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 below, 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 quarter of 2009 was 38% for North American operations and 55% for European operations. Based upon published industry reports, we believe our operating level is representative of the integrated steel industry as a whole. As a result, we incurred an operating loss of $478 million in the first quarter of 2009 and we expect an operating loss in the second quarter as our order book remains at low levels and idled facility carrying costs continue to be incurred. Extremely short lead times coupled with the uncertainty surrounding financial markets and key steel-consuming industries such as automotive and construction make it difficult to forecast beyond a very short horizon. In light of the very challenging and uncertain conditions in each of our major business segments, we continue to implement actions to enhance our liquidity, maintain a solid balance sheet and position us for growth over the long term. Several of these actions are summarized below, and are in addition to the numerous actions we have already taken as described on page 12 of our Annual Report on Form 10-K for the year ended December 31, 2008.

• We further consolidated our production for greater efficiency and temporarily idled additional facilities. As of the date of this filing, U. S. Steel continues to operate the following major facilities: Mon Valley Works, Gary Works, Fairfield Works, U. S. Steel Košice, U. S. Steel Serbia finishing facilities, Lake Erie Works cokemaking facilities, Minntac iron ore operations, Lorain Tubular and Fairfield Tubular. All remaining major facilities have been temporarily idled.

• Our Board of Directors reduced our quarterly dividend from $0.30 per share to $0.05 per share, which will result in annual cash savings of approximately $116 million.

• We have received executed consents from the lenders holding a majority of the commitments under our $750 million credit facility and a majority of the debt under each of our $655 million of outstanding term loans to eliminate the existing financial covenants and replace them with a fixed-charge coverage ratio covenant of 1.1:1 that is only tested if availability under the $750 million credit facility falls below approximately $112.5 million. The fixed charge coverage ratio will be defined in the amendments, and we expect it to be calculated at the end of each quarter, on the basis of the ratio, for the four consecutive quarters then ended, of operating cash flow to cash charges. For the amendments, U. S. Steel will be required to revise pricing and amend certain terms and conditions and provide collateral, principally in the form of inventory. The amendments are not expected to become effective until later in the second quarter and are subject to the completion of definitive financing documentation and collateral diligence.

• We reduced our capital expenditure budget for 2009 from $740 million to $410 million.

• We generated significant cash flow from working capital reductions in the last two quarters, including a substantial reduction in accounts receivable. We expect continued cash flow from further working capital reductions over the balance of 2009, which we expect will be generated largely from reductions in raw materials, in-process and finished goods inventory.

• We reached agreement with the United Steelworkers (USW) to defer up to $170 million in mandatory retiree health care and life insurance trust contributions.

• Effective July 1, 2009, executive and general manager base salaries and fees for our Board of Directors will be reduced by up to 20 percent.

• Our CEO informed the Compensation and Organization Committee of the Board of Directors that in light of his existing long-term incentive grants and direct share ownership, he declined to be considered for any 2009 long-term incentive grants should the Committee take up that matter at a later date for other executives and employees. The Committee accepted his recommendation.

CRITICAL ACCOUNTING ESTIMATES

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 fair value of the associated reporting unit to its carrying value, including goodwill. Fair value is determined using the income approach, which is based on projected future cash flows discounted to present value using factors that consider the timing and the risk associated with the future cash flows. Using data prepared each year as part of our strategic planning process, we complete a separate fair value analysis for each reporting unit with goodwill.

We have two reporting units that have a significant amount of goodwill. Our Flat-rolled operating segment 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 was allocated goodwill from the Lone Star acquisition, reflecting the benefits we expect the reporting unit to realize from expanding our tubular operations.

The change in business conditions in the fourth quarter of 2008 was considered a triggering event as defined by FAS 142, "Goodwill and Other Intangible Assets," and goodwill was subsequently tested for impairment as of December 31, 2008. Fair value for the Flat-rolled and Texas Operations reporting units was estimated using future cash flow projections based on management's long range estimates of market conditions over a five-year horizon with a 2.25 percent compound annual growth rate thereafter. We used a discount rate of approximately 11 percent for both reporting units. Our testing did not indicate that goodwill was impaired for either reporting unit as of December 31, 2008. A 0.25 percent and a 1 percent increase in the discount rate used for the Flat-rolled and Texas Operations reporting units, respectively, may have resulted in a material impairment charge. A 0.25 percent and a

1 percent reduction in the assumed compound annual growth rate used for the Flat-rolled and Texas Operations reporting units, respectively, may have resulted in a material impairment charge. Additionally, if our discounted future cash flow projections are not realized, either because of an extended recessionary period or other unforeseen events, goodwill may be subject to impairment in future periods.

