UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
-----------------------
Date of Report (Date of earliest event reported):
November 5, 1998
USX Corporation
- --------------------------------------------------------------------------------
----
(Exact name of registrant as specified in its charter)
Delaware 1-5153 25-0996816
--------------- ------------ -------------------
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
600 Grant Street, Pittsburgh, PA 15219-4776
- --------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(412) 433-1121
------------------------------
(Registrant's telephone number,
including area code)
<PAGE> 2
Item 7. Financial Statements and Exhibits
(c) Exhibits
99.1. Marathon Group Earnings Release.
99.2. U. S. Steel Group Earnings Release.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
USX CORPORATION
By /s/ Kenneth L. Matheny
-----------------------
Kenneth L. Matheny
Vice President and Comptroller
Dated: November 5, 1998
Contact: William E. Keslar
Don H. Herring
(412) 433-6870
FOR IMMEDIATE RELEASE
USX CORPORATION REPORTS THIRD QUARTER
MARATHON GROUP FINANCIAL RESULTS DOWN 58 PERCENT FROM 1997
<TABLE>
<CAPTION>
Earnings Highlights
(Dollars in millions except per diluted share data)
3Q 1998 3Q 1997
<S> <C> <C>
Net income adjusted for special items $70 $166
- per diluted share $0.24 $0.57
Net income $51 $192
Net income - per diluted share $0.17 $0.66
Revenues $5,662 $3,944
</TABLE>
PITTSBURGH, October 22, 1998 -- USX-Marathon Group's
(NYSE:MRO) net income adjusted for special items was $70
million, or 24 cents per diluted share, in third quarter
1998, down 58 percent from $166 million, or 57 cents per
diluted share, in third quarter 1997.
The Marathon Group recorded third quarter 1998 net
income of $51 million, or 17 cents per diluted share. The
results included a $19 million unfavorable aftertax inventory
market valuation (IMV) reserve adjustment (see Note 3 to the
attached Marathon Group Statement of Operations). Net income
in third quarter 1997 was $192 million, or 66 cents per
diluted share and included a $26 million favorable aftertax
IMV reserve adjustment.
USX Corporation Board Chairman Thomas J. Usher said,
"Third quarter results reflected continued growth in
Marathon's worldwide liquids production as well as the
production added as a result of our recent acquisition of
Tarragon. However, these operational achievements were more
than offset by significantly lower worldwide liquid
hydrocarbon and domestic natural gas prices and decreased
refined product margins."
In 1998, financial measures such as revenues, income
from operations and capital expenditures include 100 percent
of Marathon Ashland Petroleum LLC (MAP) and are not
comparable to prior period amounts. Marathon Group revenues
during third quarter 1998, were $5.7 billion compared with
$3.9 billion in 1997.
Third quarter Marathon Group income from operations,
excluding the effects of the IMV reserve adjustment, was $265
million in 1998, versus $319 million in 1997. Third quarter
results were negatively impacted by three tropical storms in
September that moved through the Gulf of Mexico and resulted
in temporary shut-ins of offshore production facilities, the
Louisiana Offshore Oil Port and the Garyville refinery. As a
result of these storms, reported production for the quarter
was reduced by an estimated 8,000 barrels of liquid
hydrocarbon per day (bpd) and 12 million cubic feet of
natural gas per day (mmcfpd) and refinery crude runs were
curtailed by nearly 10,000 bpd.
Worldwide exploration and production (upstream) reported
income from operations of $60 million in third quarter 1998,
versus $127 million in third quarter 1997.
Domestic upstream reported income from operations of $44
million for third quarter 1998 compared with $87 million in
third quarter 1997. This decrease was primarily attributable
to significantly lower liquid hydrocarbon and natural gas
prices, partially offset by a 21 percent increase in liquid
hydrocarbon production and lower exploration expense.
Marathon, bidding in partnership with other companies,
was high bidder on three Western Gulf of Mexico blocks at the
August 26, 1998, federal oil and gas lease sale, OCS 171.
The Marathon-operated Yates field received the
Occupational Safety and Health Administration's Voluntary
Protection Program Star award for superior safety and health
programs. Yates is the first oil field in the United States
to gain the highest rating possible in this program. "This
is a major success by our Yates field employees and
illustrates Marathon's commitment to excellence in safety and
health," said Usher.
International upstream reported income from operations
of $16 million in third quarter 1998, versus $40 million in
third quarter 1997. These results also reflected
significantly lower liquid hydrocarbon prices, partially
offset by increased liquid hydrocarbon volumes primarily
reflecting the new production in Canada, Gabon and the United
Kingdom. On August 11, 1998, Marathon announced the
completion of its acquisition of Tarragon Oil and Gas Ltd., a
Canadian oil and gas exploration and production company, for
$1.1 billion. Third quarter results include the operations
of Tarragon, commencing August 12, 1998. Tarragon production
averaged 15,900 bpd and 158 mmcfpd from August 12, 1998
through the end of the quarter. (See Note 2 to the attached
Marathon Group Statement of Operations for additional
information regarding the Tarragon acquisition).
"We are extremely pleased with the acquisition of
Tarragon," commented Usher. "Tarragon provides Marathon with
a new core production area in one of North America's most
attractive gas basins and meshes well with our growth
strategy." Usher noted that with the completion of this
acquisition, Marathon's 1998 reserve replacement is expected
to exceed 200 percent.
