<PAGE> 1
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ------------ to ------------
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)
- --------------------------------------------------------------------------------
- ----
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes..X..No.....
Common stock outstanding at April 30, 2000 follows:
USX-Marathon Group - 311,772,963 shares
USX-U. S. Steel Group - 88,398,085 shares
<PAGE> 2
USX CORPORATION
SEC FORM 10-Q
QUARTER ENDED March 31, 2000
---------------------------
INDEX Page
----- ----
PART I - FINANCIAL INFORMATION
A. Consolidated Corporation
Item 1. Financial Statements:
Consolidated Statement of Operations 4
Consolidated Balance Sheet 6
Consolidated Statement of Cash Flows 8
Selected Notes to Consolidated
Financial Statements 9
Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends and Ratio of
Earnings to Fixed Charges 17
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 18
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 25
Financial Statistics 27
B. Marathon Group
Item 1. Financial Statements:
Marathon Group Statement of Operations 28
Marathon Group Balance Sheet 29
Marathon Group Statement of Cash Flows 30
Selected Notes to Financial Statements 31
Item 2. Marathon Group Management's Discussion and
Analysis of Financial Condition and
Results of Operations 38
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 47
Supplemental Statistics 49
<PAGE> 3
USX CORPORATION
SEC FORM 10-Q
QUARTER ENDED March 31, 2000
---------------------------
INDEX Page
----- ----
PART I - FINANCIAL INFORMATION (Continued)
C. U. S. Steel Group
Item 1. Financial Statements:
U. S. Steel Group Statement of Operations 50
U. S. Steel Group Balance Sheet 51
U. S. Steel Group Statement of Cash Flows 52
Selected Notes to Financial Statements 53
Item 2. U. S. Steel Group Management's Discussion
and Analysis of Financial Condition
and Results of Operations 58
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 66
Supplemental Statistics 68
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 69
Item 5. Other Information 71
Item 6. Exhibits and Reports on Form 8-K 72
<PAGE> 4
Part I - Financial Information
A. Consolidated Corporation
<TABLE>
USX CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
------------------------------------------------
<CAPTION>
First Quarter Ended
March 31
(Dollars in millions) 2000 1999
- --------------------------------------------------------------------------------
<S> <C> <C>
REVENUES:
Sales $9,372 $6,078
Dividend and affiliate income (loss) 4 (7)
Net gains (losses) on disposal of assets 107 (22)
Gain on ownership change in Marathon Ashland
Petroleum LLC 4 -
Other income 7 5
------ ------
Total revenues 9,494 6,054
------ ------
COSTS AND EXPENSES:
Cost of sales (excludes items shown below) 7,278 4,554
Selling, general and administrative expenses 71 52
Depreciation, depletion and amortization 321 308
Taxes other than income taxes 1,163 1,025
Exploration expenses 45 63
Inventory market valuation credits - (349)
------ ------
Total costs and expenses 8,878 5,653
------ ------
INCOME FROM OPERATIONS 616 401
Net interest and other financial costs 95 83
Minority interest in income of Marathon Ashland
Petroleum LLC 55 145
------ ------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY LOSS 466 173
Provision for estimated income taxes 169 63
------ ------
INCOME BEFORE EXTRAORDINARY LOSS 297 110
Extraordinary loss on extinguishment of debt,
net of income tax - 5
------ ------
NET INCOME 297 105
Dividends on preferred stock 2 2
------ ------
NET INCOME APPLICABLE TO COMMON STOCKS $295 $103
====== ======
<FN>
Selected notes to financial statements appear on pages 9-16.
</TABLE>
<PAGE> 5
<TABLE>
USX CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF OPERATIONS (Continued) (Unaudited)
INCOME PER COMMON SHARE
------------------------------------------------------------
<CAPTION>
First Quarter Ended
March 31
(Dollars in millions, except per share amounts) 2000 1999
- --------------------------------------------------------------------------------
<S> <C> <C>
APPLICABLE TO MARATHON STOCK:
Net income $254 $119
- Per share - basic and diluted .81 .38
Dividends paid per share .21 .21
Weighted average shares, in thousands
- Basic 312,128 309,029
- Diluted 312,285 309,196
APPLICABLE TO STEEL STOCK:
Income (loss) before extraordinary loss $41 $(11)
- Per share - basic and diluted .45 (.13)
Extraordinary loss, net of income tax - 5
- Per share - basic and diluted - .05
Net income (loss) $41 $(16)
- Per share - basic and diluted .45 (.18)
Dividends paid per share .25 .25
Weighted average shares, in thousands
- Basic 88,422 88,368
- Diluted 88,430 88,368
<FN>
Selected notes to financial statements appear on pages 9-16.
</TABLE>
<PAGE> 6
<TABLE>
USX CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET (Unaudited)
----------------------------------------
<CAPTION>
ASSETS
March 31 December 31
(Dollars in millions) 2000 1999
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $107 $133
Receivables, less allowance for doubtful
accounts of $14 and $12 2,714 2,696
Inventories 2,676 2,627
Deferred income tax benefits 307 303
Other current assets 172 218
------ ------
Total current assets 5,976 5,977
Investments and long-term receivables,
less reserves of $3 and $3 1,330 1,247
Property, plant and equipment, less accumulated
depreciation, depletion and amortization of
$17,064 and $16,799 12,821 12,809
Prepaid pensions 2,699 2,629
Other noncurrent assets 289 300
------ ------
Total assets $23,115 $22,962
====== ======
<FN>
Selected notes to financial statements appear on pages 9-16.