RESULTS OF OPERATIONS

Net salesby segment for the first quarter of 2009 and 2008 are set forth in the
following table:



                                                           Quarter Ended
                                                             March 31,            %
(Dollars in millions, excluding intersegment sales)      2009         2008      Change
Flat-rolled Products (Flat-rolled)                    $    1,592   $    3,162      -50 %
U. S. Steel Europe (USSE)                                    622        1,356      -54 %
Tubular Products (Tubular)                                   515          621      -17 %

Total sales from reportable segments                       2,729        5,139      -47 %
Other Businesses                                              21           57      -63 %

Net sales                                             $    2,750   $    5,196      -47 %

Management's analysis of the percentage change in net sales for U. S. Steel's reportable business segments for the quarter ended March 31, 2009 versus the quarter ended March 31, 2008 is set forth in the following table:

Quarter Ended March 31, 2009 versus Quarter Ended March 31, 2008

                                 Steel Products (a)
                                                                 Coke &          Net
                         Volume     Price     Mix     FX (b)     Other          Change
           Flat-rolled      -49 %       8 %     0 %       -4 %       -5 %          -50 %
           USSE             -43 %      -1 %     0 %       -7 %       -3 %          -54 %
           Tubular          -47 %      33 %     2 %        0 %       -5 %          -17 %

(a) Excludes intersegment sales

(b) Foreign currency effects

Net sales were $2,750 million in the first quarter of 2009, compared with $5,196 million in the same quarter last year. Sales for all three reportable segments decreased significantly primarily due to lower shipments as a result of the global recession.

Operating expenses

Profit-based union payments

As a result of the operating loss incurred, results for the first quarter of 2009 did not include any costs for profit-based payments. 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 first quarter of 2008 included costs of $24 million related to profit-based payments pursuant to the provisions of the 2003 Collective Bargaining Agreement with the USW and to payments pursuant to agreements with other unions. 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 $109 million in the first quarter of 2009, compared to $14 million in the first quarter of 2008. The increase primarily reflects expenses incurred as a result of the voluntary early retirement program (VERP) including settlement, termination and curtailment charges of $53 million. The increase also reflected the decreased funded status of the main U. S. Steel pension plan, the effects of the benefit enhancements encompassed by the 2008 CBAs and a $10 million pension curtailment charge resulting from the sale of a majority of the operating assets of Elgin, Joliet and Eastern Railway Company. Costs related to defined contribution plans totaled $17 million in the first quarter of 2009, including $13 million for VERP related benefits under these plans, compared to $8 million in last year's first quarter. Effective January 1, 2009, the company match of employee 401(k) contributions was temporarily suspended.

Other benefits costs, including multiemployer plans, totaled $55 million in the first quarter of 2009, compared to $34 million in the corresponding period of 2008. The increase was primarily due to termination charges of $11 million related to the VERP and the benefit enhancements encompassed by the 2008 CBAs, partially offset by lower costs at USSC as a result of favorable claims experience.

Postemployment benefits

U. S. Steel recorded charges of $90 million in the first quarter of 2009 related to the recognition of estimated future layoff benefits for approximately 9,400 employees associated with the temporary idling of certain facilities and reduced production at others. This charge has been recorded in accordance with Financial Accounting Standard (FAS) No. 112 "Employers' Accounting for 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 $143 million in the first quarter of 2009, compared to $142 million in the first quarter of 2008. The increase resulting from higher pension and other benefits costs as discussed above was offset by the absence of accruals for profit-based payments in the first quarter of 2009 and overhead cost reduction efforts.