Refining, marketing and transportation (downstream)
reported income from operations of $224 million in third
quarter 1998, versus $231 million in third quarter 1997.
Downstream results for 1998 include 100 percent of the
results of MAP, which commenced operations on
January 1, 1998. On a pro forma basis, assuming MAP
commenced operations on January 1, 1997, downstream's income
from operations would have been $358 million for third
quarter 1997 (see attached Supplemental Statistics for
additional pro forma data). Usher noted, "MAP continues to
actively pursue annual repeatable operating efficiencies
which are now forecasted to reach $130 million in 1998, with
an additional $100 million expected in 1999."
Administrative expenses were $25 million in third
quarter 1998, compared with $47 million in third quarter
1997. This decrease is primarily attributable to certain
administrative costs now reported in MAP's results and lower
employee benefit plan accruals.
In closing, Usher commented that "The operational
outlook for Marathon is very good. As recently announced,
liquid production is forecast to increase from 164,000 bpd
last year to 270,000 bpd in 2001. Likewise, natural gas sales
are expected to be 1.5 bcf per day in 2001, up from 1.2 bcf
per day in 1997. In addition, MAP operating efficiencies
continue to exceed our original expectations."
*****
This release contains forward-looking information
concerning anticipated 1998 reserve replacement, liquid
hydrocarbon production and natural gas sales, and the
realization of MAP operating efficiencies. Factors that
could cause reserve replacement to be less than anticipated
includes geological and operating problems in existing fields
and unanticipated delays in bringing new production on
stream. Factors that could cause the realization of operating
efficiencies at MAP to be less than anticipated include the
implementation of shared technology and delays in leveraging
volume procurement advantages. Factors that could cause
liquid production and natural gas sales to be less than
forecast include prices, supply and demand, regulatory
constraints, production decline rates for mature fields and
drilling rig availability. In accordance with the "safe
harbor" provisions of the Private Securities Litigation
Reform Act of 1995, USX has included in Form 10-K for the
year ended December 31, 1997 and in its Form 10-Q for the
first and second quarters of 1998, 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.
Statement of Operations and Supplemental Statistics for
the Marathon Group and a Consolidated Statement of Operations
for USX Corporation are attached.
For more information on USX Corporation and Marathon Group,
visit our websites at www.usx.com or www.marathon.com.
-oOo-
<TABLE>
MARATHON GROUP OF USX CORPORATION
STATEMENT OF OPERATIONS (Unaudited)
-----------------------------------
<CAPTION>
Third Quarter Nine Months
Ended Ended
September 30 September 30
(Dollars in millions, except per share amounts) 1998 1997 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES $5,662 $3,944 $16,722 $11,834
COSTS AND EXPENSES:
Cost of sales (excludes items shown below) 3,988 2,523 11,575 7,760
Selling, general and administrative expenses 132 96 383 263
Depreciation, depletion and amortization 222 163 701 497
Taxes other than income taxes 1,009 788 2,768 2,210
Exploration expenses 46 55 203 129
Inventory market valuation charges (credits) 50 (41) 22 137
------ ------ ------ ------
Total costs and expenses 5,447 3,584 15,652 10,996
------ ------ ------ ------
INCOME FROM OPERATIONS 215 360 1,070 838
Net interest and other financial costs 63 64 166 202
Minority interest in income of Marathon Ashland
Petroleum LLC 70 - 282 -
------ ------ ------ ------
INCOME BEFORE INCOME TAXES 82 296 622 636
Provision for estimated income taxes 31 104 226 218
------ ------ ------ ------
NET INCOME $51 $192 $396 $418
====== ====== ====== ======
MARATHON STOCK DATA:
Net income per share
- Basic $.18 $.67 $1.37 $1.45
- Diluted .17 .66 1.36 1.44
Dividends paid per share .21 .19 .63 .57
Weighted average shares, in thousands
- Basic 291,320 288,095 289,928 287,853
- Diluted 291,803 291,857 290,528 294,090
<FN>
The following notes are an integral part of this financial statement.
</TABLE>
MARATHON GROUP OF USX CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENT
-------------------------------------
1.The statement of operations of the Marathon Group includes the
results of operations for the businesses of Marathon Oil Company
(Marathon) and certain other subsidiaries of USX and a portion of
USX's net financial costs, general and administrative costs and
income taxes attributed to the groups in accordance with USX's
accounting and tax allocation policies. This statement should be
read in connection with the consolidated statement of operations of
USX.
2.In August 1998, Marathon acquired Tarragon Oil and Gas Limited
(Tarragon), a Canadian oil and gas exploration and production
company, for $1.1 billion. Securityholders of Tarragon received,
at their election, Cdn$14.25 for each Tarragon share, or the
economic equivalent in Exchangeable Shares of an indirect Canadian
subsidiary of Marathon, which are exchangeable solely on a one-for-
one basis into USX-Marathon Group Common Stock. The purchase price
of $1.1 billion included cash payments to Tarragon securityholders
of $670 million, issuance of approximately 878,000 Exchangeable
Shares valued at $29 million and the assumption of $345 million in
debt. Marathon accounted for the acquisition using the purchase
method of accounting. Tarragon operations have been included in
the Marathon Group's results of operations commencing August 12,
1998.