</TABLE>
<PAGE> 7
<TABLE>
USX CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET (Continued) (Unaudited)
--------------------------------------------------
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31 December 31
(Dollars in millions) 2000 1999
- --------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES
Current liabilities:
Notes payable $7 $-
Accounts payable 3,244 3,397
Payroll and benefits payable 457 468
Accrued taxes 367 283
Accrued interest 62 107
Long-term debt due within one year 41 61
------ ------
Total current liabilities 4,178 4,316
Long-term debt, less unamortized discount 4,187 4,222
Deferred income taxes 1,933 1,839
Employee benefits 2,809 2,809
Deferred credits and other liabilities 712 734
Preferred stock of subsidiary 250 250
USX obligated mandatorily redeemable convertible preferred
securities of a subsidiary trust holding solely junior
subordinated convertible debentures of USX 183 183
Minority interest in Marathon Ashland Petroleum LLC 1,811 1,753
STOCKHOLDERS' EQUITY
Preferred stock -
6.50% Cumulative Convertible issued - 2,447,187 shares
and 2,715,287 ($122 and $136 liquidation preference,
respectively) 2 3
Common stocks:
Marathon Stock issued - 311,772,963 shares and
311,767,181 shares 312 312
Steel Stock issued - 88,398,114 shares and
88,397,714 shares 88 88
Securities exchangeable solely into Marathon Stock
issued - 282,839 shares and 288,621 shares - -
Additional paid-in capital 4,664 4,673
Retained earnings 2,014 1,807
Accumulated other comprehensive income (loss) (28) (27)
------ ------
Total stockholders' equity 7,052 6,856
------ ------
Total liabilities and stockholders' equity $23,115 $22,962
====== ======
<FN>
Selected notes to financial statements appear on pages 9-16.
</TABLE>
<PAGE> 8
<TABLE>
USX CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
------------------------------------------------
<CAPTION>
First Quarter Ended
March 31
(Dollars in millions) 2000 1999
- --------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
OPERATING ACTIVITIES:
Net income $297 $105
Adjustments to reconcile to net cash provided
from operating activities:
Extraordinary loss - 5
Minority interest in income of Marathon Ashland
Petroleum LLC 55 145
Depreciation, depletion and amortization 321 308
Exploratory dry well costs 15 31
Inventory market valuation credits - (349)
Pensions and other postretirement benefits (77) (38)
Deferred income taxes 73 35
Gain on ownership change in Marathon Ashland
Petroleum LLC (4) -
Net (gains) losses on disposal of assets (107) 22
Changes in:
Current receivables - sold - 30
- operating turnover (16) (143)
Inventories (49) (106)
Current accounts payable and accrued expenses (124) 190
All other - net (27) (78)
------ ------
Net cash provided from operating activities 357 157
------ ------
INVESTING ACTIVITIES:
Capital expenditures (382) (275)
Disposal of assets 210 23
Restricted cash - withdrawals 127 29
- deposits (186) (19)
Affiliates - investments (32) -
- loans and advances - (20)
- returns and repayments 1 1
All other - net 26 -
------ ------
Net cash used in investing activities (236) (261)
------ ------
FINANCING ACTIVITIES:
Commercial paper and revolving
credit arrangements - net (21) (46)
Other debt - borrowings 231 297
- repayments (255) (29)
Common stock issued - 6
Preferred stock repurchased (11) -
Dividends paid (90) (89)
Distributions to minority shareholder of
Marathon Ashland Petroleum LLC - (103)
------ ------
Net cash provided from (used in)
financing activities (146) 36
------ ------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (1) (1)
------ ------
NET DECREASE IN CASH AND CASH EQUIVALENTS (26) (69)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 133 146
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $107 $77
====== ======
Cash used in operating activities included:
Interest and other financial costs paid (net of
amount capitalized) $(136) $(129)
Income taxes paid (19) (3)
<FN>
Selected notes to financial statements appear on pages 9-16.
</TABLE>
<PAGE> 9
USX CORPORATION AND SUBSIDIARY COMPANIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(Unaudited)
1. The information furnished in these financial statements is unaudited
but, in the opinion of management, reflects all adjustments necessary for a
fair presentation of the results for the periods covered. All such
adjustments are of a normal recurring nature unless disclosed otherwise.
These financial statements, including selected notes, have been prepared in
accordance with the applicable rules of the Securities and Exchange
Commission and do not include all of the information and disclosures
required by generally accepted accounting principles for complete financial
statements. Certain reclassifications of prior year data have been made to
conform to 2000 classifications. Additional information is contained in
the USX Annual Report on Form 10-K for the year ended December 31, 1999.
EITF Topic No. D-88, issued in March 2000, requires companies to
disclose their accounting policy for costs incurred in connection with
planned major maintenance activities. For USX, such costs primarily are
associated with refinery turnarounds in the Marathon Group and blast
furnace relines in the U. S. Steel Group. Costs associated with refinery
turnarounds are expensed in the same annual period as incurred; however,
estimated annual turnaround costs are recognized in income throughout the
year on a pro rata basis. Costs associated with blast furnace relines are
separately capitalized in property, plant and equipment. Such costs are
amortized over their estimated useful life, which is generally the period
until the next scheduled reline.
2. In 1998, Marathon Oil Company (Marathon) and Ashland Inc. (Ashland)
combined the major elements of their refining, marketing and transportation
(RM&T) operations. Marathon transferred certain RM&T assets to Marathon
Ashland Petroleum LLC (MAP), a new consolidated subsidiary. Also, Marathon
acquired certain RM&T net assets from Ashland in exchange for a 38%
interest in MAP. In accordance with MAP closing agreements, Marathon and
Ashland made capital contributions to MAP for environmental improvements.
The closing agreements stipulate that ownership interests in MAP will not
be adjusted as a result of such contributions. Accordingly, Marathon
recognized a gain on ownership change of $4 million in the first quarter of
2000.
3. In 1997, USX sold its stock in Delhi Gas Pipeline Corporation and
other subsidiaries of USX that comprised all of the Delhi Group. The net
proceeds of the sale of $195 million were used to redeem all shares of USX-
Delhi Group Common Stock (Delhi Stock) and were distributed to the holders
thereof on January 26, 1998. After the redemption, 50,000,000 shares of
Delhi Stock remain authorized but unissued.
