not allocated to
segments:
Federal excise tax refund             -             -                           34                -
Litigation reserve                    -             -                           45              (45 )
Net gain on sale of assets            -             -                           97                -
Workforce reduction charges           -             -                          (86 )              -
Labor agreement signing
payments                              -          (105 )                          -             (105 )
Environmental remediation             -           (23 )                          -              (23 )
Flat-rolled inventory
transition effects                    -             -                            -              (23 )

Total (loss) income from
operations                       $ (412 )     $ 1,327         -131 %     $  (1,355 )     $    2,547         -153 %

Segment results for Flat-rolled

                                             Quarter Ended                               Nine Months Ended
                                             September 30,               %                 September 30,                 %
                                          2009           2008          Change          2009             2008           Change
(Loss) income from operations
($ millions)                             $  (370 )      $   846          -144 %      $  (1,154 )      $   1,411          -182 %
Raw steel production (mnt)                 3,548          5,282           -33 %          7,791           16,454           -53 %
Capability utilization                      57.9 %         86.2 %         -33 %           42.9 %           90.2 %         -52 %
Steel shipments (mnt)                      2,722          4,505           -40 %          6,660           14,055           -53 %
Average realized steel price per ton     $   605        $   907           -33 %      $     660        $     775           -15 %

The decrease in Flat-rolled results in the third quarter of 2009 compared to the same period in 2008 resulted mainly from unfavorable changes in commercial effects (approximately $1,290 million), lower income from sales of semi-finished steel to Tubular (approximately $190 million) and increased costs related to idled facilities (approximately $150 million). These were partially offset by lower raw material and natural gas costs (approximately $240 million) and the absence of accruals for profit-based payments (approximately $160 million).

The decrease in Flat-rolled results in the first nine months of 2009 compared to the same period in 2008 resulted mainly from unfavorable changes in commercial effects (approximately $2,150 million), increased costs related to idled facilities (approximately $380 million), lower income from sales of semi-finished steel to Tubular (approximately $320 million), lower income from joint ventures (approximately $90 million) and the recognition of future layoff benefits (approximately $90 million). These were partially offset by the absence of accruals for profit-based payments (approximately $260 million) and lower raw material and natural gas costs (approximately $240 million).

Segment results for USSE

                                                Quarter Ended                          Nine Months Ended
                                                September 30,            %               September 30,               %
                                              2009         2008        Change         2009            2008         Change
Income (loss) from operations ($ millions)   $     7      $   173         -96 %    $     (205 )    $      632        -132 %
Raw steel production (mnt)                     1,528        1,623          -6 %         3,586           5,456         -34 %
Capability utilization                          82.0 %       87.0 %        -6 %          64.8 %          98.2 %       -34 %
Steel shipments (mnt)                          1,285        1,409          -9 %         3,217           4,743         -32 %
Average realized steel price per ton         $   615      $ 1,086         -43 %    $      627      $      948         -34 %

The decrease in USSE results in the third quarter of 2009 compared to the same period in 2008 was primarily due to unfavorable changes in commercial effects (approximately $500 million), partially offset by lower raw material costs (approximately $350 million).

The decrease in USSE results in the first nine months of 2009 compared to the same period in 2008 was primarily due to unfavorable changes in commercial effects (approximately $1,030 million), net unfavorable currency effects (approximately $100 million) and write-downs of inventory (approximately $60 million), partially offset by lower raw material costs (approximately $410 million).

Segment results for Tubular

                                     Quarter Ended                        Nine Months Ended
                                     September 30,          %               September 30,            %
                                  2009          2008      Change          2009          2008       Change

(Loss) income from operations
($ millions)                     $   (21 )     $   420      -105 %     $       18    $      648       -97 %
Steel shipments (mnt)                151           519       -71 %            450         1,452       -69 %
Average realized steel price
per ton                          $ 1,474       $ 2,390       -38 %     $    1,889    $    1,823         4 %

The decrease in Tubular results in the third quarter of 2009 compared to the same period last year mainly resulted from unfavorable changes in commercial effects (approximately $440 million).

The decrease in Tubular results in the first nine months of 2009 compared to the same period last year mainly resulted from unfavorable changes in commercial effects (approximately $530 million), reduced income from scrap sales (approximately $50 million), operating inefficiencies (approximately $50 million) and increased costs related to idled facilities (approximately $30 million). These were partially offset by the absence of accruals for profit-based payments (approximately $40 million).

Results for Other Businesses

Other Businesses generated income of $5 million in the third quarter of 2009, compared to income of $22 million in the third quarter of 2008. Other Businesses generated a loss of $5 million in the first nine months of 2009, compared to income of $56 million in the first nine months of 2008. The decrease in both periods resulted primarily from lower results for our transportation business due partially to the sale of EJ&E in the first quarter of 2009.

Items not allocated to segments

The increase in retiree benefit expenses in the third quarter and first nine months of 2009 compared to the same periods last year primarily resulted from the decreased funded status of the main pension plan and benefit enhancements included in the 2008 CBAs.

During the first nine months of 2009, U. S. Steel received a federal excise tax refund of $34 million associated with the recovery of black lung excise taxes that were paid on coal export sales during the period October 1, 1990 to December 31, 1992.

A litigation reserve of $45 million involving a rate escalation provision in a U. S. Steel power supply contract was established in the first quarter of 2008 . . .