During 1997, Marathon and Ashland Inc. (Ashland) agreed to combine
the major elements of their refining, marketing and transportation
(RM&T) operations. On January 1, 1998, Marathon transferred
certain RM&T net assets to Marathon Ashland Petroleum LLC (MAP), a
new consolidated subsidiary. Also on January 1, 1998, Marathon
acquired certain RM&T net assets from Ashland in exchange for a 38%
interest in MAP. The acquisition was accounted for under the
purchase method of accounting. The purchase price was determined
to be $1.9 billion, based upon an external valuation. The change
in Marathon's ownership interest in MAP resulted in a gain of $245
million, which is included in the first nine months of 1998
revenues.
See attached supplemental unaudited pro forma data relating to the
inclusion of Tarragon and MAP operations.
3.When USX acquired Marathon in March 1982, crude oil and refined
product prices were at historically high levels. USX established a
new LIFO cost basis for Marathon's inventories by reference to
these prices.
Generally accepted accounting principles require that inventories
be reported at the lower of recorded cost or current market value.
Marathon has established an inventory market valuation (IMV)
reserve to reduce the cost basis of its inventories to current
market value. Quarterly adjustments to the IMV reserve result in
noncash charges or credits to income from operations. Decreases in
market prices below the cost basis result in charges to income from
operations. Once a reserve has been established, subsequent
increases in prices (up to the cost basis) result in credits to
income from operations.
The charges or credits to income resulting from IMV reserve
adjustments affect the comparability of financial results from
period to period. They also affect comparisons with other energy
companies, many of which do not have such adjustments. Therefore,
USX reports separately the effects of IMV reserve adjustments on
financial results. In management's opinion, the effects of such
adjustments should be considered separately when evaluating
operating performance.
MARATHON GROUP OF USX CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENT (Continued)
-------------------------------------------------
3.(Continued)
When USX acquired the crude oil and refined product inventories
associated with Ashland's RM&T operations in January 1998, a new
cost basis was established for those inventories. The acquisition
cost of these inventories lowered the overall average cost of the
combined RM&T inventories; as a result, the price threshold at
which an IMV reserve will be recorded has also been lowered. This
acquisition resulted in a one-time reduction in the IMV reserve,
yielding a net favorable IMV reserve adjustment in the first
quarter of 1998.
<TABLE>
MARATHON GROUP OF USX CORPORATION
SUPPLEMENTAL STATISTICS (Unaudited)
-----------------------------------
<CAPTION>
Third Quarter Nine Months
Ended Ended
September 30 September 30
(Dollars in millions) 1998 1997(a) 1998 1997(a)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCOME (LOSS) FROM OPERATIONS (b)
Exploration & Production
Domestic $44 $87 $159 $376
International 16 40 98 219
Refining, Marketing & Transportation(c) 224 231 749 475
Other Energy Related Businesses(d) 6 8 23 39
Administrative (25) (47) (84) (134)
------ ------ ------ ------
$265 $319 $945 $975
Int'l. Impairment & Domestic Contract Settlement 0 0 (76) 0
Gain on Ownership Chg. & Transition Charges-MAP 0 0 223 0
Inventory Market Val. Res. Adjustment. (50) 41 (22) (137)
------ ------ ------ ------
Total Marathon Group $215 $360 $1,070 $838
CAPITAL EXPENDITURES (c) $285 $263 $835 $652
INVESTMENTS IN EQUITY AFFILIATES-NET 49 60 52 197
OPERATING STATISTICS
Net Liquid Hydrocarbon Production (e):
Domestic 137.2 113.8 133.7 113.9
International (Liftings) 72.0 47.2 59.2 50.7
------ ------ ------ ------
Worldwide 209.2 161.0 192.9 164.6
Net Natural Gas Production (f):
Domestic 728.8 698.2 733.4 716.8
International - Equity 408.6 340.3 413.3 425.6
International - Other (g) 20.8 35.3 23.7 33.0
------- ------- ------- -------
Total Consolidated 1158.2 1073.8 1170.4 1175.4
Equity Affiliate 23.2 33.4 34.0 42.5
------- ------- ------- -------
Worldwide 1181.4 1107.2 1204.4 1217.9
Average Equity Sales Prices (h):
Liquid Hydrocarbons (per Bbl)
Domestic $10.23 $15.94 $10.72 $17.10
International 11.66 18.12 12.59 18.89
Natural Gas (per Mcf)
Domestic (j) $1.68 $1.87 $1.82 $2.14
International 1.90 1.87 2.04 2.01
Natural Gas Sales (f) (i):
Domestic 1067.6 1074.1 1122.1 1147.2
International 429.4 375.6 437.0 458.6
------- ------- ------- -------
Total Consolidated 1497.0 1449.7 1559.1 1605.8
Equity Affiliate 23.2 33.4 34.0 42.5
------- ------- ------- -------
Worldwide 1520.2 1483.1 1593.1 1648.3
Crude Oil Refined (e) (c) 885.5 562.6 904.6 513.2
Refined Products Sold (e) (c) 1228.6 793.3 1183.7 758.8
Matching buy/sell volumes included in refined
products sold (e) (c)...................... 35.6 35.9 38.4 48.4
- --------------
<FN>
(a) Certain 1997 amounts have been reclassified to conform to
1998 classifications
(b) Income from operations for operating components includes
operating income previously reported, plus dividend and
affiliate income and other income.
(c) In 1998, income from operations, capital expenditures,
refined products sold, crude oil refined and matching buy/sell
volumes include 100 percent of MAP and are not comparable to
prior periods. For further discussion of MAP, see Note 2 to
the Marathon Group Statement Of Operations.