<PAGE> 10
USX CORPORATION AND SUBSIDIARY COMPANIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
---------------------------------------------------------------
(Unaudited)
4. Inventories are carried at lower of cost or market. Cost of
inventories is determined primarily under the last-in, first-out (LIFO)
method.
<TABLE>
<CAPTION>
(In millions)
------------------------
March 31 December 31
2000 1999
-------- -----------
<S> <C> <C>
Raw materials $796 $830
Semi-finished products 378 392
Finished products 1,342 1,239
Supplies and sundry items 160 166
------ ------
Total (at cost) 2,676 2,627
Less inventory market valuation reserve - -
------ ------
Net inventory carrying value $2,676 $2,627
====== ======
</TABLE>
The inventory market valuation reserve reflects the extent that the
recorded LIFO cost basis of crude oil and refined products inventories
exceeds net realizable value. The reserve is decreased to reflect
increases in market prices and inventory turnover and increased to reflect
decreases in market prices. Changes in the inventory market valuation
reserve result in noncash charges or credits to costs and expenses. For
additional information, see discussion of results of operations in the
Marathon Group's Management's Discussion and Analysis of Financial
Condition and Results of Operations.
5. Total comprehensive income for the first quarter of 2000 was $296
million and $103 million for the first quarter of 1999.
6. The method of calculating net income (loss) per share for the Marathon
Stock and Steel Stock reflects the USX Board of Directors' intent that the
separately reported earnings and surplus of the Marathon Group and the
U. S. Steel Group, as determined consistent with the USX Restated
Certificate of Incorporation, are available for payment of dividends on the
respective classes of stock, although legally available funds and
liquidation preferences of these classes of stock do not necessarily
correspond with these amounts. The financial statements of the Marathon
Group and the U. S. Steel Group, taken together, include all accounts which
comprise the corresponding consolidated financial statements of USX.
Basic net income (loss) per share is calculated by adjusting net
income for dividend requirements of preferred stock and is based on the
weighted average number of common shares outstanding.
Diluted net income (loss) per share assumes conversion of convertible
securities for the applicable periods outstanding and assumes exercise of
stock options, provided in each case, the effect is not antidilutive.
<PAGE> 11
USX CORPORATION AND SUBSIDIARY COMPANIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
---------------------------------------------------------------
(Unaudited)
6. (Continued)
<TABLE>
<CAPTION>
COMPUTATION OF INCOME PER SHARE
First Quarter Ended
March 31
2000 1999
Basic Diluted Basic Diluted
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Marathon Group
- --------------
Net income (millions) $254 $254 $119 $119
====== ====== ====== ======
Shares of common stock outstanding (thousands):
Average number of common shares outstanding 312,128 312,128 309,029 309,029
Effect of dilutive securities - stock options - 157 - 167
------ ------ ------ ------
Average common shares and dilutive effect 312,128 312,285 309,029 309,196
====== ====== ====== ======
Net income per share $.81 $.81 $.38 $.38
====== ====== ====== ======
U. S. Steel Group
- -----------------
Net income (loss) (millions):
Income (loss) before extraordinary loss $43 $43 $(9) $(9)
Dividends on preferred stock 2 2 2 2
Extraordinary loss - - 5 5
------ ------ ------ ------
Net income (loss) applicable to Steel Stock $41 $41 $(16) $(16)
====== ====== ====== ======
Shares of common stock outstanding (thousands):
Average number of common shares outstanding 88,422 88,422 88,368 88,368
Effect of dilutive securities - stock options - 8 - -
------ ------ ------ ------
Average common shares and dilutive effect 88,422 88,430 88,368 88,368
====== ====== ====== ======
Per share:
Income (loss) before extraordinary loss $.45 $.45 $(.13) $(.13)
Extraordinary loss - - .05 .05
------ ------ ------ ------
Net income (loss) $.45 $.45 $(.18) $(.18)
====== ====== ====== ======
</TABLE>
<PAGE> 12
USX CORPORATION AND SUBSIDIARY COMPANIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
---------------------------------------------------------------
(Unaudited)
7. In 1999, USX irrevocably deposited with a trustee the entire 5.5
million common shares it owned in RTI International Metals (RTI). The
deposit of the shares resulted in the satisfaction of USX's obligation
under its 6-3/4% Exchangeable Notes (indexed debt) due February 1, 2000.
Under the terms of the indenture, the trustee exchanged one RTI share for
each note at maturity; therefore, none reverted back to USX.
As a result of the above transaction, USX recorded in the first
quarter of 1999 an extraordinary loss of $5 million, net of a $3 million
income tax benefit, representing prepaid interest expense and the write-off
of unamortized debt issue costs, and a pretax charge of $22 million,
representing the difference between the carrying value of the investment in
RTI and the carrying value of the indexed debt, which is included in net
gains (losses) on disposal of assets.
Additionally, a $13 million credit to adjust the indexed debt to
settlement value at March 31, 1999, is included in net interest and other
financial costs.
In December 1996, USX had issued the $117 million of notes indexed to
the common share price of RTI. At maturity, USX would have been required
to exchange the notes for shares of RTI common stock, or redeem the notes
for the equivalent amount of cash. Since USX's investment in RTI was
attributed to the U. S. Steel Group, the indexed debt was also attributed
to the U. S. Steel Group. USX had a 26% investment in RTI and accounted
for its investment using the equity method of accounting.
8. The items below are included in both revenues and costs and expenses,
resulting in no effect on income.
<TABLE>
<CAPTION>
(In millions)
-------------------
First Quarter Ended
March 31
2000 1999
---- ----
<S> <C> <C>
Matching crude oil and refined product buy/sell
transactions settled in cash $1,055 $872
Consumer excise taxes on petroleum products and
merchandise 1,039 913
</TABLE>
9. The provision for estimated income taxes for the periods reported is
based on tax rates and amounts which recognize management's best estimate
of current and deferred tax assets and liabilities.