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

                                                        Quarter Ended
                                                          March 31,            %
      (Dollars in millions)                             2009       2008      Change
      Flat-rolled                                         (422 )   $  97       -535 %
      USSE                                                (159 )     161       -199 %
      Tubular                                              127        51        149 %

      Total (loss) income from reportable segments        (454 )     309       -247 %
      Other Businesses                                      (3 )      18

      Segment (loss) income from operations               (457 )     327       -240 %
      Retiree benefit income (expenses)                    (32 )       1
      Other items not allocated to segments:
      Net gain on sale of assets                            97         -
      Workforce reduction charges                          (86 )       -
      Litigation reserve                                     -       (45 )
      Flat-rolled inventory transition effects               -       (17 )

      Total (loss) income from operations             $   (478 )   $ 266       -280 %

Segment results for Flat-rolled

                                                       Quarter Ended
                                                         March 31,            %
                                                     2009        2008       Change
       (Loss) income from operations ($ millions)   $  (422 )   $    97
       Raw steel production (mnt)                     2,279       5,558        -59 %
       Capability utilization                          38.0 %      91.7 %      -59 %
       Steel shipments (mnt)                          2,123       4,701        -55 %
       Average realized steel price per ton         $   715     $   646         11 %

The decrease in Flat-rolled results in the first quarter of 2009 as compared to the same period in 2008 resulted mainly from lower commercial effects (approximately $150 million), increased labor costs and spending (approximately $150 million), carrying costs for idled facilities (which totaled approximately $230 million for the first quarter of 2009), the recognition of future layoff benefits for approximately 7,700 employees ($72 million) and higher raw material costs (approximately $60 million).

Segment results for USSE

                                                      Quarter Ended
                                                        March 31,            %
                                                     2009       2008       Change
       (Loss) income from operations ($ millions)   $ (159 )   $   161
       Raw steel production (mnt)                      999       1,908        -48 %
       Capability utilization                         54.8 %     103.4 %      -47 %
       Steel shipments (mnt)                           897       1,638        -45 %
       Average realized steel price per ton         $  672     $   791        -15 %

The decrease in USSE results in the first quarter of 2009 as compared to the same period in 2008 was primarily due to lower commercial effects (approximately $220 million) and higher raw material costs (approximately $90 million).

Segment results for Tubular

                                                    Quarter Ended
                                                      March 31,         %
                                                   2009      2008     Change
           Income from operations ($ millions)    $   127   $    51      149 %
           Steel shipments (mnt)                      207       433      -52 %
           Average realized steel price per ton   $ 2,353   $ 1,297       81 %

The increase in Tubular results in the first quarter of 2009 as compared to the same period last year mainly resulted from higher commercial effects (approximately $150 million), partially offset by increased spending (approximately $20 million), the recognition of future layoff benefits for approximately 1,700 employees ($18 million) and carrying costs for idled facilities (which totaled approximately $20 million for the first quarter of 2009).

Results for Other Businesses

Other Businesses generated a loss of $3 million in the first quarter of 2009, compared to income of $18 million in the first quarter of 2008. The decrease resulted primarily from lower results for our transportation business due mainly to the sale of Elgin, Joliet and Eastern Railway Company (EJ&E) in the first quarter of 2009.

Items not allocated to segments

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

We recorded a $97 million pre-tax net gain on sale of assets in the first quarter of 2009 as a result of the sale of a majority of the operating assets of EJ&E. The net gain included a pension curtailment charge of approximately $10 million.

Workforce reduction charges of $86 million in the first quarter of 2009 reflected employee severance and net benefit charges related to a VERP offered to certain non-represented employees in the United States.

A litigation reserve of $45 million was established in the first quarter of 2008 as a result of a court ruling involving a rate escalation provision in a U. S. Steel power supply contract. See Part II. Other Information - Item 1. Legal Proceedings.

Unfavorable flat-rolled inventory transition effects of $17 million in the first quarter of 2008 reflected the impact of selling inventory acquired in the acquisition of USSC, which had been recorded at fair value.

Net interest and other financial costs

                                                            Quarter Ended
                                                              March 31,            %
  (Dollars in millions)                                    2009        2008      Change
  Interest and other financial costs                      $   39       $  49        -20 %
  Interest income                                             (2 )        (5 )
  Foreign currency losses (gains)                             34         (76 )

  Total net interest and other financial costs (income)   $   71       $ (32 )

The unfavorable change in net interest and other financial costs in the first quarter of 2009 compared to the same period last year was mainly due to unfavorable changes in foreign currency effects. The foreign currency effects include remeasurement effects on a U.S. dollar-denominated intercompany loan (the Intercompany Loan) to a European subsidiary that had an outstanding balance of $820 million at March 31, 2009, and related euro-U.S. dollar derivatives activity, which we use to mitigate our foreign currency exposure. For additional information on U. S. Steel's foreign currency exchange activity, see Note 13 to the Financial Statements and "Item 3. Quantitative and Qualitative Disclosures about Market Risk - Foreign Currency Exchange Rate Risk."