(d) Includes domestic natural gas and crude oil marketing and
transportation, and power generation
(e) Thousands of barrels per day
(f) Millions of cubic feet per day
(g) Represents gas acquired for injection and subsequent
resale
(h) Prices exclude gains and losses from hedging activities
(i) Represents equity, royalty and resale volumes
(j) The third quarter 1997 amount includes an unfavorable $.13
adjustment relating to a contract dispute.
</TABLE>
MARATHON GROUP OF USX CORPORATION
SUPPLEMENTAL STATISTICS (Continued) (Unaudited)
-----------------------------------
The following unaudited pro forma data for the Marathon Group includes
the pro forma results of operations of Tarragon for 1998 and 1997, and
the Ashland RM&T net assets for 1997, giving effect to the
acquisitions as if they had been consummated at the beginning of the
years presented. The 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. See Note 2 to the Marathon Group Statement Of
Operations for additional information.
<TABLE>
<CAPTION>
Third Quarter Nine Months
Ended Ended
September 30 September 30
(Dollars in millions, except per share amounts) 1998 1997 1998 1997
- ------------------------------------------------------------------------------
Marathon Group:
<S> <C> <C> <C> <C>
Revenues $5,679 $5,804 $16,816 $17,597
Income from operations (a) 258 461 1,084 1,276
Net income (b) 42 183 365 410
Net income per common share:
Basic .14 .63 1.26 1.42
Diluted .14 .63 1.25 1.41
RM&T Operations (c) (d):
Income from operations: (a) $224 $358 $749 $729
Thousands of barrels per day:
Crude oil refined 885.5 909.6 904.6 855.7
Refined products sold 1228.6 1220.7 1183.7 1170.8
Matching buy/sell volumes include in refined
products sold 35.6 49.7 38.4 68.9
<FN>
(a) Excludes the inventory market valuation reserve
adjustments.
(b) Excluding the inventory market valuation reserve
adjustment, pro forma net income would have been $61 million
and $373 million for the 1998 third quarter and nine months,
respectively and $159 million and $487 million for the 1997
third quarter and nine months, respectively.
(c) Pro forma data is based on results of operations from RM&T
assets contributed to MAP by Marathon and Ashland, purchase
accounting effects and other pro forma adjustments and
reclassifications.
(d) Results for 1998 are actuals. There are no pro forma
effects in 1998, since MAP commenced operations January 1,
1998.
</TABLE>
<TABLE>
USX CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
------------------------------------------------
<CAPTION>
Third Quarter Nine Months
Ended Ended
September 30 September 30
(Dollars in millions) 1998 1997 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES $7,156 $5,657 $21,635 $16,854
COSTS AND EXPENSES:
Cost of sales (excludes items shown below) 5,297 3,934 15,765 11,952
Selling, general and administrative expenses 81 66 233 163
Depreciation, depletion and amortization 293 235 921 722
Taxes other than income taxes 1,069 851 2,937 2,392
Exploration expenses 46 55 203 129
Inventory market valuation charges (credits) 50 (41) 22 137
------ ------ ------ ------
Total costs and expenses 6,836 5,100 20,081 15,495
------ ------ ------ ------
INCOME FROM OPERATIONS 320 557 1,554 1,359
Net interest and other financial costs 73 86 226 272
Minority interest in income of Marathon Ashland
Petroleum LLC 70 - 282 -
------ ------ ------ ------
INCOME BEFORE INCOME TAXES 177 471 1,046 1,087
Provision for estimated income taxes 61 163 362 369
------ ------ ------ ------
INCOME FROM CONTINUING OPERATIONS 116 308 684 718
LOSS FROM DISCONTINUED OPERATIONS (net of
income tax) - (1) - (1)
------ ------ ------ ------
NET INCOME 116 307 684 717
Noncash credit from exchange of preferred stock - - - 10
Dividends on preferred stock (2) (2) (7) (10)
------ ------ ------ ------
NET INCOME APPLICABLE TO COMMON STOCKS $114 $305 $677 $717
====== ====== ====== ======
</TABLE>
<TABLE>
USX CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF OPERATIONS (Continued) (Unaudited)
INCOME PER COMMON SHARE
------------------------------------------------------------
<CAPTION>
Third Quarter Nine Months
Ended Ended
September 30 September 30
(Dollars in millions, except per share amounts) 1998 1997 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
APPLICABLE TO MARATHON STOCK:
Net income $51 $192 $396 $418
- Per share - basic .18 .67 1.37 1.45
- diluted .17 .66 1.36 1.44
Dividends paid per share .21 .19 .63 .57
Weighted average shares, in thousands
- Basic 291,320 288,095 289,928 287,853
- Diluted 291,803 291,857 290,528 294,090
APPLICABLE TO STEEL STOCK:
Net income $63 $114 $281 $300
- Per share - basic .72 1.32 3.22 3.50
- diluted .71 1.25 3.11 3.24
Dividends paid per share .25 .25 .75 .75
Weighted average shares, in thousands
- Basic 88,099 85,770 87,223 85,463
- Diluted 92,359 93,952 94,717 94,176
<FN>
The following notes are an integral part of this financial statement.