<PAGE> 13
USX CORPORATION AND SUBSIDIARY COMPANIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
---------------------------------------------------------------
(Unaudited)
10. The Marathon Group's operations consist of three reportable operating
segments: 1) Exploration and Production (E&P) - explores for and produces
crude oil and natural gas on a worldwide basis; 2) Refining, Marketing and
Transportation (RM&T) - refines, markets and transports crude oil and
petroleum products, primarily in the Midwest and southeastern United States
through MAP; and 3) Other Energy Related Businesses (OERB). OERB is an
aggregation of two segments which fall below the quantitative reporting
thresholds: 1) Natural Gas and Crude Oil Marketing and Transportation -
markets and transports its own and third-party natural gas and crude oil in
the United States; and 2) Power Generation - develops, constructs and
operates independent electric power projects worldwide. The U. S. Steel
Group consists of one operating segment, U. S. Steel (USS). USS is engaged
in the production and sale of steel mill products, coke and taconite
pellets. USS also engages in the following related business activities:
the management of mineral resources, domestic coal mining, engineering and
consulting services, and real estate development and management. The
results of segment operations are as follows:
<TABLE>
<CAPTION>
Total
Marathon
(In millions) E&P RM&T OERB Segments USS Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FIRST QUARTER 2000
Revenues:
Customer $991 $6,495 $350 $7,836 $1,536 $9,372
Intersegment (a) 69 20 19 108 - 108
Intergroup (a) 5 - 5 10 4 14
Equity in earnings (losses) of
unconsolidated affiliates (1) 4 4 7 (7) -
Other 3 10 4 17 14 31
----- ----- ----- ----- ----- -----
Total revenues $1,067 $6,529 $382 $7,978 $1,547 $9,525
===== ===== ===== ===== ===== =====
Segment income $309 $140 $13 $462 $54 $516
===== ===== ===== ===== ===== =====
FIRST QUARTER 1999
Revenues:
Customer $572 $4,179 $82 $4,833 $1,245 $6,078
Intersegment (a) 34 5 9 48 - 48
Intergroup (a) 3 - 4 7 1 8
Equity in earnings (losses) of
unconsolidated affiliates 1 3 8 12 (23) (11)
Other 6 6 3 15 10 25
----- ----- ----- ----- ----- -----
Total revenues $616 $4,193 $106 $4,915 $1,233 $6,148
===== ===== ===== ===== ===== =====
Segment income (loss) $36 $45 $15 $96 $(3) $93
===== ===== ===== ===== ===== =====
<FN>
(a)Intersegment and intergroup sales and transfers were conducted under terms
comparable to those with unrelated parties.
</TABLE>
<PAGE> 14
USX CORPORATION AND SUBSIDIARY COMPANIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
---------------------------------------------------------------
(Unaudited)
10. (Continued)
The following schedule reconciles segment revenues and income (loss) to
amounts reported in the Marathon and U. S. Steel Groups' financial
statements:
<TABLE>
<CAPTION>
Marathon Group U. S. Steel Group
First Quarter First Quarter
Ended Ended
March 31 March 31
(In millions) 2000 1999 2000 1999
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Revenues of reportable segments $7,978 $4,915 $1,547 $1,233
Items not allocated to segments:
Gain on ownership change in MAP 4 - - -
Other 87 (16) - (22)
Elimination of intersegment revenues (108) (48) - -
------ ------ ----- -----
Total Group revenues $7,961 $4,851 $1,547 $1,211
====== ====== ====== ======
Income:
Income (loss) for reportable segments $462 $96 $54 $(3)
Items not allocated to segments:
Gain on ownership change in MAP 4 - - -
Administrative expenses (28) (26) (6) (5)
Net pension credits - - 65 52
Costs related to former business activities - - (22) (24)
Inventory market valuation adjustments - 349 - -
Other (a) 87 (16) - (22)
------ ------ ------ ------
Total Group income (loss) from operations $525 $403 $91 $(2)
====== ====== ====== ======
<FN>
(a) Represents for the Marathon Group in 2000, gain on disposition of
Angus/Stellaria and in 1999, estimated loss on sale of Scurlock Permian
LLC. For the U. S. Steel Group in 1999, represents loss on investment in
RTI stock used to satisfy indexed debt obligations.
Effective January 1, 2000, USX changed its methodology for allocating
the pension credit or cost associated with its principal U. S. Steel
pension plans for internal business performance reporting purposes. Since
future contributions to these plans are expected to be minimal due to their
overfunded position, no pension credit or cost is allocated to the U. S.
Steel operating segment. Prior years' segment income or loss has been
restated to conform with the current allocation methodology.
</TABLE>
<PAGE> 15
USX CORPORATION AND SUBSIDIARY COMPANIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
---------------------------------------------------------------
(Unaudited)
11. At March 31, 2000, USX had $100 million in borrowings against its
$2,350 million long-term revolving credit agreement.
At March 31, 2000, MAP had no borrowings against its $500 million
revolving credit agreements with banks and had $7 million outstanding
against its $190 million revolving credit agreement with Ashland.
USX has a short-term credit agreement totaling $125 million at March
31, 2000. Interest is based on the bank's prime rate or London Interbank
Offered Rate (LIBOR), and carries a facility fee of .15%. Certain other
banks provide short-term lines of credit totaling $150 million which
require a .125% fee or maintenance of compensating balances of 3%. At
March 31, 2000, there were no borrowings against these facilities.
In the event of a change in control of USX, debt obligations totaling
$3,191 million at March 31, 2000, may be declared immediately due and
payable.
12. USX is the subject of, or a party to, a number of pending or
threatened legal actions, contingencies and commitments involving a variety
of matters, including laws and regulations relating to the environment.