The income tax benefit in the first quarter of 2009 was $110 million, compared with a provision of $58 million in the first quarter of 2008. The first quarter 2009 effective tax benefit rate of 20 percent is lower than the statutory rate because losses in Canada and Serbia, which are jurisdictions where we have recorded a full valuation allowance on deferred tax assets, do not generate a tax benefit for accounting purposes. Included in the first quarter 2009 tax benefit is $35 million of tax expense related to the net gain on the sale of EJ&E.

At March 31, 2009, the net domestic deferred tax asset was $930 million compared to $802 million at December 31, 2008. A substantial amount of U. S. Steel's domestic deferred tax assets relate to employee benefits that will become deductible for tax purposes over an extended period of time as cash contributions are made to employee benefit plans and payments are made to retirees. As a result of our cumulative historical earnings, we continue to believe it is more likely than not that the assets will be realized.

At March 31, 2009, the foreign deferred tax asset was $94 million, net of an established valuation allowance of $352 million. As of December 31, 2008, the foreign deferred tax asset was $32 million, net of an established valuation allowance of $281 million. Net foreign deferred tax assets will fluctuate as the value of the U.S. dollar changes with respect to the euro, the Canadian dollar and the Serbian dinar. A full valuation allowance is provided for Serbian deferred tax assets because current projected investment tax credits, which must be used before net operating losses and credit carryforwards, are more than sufficient to offset future tax liabilities. A full valuation allowance is recorded for Canadian deferred tax assets due to the absence of positive evidence at USSC to support the realizability of the assets. If USSC and U. S. Steel Serbia (USSS) generate sufficient income, the valuation allowances of $289 million for Canadian deferred tax assets and $49 million for Serbian deferred tax assets as of March 31, 2009, would be partially or fully reversed at such time that it is more likely than not that the deferred tax assets will be realized.

For further information on income taxes see Note 10 to the Financial Statements.

The net loss attributable to United States Steel Corporation was $439 million in the first quarter of 2009, compared to net income of $235 million in the first quarter of 2008. The decrease primarily reflects the factors discussed above.

BALANCE SHEET

Receivables decreased by $761 million from year-end 2008 as first quarter 2009 shipment volumes decreased compared to the fourth quarter of 2008.

Inventories decreased by $412 million as a result of reduced operating levels.

Accounts payable decreased by $242 million from year-end 2008 primarily due to decreased production levels compared to the fourth quarter of 2008.

Payroll and benefits payable decreased by $142 million from year end 2008 mainly due to the absence of accruals for profit-based employee payments in the first quarter of 2009.

CASH FLOW

Net cash provided from operating activities was $309 million for the first quarter of 2009, compared to $237 million in the same period last year. The increase primarily resulted from favorable changes in working capital. The favorable working capital change mainly reflected reductions in inventories and receivables in the first quarter of 2009. Cash provided from operating activities in the first quarter of 2008 was reduced by a $35 million voluntary contribution to our main defined benefit pension plan in the United States. Additionally, pursuant to a December 2007 agreement with the USW, we made payments of $20 million in the first quarter of 2008 to our trust for retiree health care and life insurance to provide benefits to certain former National Steel employees and their eligible dependents.

Capital expenditures in the first quarter of 2009 were $118 million, compared with $114 million in the same period in 2008. Flat-rolled expenditures were $98 million and included spending for modernization of our cokemaking facilities, including expenditures for construction of a co-generation facility at Granite City Works, and development of an enterprise resource planning (ERP) system. USSE expenditures of $10 million were mainly for environmental projects.

Capital expenditures - variable interest entities reflects spending for a non-recovery coke plant to supply Granite City Works by Gateway Energy & Coke Company, LLC (Gateway). This spending is consolidated in our financial results but is funded by Gateway and, therefore, is completely offset by distributions from noncontrolling interests in financing activities.

U. S. Steel's domestic contract commitments to acquire property, plant and equipment at March 31, 2009, totaled $217 million.

Capital expenditures planned for 2009 have been reduced from $740 million to $410 million, consisting largely of required environmental and other infrastructure projects already underway. A large portion of the $330 million reduction from our previous estimate for 2009 was due to the delay of our . . .