</TABLE>
USX CORPORATION AND SUBSIDIARY COMPANIES
SELECTED NOTES TO FINANCIAL STATEMENT
----------------------------------------
1. In August 1998, Marathon Oil Company (Marathon) acquired Tarragon Oil and
Gas Limited (Tarragon), a Canadian oil and gas exploration and production
company, for $1.1 billion. Securityholders of Tarragon received, at their
election, Cdn$14.25 for each Tarragon share, or the economic equivalent in
Exchangeable Shares of an indirect Canadian subsidiary of Marathon, which
are exchangeable solely on a one-for-one basis into USX-Marathon Group
Common Stock. The purchase price of $1.1 billion included cash payments to
Tarragon securityholders of $670 million, issuance of approximately 878,000
Exchangeable Shares valued at $29 million and the assumption of $345 million
in debt. USX accounted for the acquisition using the purchase method of
accounting. Tarragon operations have been included in USX's results of
operations commencing August 12, 1998.
During 1997, Marathon and Ashland Inc. (Ashland) agreed to combine the major
elements of their refining, marketing and transportation (RM&T) operations.
On January 1, 1998, Marathon transferred certain RM&T net assets to Marathon
Ashland Petroleum LLC (MAP), a new consolidated subsidiary. Also on January
1, 1998, Marathon acquired certain RM&T net assets from Ashland in exchange
for a 38% interest in MAP. The acquisition was accounted for under the
purchase method of accounting. The purchase price was determined to be
$1.9 billion, based upon an external valuation. The change in Marathon's
ownership interest in MAP resulted in a gain of $245 million, which is
included in the first nine months of 1998 revenues.
2. Effective October 31, 1997, USX sold its stock in Delhi Gas Pipeline
Corporation and other subsidiaries of USX that comprised all of the Delhi
Group. The 1997 financial results of the Delhi Group have been reclassified
as discontinued operations in the Consolidated Statement of Operations.
3. When USX acquired Marathon in March 1982, crude oil and refined product
prices were at historically high levels. USX established a new LIFO cost
basis for Marathon's inventories by reference to these prices.
Generally accepted accounting principles require that inventories be
reported at the lower of recorded cost or current market value. Marathon
has established an inventory market valuation (IMV) reserve to reduce the
cost basis of its inventories to current market value. Quarterly
adjustments to the IMV reserve result in noncash charges or credits to
income from operations. Decreases in market prices below the cost basis
result in charges to income from operations. Once a reserve has been
established, subsequent increases in prices (up to the cost basis) result in
credits to income from operations.
The charges or credits to income resulting from IMV reserve adjustments
affect the comparability of financial results from period to period. They
also affect comparisons with other energy companies, many of which do not
have such adjustments. Therefore, USX reports separately the effects of IMV
reserve adjustments on financial results. In management's opinion, the
effects of such adjustments should be considered separately when evaluating
operating performance.
When USX acquired the crude oil and refined product inventories associated
with Ashland's RM&T operations in January 1998, a new cost basis was
established for those inventories. The acquisition cost of these
inventories lowered the overall average cost of the combined RM&T
inventories; as a result, the price threshold at which an IMV reserve will
be recorded has also been lowered. This acquisition resulted in a one-time
reduction in the IMV reserve, yielding a net favorable IMV reserve
adjustment in the first quarter of 1998.
USX CORPORATION AND SUBSIDIARY COMPANIES
SELECTED NOTES TO FINANCIAL STATEMENT (Continued)
-------------------------------------------------
4. In December 1996, USX issued $117 million of debt (notes) indexed to the
common stock price of RTI International Metals, Inc. (RTI) (formerly RMI
Titanium Company). At maturity in February 2000, USX must exchange these
notes for shares of RTI common stock, or redeem the notes for the equivalent
amount of cash. Since USX's investment in RTI is attributed to the U. S.
Steel Group, the indexed debt is also attributed to the U. S. Steel Group.
Generally accepted accounting principles require that indexed debt be
reported at the settlement value. Quarterly adjustments to the carrying
value of this indexed debt result in noncash charges or credits to interest
and other financial costs.
Net interest and other financial costs included a credit of $11 million and
$7 million in the third quarter and nine months of 1998, respectively, and a
credit of $6 million in the 1997 nine months, as a result of the quarterly
adjustments in the carrying value of indexed debt. There was no adjustment
in the third quarter of 1997.
USX holds a 27% interest in RTI and accounts for this investment under the
equity method of accounting. Changes in the market value of USX's
investment in RTI generally offset changes in the settlement value of the
indexed debt. However, under the equity method of accounting, USX cannot
recognize in income these corresponding changes in the market value of its
investment in RTI. Such changes will be realized upon disposition of this
investment.
The charges or credits to income resulting from indexed debt adjustments
affect the comparability of financial results from period to period.
Therefore, USX discusses separately the effects of indexed debt adjustments
on financial results. In management's opinion, the effects of such
adjustments should be considered separately when evaluating financial
performance.
Contact: William E. Keslar
Don H. Herring
(412) 433-6870
FOR IMMEDIATE RELEASE
USX CORPORATION REPORTS LOWER THIRD QUARTER
FINANCIAL RESULTS FOR THE U. S. STEEL GROUP DUE TO IMPORT
SURGE
<TABLE>
<CAPTION>
Earnings Highlights
(Dollars in millions except per diluted share data)
3Q 1998 3Q 1997
<S> <C> <C>
Net income adjusted for special items $58 $100
- per diluted share $0.63 $1.08
Net income $65 $ 116
Net income - per diluted share $0.71 $1.25
Revenues $1,497 $1,735
</TABLE>
PITTSBURGH, October 22, 1998 -- Impacted by an
unprecedented surge in imports, weak tubular markets and
effects of the General Motors strike, USX-U. S. Steel Group
(NYSE: X) reported third quarter 1998 adjusted net income of
$58 million, or 63 cents per diluted share, on revenues of
$1.5 billion. Third quarter 1997 adjusted net income was
$100 million, or $1.08 per diluted share on revenues of $1.7
billion.