Certain of these matters are discussed below. The ultimate resolution of
these contingencies could, individually or in the aggregate, be material to
the consolidated financial statements. However, management believes that
USX will remain a viable and competitive enterprise even though it is
possible that these contingencies could be resolved unfavorably. See
discussion of Liquidity in USX Consolidated Management's Discussion and
Analysis of Financial Condition and Results of Operations.
USX is subject to federal, state, local and foreign laws and
regulations relating to the environment. These laws generally provide for
control of pollutants released into the environment and require responsible
parties to undertake remediation of hazardous waste disposal sites.
Penalties may be imposed for noncompliance. At March 31, 2000, and
December 31, 1999, accrued liabilities for remediation totaled $172 million
and $170 million, respectively. It is not presently possible to estimate
the ultimate amount of all remediation costs that might be incurred or the
penalties that may be imposed. Receivables for recoverable costs from
certain states, under programs to assist companies in cleanup efforts
related to underground storage tanks at retail marketing outlets, were $55
million at March 31, 2000, and $52 million at December 31, 1999.
For a number of years, USX has made substantial capital expenditures
to bring existing facilities into compliance with various laws relating to
the environment. In the first quarter of 2000 and for the years 1999 and
1998, such capital expenditures totaled $16 million, $78 million and $132
million, respectively. USX anticipates making additional such expenditures
in the future; however, the exact amounts and timing of such expenditures
are uncertain because of the continuing evolution of specific regulatory
requirements.
<PAGE> 16
USX CORPORATION AND SUBSIDIARY COMPANIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
---------------------------------------------------------------
(Unaudited)
12. (Continued)
At March 31, 2000, and December 31, 1999, accrued liabilities for
platform abandonment and dismantlement totaled $157 million and $152
million, respectively.
Guarantees by USX of the liabilities of affiliated entities totaled
$219 million at March 31, 2000. In the event that any defaults of
guaranteed liabilities occur, USX has access to its interest in the assets
of most of the affiliates to reduce losses resulting from these guarantees.
As of March 31, 2000, the largest guarantee for a single affiliate was $131
million.
At March 31, 2000, USX's pro rata share of obligations of LOOP LLC and
various pipeline affiliates secured by throughput and deficiency agreements
totaled $145 million. Under the agreements, USX is required to advance
funds if the affiliates are unable to service debt. Any such advances are
prepayments of future transportation charges.
Contract commitments to acquire property, plant and equipment and long
-term investments at March 31, 2000, totaled $600 million compared with
$568 million at December 31, 1999.
<PAGE> 17
<TABLE>
<CAPTION>
USX CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
TOTAL ENTERPRISE BASIS - (Unaudited)
CONTINUING OPERATIONS
----------------------------------------------------------
First Quarter Ended
March 31 Year Ended December 31
- --------------------- -------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
2000 1999 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ---- ----
5.16 3.78 4.20 3.45 3.63 3.41 1.46
==== ==== ==== ==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
USX CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
TOTAL ENTERPRISE BASIS - (Unaudited)
CONTINUING OPERATIONS
-------------------------------------------------
First Quarter Ended
March 31 Year Ended December 31
- --------------------- -------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
2000 1999 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ---- ----
5.29 3.91 4.32 3.56 3.79 3.65 1.58
==== ==== ==== ==== ==== ==== ====
</TABLE>
<PAGE> 18
USX CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
USX Corporation ("USX") is a diversified company that is principally
engaged in the energy business through its Marathon Group and in the steel
business through its U. S. Steel Group. The following discussion should be read
in conjunction with the first quarter 2000 USX Consolidated Financial Statements
and selected notes. For income per common share amounts applicable to USX's two
classes of common stock, USX-Marathon Group Common Stock ("Marathon Stock") and
USX-U. S. Steel Group Common Stock ("Steel Stock"), see Consolidated Statement
of Operations - Income per Common Share. For individual Group results, see
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the Marathon Group and the U. S. Steel Group. For operating
statistics, see Supplemental Statistics following Management's Discussion and
Analysis of Financial Condition and Results of Operations for each of the
respective Groups.
Certain sections of Management's Discussion and Analysis include forward-
looking statements concerning trends or events potentially affecting USX. These
statements typically contain words such as "anticipates", "believes",
"estimates", "expects" or similar words indicating that future outcomes are
uncertain. 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
the forward-looking statements. For additional risk factors affecting the
businesses of USX, see Supplementary Data - Disclosures About Forward-Looking
Statements in the USX 1999 Form 10-K.
<PAGE> 19
USX CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Results of Operations
- ---------------------
Revenues for the first quarter of 2000 and 1999 are set forth in the
following table:
<TABLE>
<CAPTION>
First Quarter Ended
March 31
(Dollars in millions) 2000 1999
- --------------------------------------------------------------------------------
<S> <C> <C>
Revenues
Marathon Group $7,961 $4,851
U. S. Steel Group 1,547 1,211
Eliminations (14) (8)
------ ------
Total USX Corporation revenues 9,494 6,054
Less:
Excise taxes (a)(b) 1,039 913
Matching buy/sell transactions (a)(c) 1,055 872
------ ------
Revenues adjusted to exclude above items $7,400 $4,269
====== ======
- ------
(a) Included in both revenues and costs and expenses for the Marathon Group and
USX Consolidated.
(b) Consumer excise taxes on petroleum products and merchandise.
(c) Matching crude oil and refined products buy/sell transactions settled in
cash.
</TABLE>
Revenues (excluding matching buy/sell transactions and excise taxes)
increased $3,131 million in the first quarter of 2000 compared with the first
quarter of 1999, reflecting increases of 91 percent for the Marathon Group and
28 percent for the U. S. Steel Group.
For discussion of revenues by Group, see Management's Discussion and
Analysis of Financial Condition and Results of Operations for the Marathon Group
and the U. S. Steel Group.
<PAGE> 20
USX CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Income from operations for the first quarter of 2000 and 1999 are set forth
in the following table:
<TABLE>
<CAPTION>
First Quarter Ended
March 31
(Dollars in millions) 2000 1999
- --------------------------------------------------------------------------------
<S> <C> <C>
Reportable segments
Marathon Group
Exploration & production $309 $36
Refining, marketing & transportation 140 45
Other energy related businesses 13 15
---- ----
Income for reportable segments - Marathon Group 462 96
U. S. Steel Group
U. S. Steel operations 54 (3)
---- ----
Income for reportable segments - USX Corporation $516 $93
Items not allocated to reportable segments:
Marathon Group 63 307
U. S. Steel Group 37 1
---- ----
Total income from operations - USX Corporation $616 $401
</TABLE>
Income for reportable segments increased $423 million in the first quarter
of 2000 as compared with the first quarter of 1999, reflecting increases of
$366 million for the Marathon Group reportable segments and $57 million for the
U. S. Steel Group reportable segment.
For discussion of income from operations by segment, see Management's
Discussion and Analysis of Financial Condition and Results of Operations for the
Marathon Group and the U. S. Steel Group.
<PAGE> 21
USX CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Net interest and other financial costs for the first quarter of 2000 and
1999 are set forth in the following table:
<TABLE>
<CAPTION>
First Quarter Ended
March 31
(Dollars in millions) 2000 1999
- --------------------------------------------------------------------------------
<S> <C> <C>
Net interest and other financial costs $95 $83
Less:
Favorable adjustment to carrying
value of indexed debt (a) - (13)
------ ------
Net interest and other financial costs
adjusted to exclude above item $95 $96
====== ======
- ------
<FN>
(a) In December 1996, USX issued $117 million of 6-3/4% Exchangeable Notes Due
February 1, 2000 ("indexed debt"), mandatorily exchangeable at maturity for
common stock of RTI International Metals, Inc. ("RTI") or for the
equivalent amount of cash, at USX's option. The carrying value of indexed
debt was adjusted quarterly to settlement value based on changes in the
value of RTI common stock. Any resulting adjustment was charged or
credited to income and included in interest and other financial costs. In
1999, USX satisfied its obligation by irrevocably depositing with a trustee
the RTI common stock. For further discussion, see Note 7 to the USX
Consolidated Financial Statements.
</TABLE>
The minority interest in income of MAP, which represents Ashland's 38
percent ownership interest, decreased $90 million in the first quarter of 2000
from the comparable 1999 period, primarily due to the favorable effects in 1999
of the IMV reserve adjustment, partially offset by higher RM&T segment income.
For further discussion, see Management Discussion and Analysis of Financial
Condition and Results of Operations for the Marathon Group.
Provisions for estimated income taxes of $169 million in the first quarter
of 2000 and $63 million for the first quarter of 1999, were based on tax rates
and amounts that recognize management's best estimate of current and deferred
tax assets and liabilities.
The extraordinary loss on extinguishment of debt of $5 million (net of a
$3 million income tax benefit) in the first quarter of 1999 represents prepaid
interest expense and the write-off of unamortized debt issue costs resulting
from the satisfaction of USX's obligation of its indexed debt. For further
discussion, see Note 7 to the USX Consolidated Financial Statements.
Net income in the first quarter of 2000 was $297 million, an increase of
$192 million from the first quarter of 1999, reflecting increases of $135
million and $57 million for the Marathon Group and the U. S. Steel Group,
respectively.
Dividends to Stockholders
- -------------------------
On April 25, 2000, the USX Board of Directors (the "Board") declared
dividends of 21 cents per share on Marathon Stock and 25 cents per share on
Steel Stock, payable June 10, 2000, to stockholders of record at the close of
business on May 17, 2000. The Board also declared a dividend of $0.8125 per
share on USX's 6.50% Cumulative Convertible Preferred Stock, payable June 30,
2000, to stockholders of record at the close of business on May 31, 2000.
<PAGE> 22
USX CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
On April 25, 2000, Marathon Oil Canada Limited, an indirect subsidiary of
Marathon Oil Company, declared a dividend of CDN $0.3087 per share on its non-
voting Exchangeable Shares, payable June 10, 2000, to stockholders of record at
the close of business on May 17, 2000.
Cash Flows
- ----------
Cash and cash equivalents totaled $107 million at March 31, 2000, compared
with $77 million at March 31, 1999, reflecting an increase of $43 million for
the Marathon Group, partially offset by a $13 million decrease for the U. S.
Steel Group.
Net cash provided from operating activities totaled $357 million in the
first quarter of 2000, compared with $157 million in the first quarter of 1999.
The $200 million increase mainly reflected improved net income.
Capital expenditures for property, plant and equipment in the first quarter
of 2000 were $382 million, compared with $275 million in the first quarter of
1999. For further details, see Management's Discussion and Analysis of Financial
Condition and Results of Operations for each of the respective Groups.
Cash from disposal of assets in the first quarter of 2000 was $210 million,
compared with $23 million in the first quarter of 1999. Proceeds in 2000 were
mainly from the disposition of Marathon's 33.34 percent interest in the
Angus/Stellaria development in the Gulf of Mexico.
The net change in restricted cash was a net deposit of $59 million in the
first quarter of 2000 compared with a net withdrawal of $10 million in the first
quarter of 1999. Restricted cash in both periods primarily reflected the net
effects of cash deposited and withdrawn from domestic production property
dispositions and acquisitions.
Net investments in affiliates were $31 million in the first quarter of
2000, compared with $19 million in the first quarter of 1999. Cash outflows in
both periods primarily reflected continued development spending by Marathon for
the Sakhalin II project in Russia.
Financial obligations (the net of commercial paper and revolving credit
arrangements, debt borrowings and repayments on the Consolidated Statement of
Cash Flows) decreased $45 million in the first quarter of 2000 compared with an
increase of $222 million in the first quarter of 1999. The decrease in 2000
reflects net cash provided from operating activities and asset sales in excess
of cash used for capital expenditures and dividend payments.