U. S. Steel Group recorded third quarter 1998 net
income of $65 million, or 71 cents per diluted share,
including a $7 million aftertax reduction to interest expense
as a result of adjusting the carrying value of indexed debt
(see note 2 to the attached U. S. Steel Group Statement of
Operations). Third quarter 1997 net income was $116 million,
or $1.25 per diluted share, which included $16 million
(aftertax) in insurance proceeds related to the 1996 hearth
breakout at the Gary (Ind.) Works No. 13 blast furnace.
Income from operations in the third quarter was $105
million, or $41 per ton, on shipments of 2.6 million net
tons. Income from operations in the third quarter 1997 was
$197 million, or $69 per ton, which included $25 million in
insurance proceeds related to the Gary Works No. 13 blast
furnace. Shipments were 2.9 million net tons in third
quarter 1997.
Commenting on the latest quarter's results, USX Board
Chairman Thomas J. Usher said, "After achieving our best year
ever in 1997 and a solid first half this year, the positive
momentum we had built has been interrupted by record volumes
of foreign steel imports at predatory prices, in clear
violation of our trade laws. This has resulted in lower
shipment levels, lower average steel product prices and less
efficient operating levels." The surge in imports
contributed to third quarter 1998 raw steel capability
utilization falling to 84.6 percent from 90.4 percent in
third quarter 1997.
In response to the difficult market conditions,
U. S. Steel Group has curtailed its production operations by
about 15 percent. "Actions taken to date have included
keeping Gary Works No. 6 blast furnace out of service even
though a scheduled reline was completed in mid-August," added
Usher. "We also have cut back raw steel production at our
Mon Valley Works and Fairfield Works, suspended one of
Minntac's five taconite pellet production lines in Minnesota,
and taken the Fairfield pipe mill down for several multiple-
week periods."
In an attempt to stem the tide of imports, U. S. Steel
joined with 11 other producers and the United Steelworkers of
America on September 30, 1998 to file trade cases against
Japan, Russia and Brazil. These filings document that
millions of tons of unfairly traded hot-rolled carbon sheet
products have caused serious injury to the domestic steel
industry through rapidly falling prices and lost business.
Information is continuing to be evaluated and the filing of
additional trade cases is anticipated.
During the quarter, U. S. Steel Clairton Works became
the first plant in the domestic steel or coking industries to
achieve ISO 14001 certification -- the global benchmark for
environmental management systems. "The hard work and
dedication of our people to sound environmental performance,
coupled with substantial capital investments by the company,
have made Clairton the industry leader in productivity,
efficiency and environmental excellence," said Usher.
******
Statements of Operation and Supplemental Statistics for
the U. S. Steel Group and a Consolidated Statement of Operations
for USX Corporation are attached.
For more information on USX Corporation and U. S. Steel
Group, visit our websites at www.usx.com or www.ussteel.com.
-o0o-
<TABLE>
U. S. STEEL GROUP OF USX CORPORATION
STATEMENT OF OPERATIONS (Unaudited)
------------------------------------
<CAPTION>
Third Quarter Nine Months
Ended Ended
September 30 September 30
(Dollars in millions, except per share amounts) 1998 1997 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES $1,497 $1,735 $4,926 $5,103
COSTS AND EXPENSES:
Cost of sales (excludes items shown below) 1,312 1,433 4,203 4,275
Selling, general and administrative
expenses (credits) (51) (30) (150) (100)
Depreciation, depletion and amortization 71 72 220 225
Taxes other than income taxes 60 63 169 182
------ ------ ------ ------
Total costs and expenses 1,392 1,538 4,442 4,582
------ ------ ------ ------
INCOME FROM OPERATIONS 105 197 484 521
Net interest and other financial costs 10 22 60 70
------ ------ ------ ------
INCOME BEFORE INCOME TAXES 95 175 424 451
Provision for estimated income taxes 30 59 136 151
------ ------ ------ ------
NET INCOME 65 116 288 300
Noncash credit from exchange of preferred stock - - - 10
Dividends on preferred stock (2) (2) (7) (10)
------ ------ ------ ------
NET INCOME APPLICABLE TO STEEL STOCK $63 $114 $281 $300
====== ====== ====== ======
STEEL STOCK DATA:
Net income per share
- Basic $.72 $1.32 $3.22 $3.50
- Diluted .71 1.25 3.11 3.24
Dividends paid per share .25 .25 .75 .75
Weighted average shares, in thousands
- Basic 88,099 85,770 87,223 85,463
- Diluted 92,359 93,952 94,717 94,176
<FN>
The following notes are an integral part of this financial statement.
</TABLE>
U. S. STEEL GROUP OF USX CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENT
--------------------------------------
1.The statement of operations of the U. S. Steel Group includes the
results of operations for the businesses of USX other than
businesses included in the Marathon Group and a portion of USX's
net financial costs, general and administrative costs and income
taxes attributed to the groups in accordance with USX's accounting
and tax allocation policies. This statement should be read in
connection with the consolidated statement of operations of USX.