Contract commitments to acquire property, plant and equipment and long-term
investments at March 31, 2000, totaled $600 million compared with $568 million
at December 31, 1999.
<PAGE> 23
USX CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Debt and Preferred Stock Ratings
- --------------------------------
On May 8, 2000, Standard & Poor's raised its rating for USX senior debt to
BBB. USX's preferred stock rating is BB+.
Liquidity
- ---------
At March 31, 2000, USX had $100 million of borrowings against its $2,350
million long-term revolving credit agreement. At March 31, 2000, MAP had no
borrowings against its bank revolving credit agreements. MAP's $100 million
bank revolving credit facility terminates in July 2000. MAP expects to extend
the facility prior to its termination. MAP's $400 million bank revolving credit
facility terminates in July 2003.
USX management believes that its short-term and long-term liquidity is
adequate to satisfy its obligations as of March 31, 2000, and to complete
currently authorized capital spending programs. Future requirements for USX's
business needs, including the funding of capital expenditures, debt maturities
for the balance of 2000 and years 2001 and 2002, and any amounts that may
ultimately be paid in connection with contingencies (which are discussed in Note
12 to the USX Consolidated Financial Statements), are expected to be financed by
a combination of internally generated funds, proceeds from the sale of stock,
borrowings and other external financing sources.
USX management's opinion concerning liquidity and USX's ability to avail
itself in the future of the financing options mentioned in the above forward-
looking statements are based on currently available information. To the extent
that this information proves to be inaccurate, future availability of financing
may be adversely affected. Factors that could affect the availability of
financing include the performance of each Group (as measured by various factors
including cash provided from operating activities), the state of worldwide debt
and equity markets, investor perceptions and expectations of past and future
performance, the overall U.S. financial climate, and, in particular, with
respect to borrowings, by levels of USX's outstanding debt and credit ratings by
rating agencies.
Environmental Matters, Contingencies and Commitments
- ----------------------------------------------------
USX has incurred and will continue to incur substantial capital, operating
and maintenance, and remediation expenditures as a result of environmental laws
and regulations. To the extent these expenditures, as with all costs, are not
ultimately reflected in the prices of USX's products and services, operating
results will be adversely affected. USX believes that domestic competitors of
the U. S. Steel Group and substantially all the competitors of the Marathon
Group are subject to similar environmental laws and regulations. However, the
specific impact on each competitor may vary depending on a number of factors,
including the age and location of its operating facilities, marketing areas,
production processes and the specific products and services it provides.
<PAGE> 24
USX CORPORATION AND SUBSIDIARY COMPANIES
MANGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
USX has been notified that it is a potentially responsible party ("PRP") at
43 waste sites under the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA") as of March 31, 2000. In addition, there are 19 sites
where USX has received information requests or other indications that USX may be
a PRP under CERCLA but where sufficient information is not presently available
to confirm the existence of liability. There are also 141 additional sites,
excluding retail gasoline stations, where remediation is being sought under
other environmental statutes, both federal and state, or where private parties
are seeking remediation through discussions or litigation. Of these sites, 17
were associated with properties conveyed to MAP by Ashland for which Ashland has
retained liability for all costs associated with remediation. At many of these
sites, USX is one of a number of parties involved and the total cost of
remediation, as well as USX's share thereof, is frequently dependent upon the
outcome of investigations and remedial studies. USX accrues for environmental
remediation activities when the responsibility to remediate is probable and the
amount of associated costs is reasonably determinable. As environmental
remediation matters proceed toward ultimate resolution or as additional
remediation obligations arise, charges in excess of those previously accrued
may be required.
In October 1998, the National Enforcement Investigations Center and Region
V of the United States Environmental Protection Agency conducted a multi-media
inspection of MAP's Detroit refinery. Subsequently, in November 1998, Region V
conducted a multi-media inspection of MAP's Robinson refinery. These
inspections covered compliance with the Clean Air Act (New Source Performance
Standards, Prevention of Significant Deterioration, and the National Emission
Standards for Hazardous Air Pollutants for Benzene), the Clean Water Act (Permit
exceedances for the Waste Water Treatment Plant), reporting obligations under
the Emergency Planning and Community Right to Know Act and the handling of
process waste. Although MAP has been advised as to certain compliance issues
regarding MAP's Detroit refinery, complete findings on the results of the
inspections have not been issued. Thus far, MAP has been served with two
Notices of Violation ("NOV")and three Findings of Violation in connection with
the multi-media inspections at its Detroit refinery. The Detroit notices allege
violations of the Michigan State Air Pollution Regulation, the EPA New Source
Performance Standards and National Emission Standards for Hazardous Air
Pollutant for benzene. On March 6, 2000, MAP received its first NOV arising out
of the multi-media inspection of the Robinson Refinery conducted in November
1998. The NOV is for alleged Resource Conservation and Recovery Act (hazardous
waste) violations. MAP can contest the factual and legal basis for the
allegations prior to the EPA taking enforcement action. At this time, it is not
known when complete findings on the results of these multi-media inspections
will be issued.
USX is the subject of, or a party to, a number of pending or threatened
legal actions, contingencies and commitments involving a variety of matters,
including laws and regulations relating to the environment (see Note 16 to the
USX Consolidated Financial Statements for a discussion of certain of these
matters). The ultimate resolution of these contingencies could, individually or
in the aggregate, be material to the USX Consolidated Financial Statements.
However, management believes that USX will remain a viable and competitive
enterprise even though it is possible that these contingencies could be resolved
unfavorably. See discussion of Liquidity herein.
Outlook
- -------
See Outlook in Management's Discussion and Analysis of Financial Condition
and Results of Operations for the Marathon Group and the U. S. Steel Group.