2.In December 1996, USX issued $117 million of debt (notes) indexed
to the common stock price of RTI International Metals, Inc. (RTI)
(formerly RMI Titanium Company). At maturity in February 2000, USX
must exchange these notes for shares of RTI common stock, or redeem
the notes for the equivalent amount of cash. Since USX's
investment in RTI is attributed to the U. S. Steel Group, the
indexed debt is also attributed to the U. S. Steel Group.
Generally accepted accounting principles require that indexed debt
be reported at the settlement value. Quarterly adjustments to the
carrying value of this indexed debt result in noncash charges or
credits to interest and other financial costs.
Net interest and other financial costs included a credit of $11
million and $7 million in the third quarter and nine months of
1998, respectively, and a credit of $6 million in the 1997 nine
months, as a result of the quarterly adjustments in the carrying
value of indexed debt. There was no adjustment in the third
quarter of 1997.
USX holds a 27% interest in RTI and accounts for this investment
under the equity method of accounting. Changes in the market value
of USX's investment in RTI generally offset changes in the
settlement value of the indexed debt. However, under the equity
method of accounting, USX cannot recognize in income these
corresponding changes in the market value of its investment in RTI.
Such changes will be realized upon disposition of this investment.
The charges or credits to income resulting from indexed debt
adjustments affect the comparability of financial results from
period to period. Therefore, USX discusses separately the effects
of indexed debt adjustments on financial results. In management's
opinion, the effects of such adjustments should be considered
separately when evaluating financial performance.
<TABLE>
U.S. STEEL GROUP OF USX CORPORATION
SUPPLEMENTAL STATISTICS (Unaudited)
-----------------------------------
(Dollars in millions)
<CAPTION>
Third Quarter Nine Months
Ended Ended
September 30 September 30
1998 1997(e) 1998 1997(e)
------ ------ ------ ------
<S> <C> <C> <C> <C>
REVENUES $1,497 $1,735 $4,926 $5,103
INCOME FROM OPERATIONS
Steel and Related Businesses (a) $32 $140 $235 $354
Steel and Related-Equity Affiliates - 8 29 29
---- ---- ---- ----
Subtotal - Steel & Related $32 $148 $264 $383
Administrative and Other (b) 73 49 220 138
---- ---- ---- ----
Total U. S. Steel Group $105 $197 $484 $521
CAPITAL EXPENDITURES $92 $59 $228 $176
OPERATING STATISTICS (Steel & Related Businesses)
Steel Shipments (c) 2,554 2,861 8,344 8,670
Raw Steel-Production (c) 2,729 2,915 8,774 9,157
Raw Steel-Capability Utilization (d) 84.6% 90.4% 91.6% 95.6%
- ------------
<FN>
(a) Includes the production and sale of steel products, coke
and taconite pellets; domestic coal mining; the management of
mineral resources; and engineering and consulting services.
(b) Includes pension credits, other postretirement benefit
costs and certain other expenses principally attributable to
former business units of the U. S. Steel Group. Also includes
results of real estate development and management, and leasing
and financing activities and equity income from RTI
International Metals, Inc.
(c) Thousands of net tons.
(d) Based on annual raw steel production capability of 12.8
million tons.
(e) Certain 1997 amounts have been reclassified to conform to
1998 classifications.
</TABLE>
<TABLE>
USX CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
------------------------------------------------
<CAPTION>
Third Quarter Nine Months
Ended Ended
September 30 September 30
(Dollars in millions) 1998 1997 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES $7,156 $5,657 $21,635 $16,854
COSTS AND EXPENSES:
Cost of sales (excludes items shown below) 5,297 3,934 15,765 11,952
Selling, general and administrative expenses 81 66 233 163
Depreciation, depletion and amortization 293 235 921 722
Taxes other than income taxes 1,069 851 2,937 2,392
Exploration expenses 46 55 203 129
Inventory market valuation charges (credits) 50 (41) 22 137
------ ------ ------ ------
Total costs and expenses 6,836 5,100 20,081 15,495
------ ------ ------ ------
INCOME FROM OPERATIONS 320 557 1,554 1,359
Net interest and other financial costs 73 86 226 272
Minority interest in income of Marathon Ashland
Petroleum LLC 70 - 282 -
------ ------ ------ ------
INCOME BEFORE INCOME TAXES 177 471 1,046 1,087
Provision for estimated income taxes 61 163 362 369
------ ------ ------ ------
INCOME FROM CONTINUING OPERATIONS 116 308 684 718
LOSS FROM DISCONTINUED OPERATIONS (net of
income tax) - (1) - (1)
------ ------ ------ ------
NET INCOME 116 307 684 717
Noncash credit from exchange of preferred stock - - - 10
Dividends on preferred stock (2) (2) (7) (10)
------ ------ ------ ------
NET INCOME APPLICABLE TO COMMON STOCKS $114 $305 $677 $717
====== ====== ====== ======
</TABLE>
<TABLE>
USX CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF OPERATIONS (Continued) (Unaudited)
INCOME PER COMMON SHARE
------------------------------------------------------------
<CAPTION>
Third Quarter Nine Months
Ended Ended
September 30 September 30
(Dollars in millions, except per share amounts) 1998 1997 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
APPLICABLE TO MARATHON STOCK:
Net income $51 $192 $396 $418
- Per share - basic .18 .67 1.37 1.45
- diluted .17 .66 1.36 1.44
Dividends paid per share .21 .19 .63 .57
Weighted average shares, in thousands
- Basic 291,320 288,095 289,928 287,853
- Diluted 291,803 291,857 290,528 294,090
APPLICABLE TO STEEL STOCK:
Net income $63 $114 $281 $300
- Per share - basic .72 1.32 3.22 3.50
- diluted .71 1.25 3.11 3.24
Dividends paid per share .25 .25 .75 .75
Weighted average shares, in thousands
- Basic 88,099 85,770 87,223 85,463
- Diluted 92,359 93,952 94,717 94,176
<FN>
The following notes are an integral part of this financial statement.
</TABLE>
USX CORPORATION AND SUBSIDIARY COMPANIES
SELECTED NOTES TO FINANCIAL STATEMENT
----------------------------------------
1. In August 1998, Marathon Oil Company (Marathon) acquired Tarragon Oil and
Gas Limited (Tarragon), a Canadian oil and gas exploration and production
company, for $1.1 billion. Securityholders of Tarragon received, at their
election, Cdn$14.25 for each Tarragon share, or the economic equivalent in
Exchangeable Shares of an indirect Canadian subsidiary of Marathon, which
are exchangeable solely on a one-for-one basis into USX-Marathon Group
Common Stock. The purchase price of $1.1 billion included cash payments to
Tarragon securityholders of $670 million, issuance of approximately 878,000
Exchangeable Shares valued at $29 million and the assumption of $345 million
in debt. USX accounted for the acquisition using the purchase method of
accounting. Tarragon operations have been included in USX's results of
operations commencing August 12, 1998.
During 1997, Marathon and Ashland Inc. (Ashland) agreed to combine the major
elements of their refining, marketing and transportation (RM&T) operations.
On January 1, 1998, Marathon transferred certain RM&T net assets to Marathon
Ashland Petroleum LLC (MAP), a new consolidated subsidiary. Also on January
1, 1998, Marathon acquired certain RM&T net assets from Ashland in exchange
for a 38% interest in MAP. The acquisition was accounted for under the
purchase method of accounting. The purchase price was determined to be
$1.9 billion, based upon an external valuation. The change in Marathon's
ownership interest in MAP resulted in a gain of $245 million, which is
included in the first nine months of 1998 revenues.
2. Effective October 31, 1997, USX sold its stock in Delhi Gas Pipeline
Corporation and other subsidiaries of USX that comprised all of the Delhi
Group. The 1997 financial results of the Delhi Group have been reclassified
as discontinued operations in the Consolidated Statement of Operations.
3. When USX acquired Marathon in March 1982, crude oil and refined product
prices were at historically high levels. USX established a new LIFO cost
basis for Marathon's inventories by reference to these prices.
Generally accepted accounting principles require that inventories be
reported at the lower of recorded cost or current market value. Marathon
has established an inventory market valuation (IMV) reserve to reduce the
cost basis of its inventories to current market value. Quarterly
adjustments to the IMV reserve result in noncash charges or credits to
income from operations. Decreases in market prices below the cost basis
result in charges to income from operations. Once a reserve has been
established, subsequent increases in prices (up to the cost basis) result in
credits to income from operations.
The charges or credits to income resulting from IMV reserve adjustments
affect the comparability of financial results from period to period. They
also affect comparisons with other energy companies, many of which do not
have such adjustments. Therefore, USX reports separately the effects of IMV
reserve adjustments on financial results. In management's opinion, the
effects of such adjustments should be considered separately when evaluating
operating performance.
When USX acquired the crude oil and refined product inventories associated
with Ashland's RM&T operations in January 1998, a new cost basis was
established for those inventories. The acquisition cost of these
inventories lowered the overall average cost of the combined RM&T
inventories; as a result, the price threshold at which an IMV reserve will
be recorded has also been lowered. This acquisition resulted in a one-time
reduction in the IMV reserve, yielding a net favorable IMV reserve
adjustment in the first quarter of 1998.
USX CORPORATION AND SUBSIDIARY COMPANIES
SELECTED NOTES TO FINANCIAL STATEMENT (Continued)
-------------------------------------------------
4. In December 1996, USX issued $117 million of debt (notes) indexed to the
common stock price of RTI International Metals, Inc. (RTI) (formerly RMI
Titanium Company). At maturity in February 2000, USX must exchange these
notes for shares of RTI common stock, or redeem the notes for the equivalent
amount of cash. Since USX's investment in RTI is attributed to the U. S.
Steel Group, the indexed debt is also attributed to the U. S. Steel Group.
Generally accepted accounting principles require that indexed debt be
reported at the settlement value. Quarterly adjustments to the carrying
value of this indexed debt result in noncash charges or credits to interest
and other financial costs.
Net interest and other financial costs included a credit of $11 million and
$7 million in the third quarter and nine months of 1998, respectively, and a
credit of $6 million in the 1997 nine months, as a result of the quarterly
adjustments in the carrying value of indexed debt. There was no adjustment
in the third quarter of 1997.
USX holds a 27% interest in RTI and accounts for this investment under the
equity method of accounting. Changes in the market value of USX's
investment in RTI generally offset changes in the settlement value of the
indexed debt. However, under the equity method of accounting, USX cannot
recognize in income these corresponding changes in the market value of its
investment in RTI. Such changes will be realized upon disposition of this
investment.
The charges or credits to income resulting from indexed debt adjustments
affect the comparability of financial results from period to period.
Therefore, USX discusses separately the effects of indexed debt adjustments
on financial results. In management's opinion, the effects of such
adjustments should be considered separately when evaluating financial
performance.