<PAGE> 25
USX CORPORATION AND SUBSIDIARY COMPANIES
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
-----------------------------------------
Commodity Price Risk and Related Risks
- --------------------------------------
Sensitivity analysis of the incremental effects on pretax income of
hypothetical 10% and 25% changes in commodity prices for open derivative
commodity instruments are provided in the following table: (a)
<TABLE>
<CAPTION>
Incremental Decrease
in Pretax Income
Assuming a Hypothetical
Price Change of:
10% 25% 10% 25%
March 31, March 31,
(Dollars in millions) 2000 1999
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Derivative Commodity Instruments
Marathon Group (b) (c)
Crude oil
Trading (f) $- $2.5 (e) $- $-
Other than trading (f) 22.7 64.8 (d) 4.8 28.3(e)
Natural gas
Trading - - - -
Other than trading (f) 4.0 13.6 (e) 9.2 23.7(e)
Refined products
Trading - - - -
Other than trading (f) 3.9 10.6 (d) 4.1 10.8(e)
U. S. Steel Group
Natural gas
Other than trading $- $- $2.4 $6.0(e)
Zinc
Other than trading .9 2.2 (e) 2.0 4.6 (e)
<FN>
(a) Gains and losses on derivative commodity instruments used for other
than trading activities are generally offset by price changes in the
underlying commodity. Effects of these offsets are not reflected in the
sensitivity analyses. Amounts reflect the estimated incremental effect
on pretax income of hypothetical 10% and 25% changes in closing commodity
prices for each open contract position at March 31, 2000, and March 31,
1999. Marathon Group and U. S. Steel Group management evaluate their
portfolios of derivative commodity instruments on an ongoing basis and
add or revise strategies to reflect anticipated market conditions and
changes in risk profiles. Changes to the portfolios subsequent to March
31, 2000, may cause future pretax income effects to differ from those
presented in the table.
</TABLE>
<PAGE> 26
USX CORPORATION AND SUBSIDIARY COMPANIES
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
-----------------------------------------
(b) The number of net open contracts varied throughout first quarter
2000, from a low of 15,084 contracts at January 10, to a high of 27,135
contracts at January 21, and averaged 20,246 for the quarter. The
derivative commodity instruments used and hedging positions taken also
varied throughout first quarter 2000, and will continue to vary in the
future. Because of these variations in the composition of the portfolio
over time, the number of open contracts, by itself, cannot be used to
predict future income effects.
(c) The calculation of sensitivity amounts for basis swaps assumes that
the physical and paper indices are perfectly correlated. Gains and
losses on options are based on changes in intrinsic value only.
(d) Price increase.
(e) Price decrease.
(f) The direction of the price change used in calculating the
sensitivity amount for each commodity reflects that which would result in
the largest incremental decrease in pretax income when applied to the
derivative commodity instruments used to hedge that commodity.
Interest Rate Risk
- ------------------
As of March 31, 2000, the discussion of USX's interest rate risk has not
changed materially from that presented in Quantitative and Qualitative
Disclosures About Market Risk included in USX's 1999 Form 10-K.
Foreign Currency Exchange Rate Risk
- -----------------------------------
As of March 31, 2000, the discussion of USX's foreign currency exchange
rate risk has not changed materially from that presented in Quantitative and
Qualitative Disclosures About Market Risk included in USX's 1999 Form 10-K.
Safe Harbor
- -----------
USX's quantitative and qualitative disclosures about market risk include
forward-looking statements with respect to management's opinion about risks
associated with USX's use of derivative instruments. These statements are based
on certain assumptions with respect to market prices and industry supply and
demand for crude oil, natural gas, refined products, steel products and certain
raw materials. To the extent that these assumptions prove to be inaccurate,
future outcomes with respect to USX's hedging programs may differ materially
from those discussed in the forward-looking statements.
<PAGE> 27
<TABLE>
USX CORPORATION
FINANCIAL STATISTICS (Unaudited)
--------------------------------
<CAPTION>
First Quarter
Ended
March 31
----------------
(Dollars in Millions) 2000 1999
- ---------------------------------------------------------------------------------
<S> <C> <C>
REVENUES
Marathon Group $7,961 $4,851
U. S. Steel Group 1,547 1,211
Eliminations (14) (8)
------- -------
Total $9,494 $6,054
INCOME (LOSS) FROM OPERATIONS
Marathon Group $525 $403
U. S. Steel Group 91 (2)
----- -----
Total $616 $401
CAPITAL EXPENDITURES
Marathon Group $337 $196
U. S. Steel Group 45 79
----- -----
Total $382 $275
INVESTMENTS (RETURNS) & OTHER AFFILIATE ACTIVITY - NET
Marathon Group $20 $19
U. S. Steel Group 11 -
----- -----
Total $31 $19
</TABLE>
<PAGE> 28
Part I - Financial Information (Continued):
B. Marathon Group
<TABLE>
MARATHON GROUP OF USX CORPORATION
STATEMENT OF OPERATIONS (Unaudited)
-----------------------------------
<CAPTION>
First Quarter Ended
March 31
(Dollars in millions) 2000 1999
- --------------------------------------------------------------------------------
<S> <C> <C>
REVENUES:
Sales $7,846 $4,840
Dividend and affiliate income 11 16
Net gains (losses) on disposal of assets 92 (10)
Gain on ownership change in Marathon Ashland
Petroleum LLC 4 -
Other income 8 5
------ ------
Total revenues 7,961 4,851
------ ------
COSTS AND EXPENSES:
Cost of sales (excludes items shown below) 5,905 3,405
Selling, general and administrative expenses 134 122
Depreciation, depletion and amortization 246 237
Taxes other than income taxes 1,106 970
Exploration expenses 45 63
Inventory market valuation credits - (349)
------ ------
Total costs and expenses 7,436 4,448
------ ------
INCOME FROM OPERATIONS 525 403
Net interest and other financial costs 71 75
Minority interest in income of Marathon Ashland
Petroleum LLC 55 145
------ ------
INCOME BEFORE INCOME TAXES 399 183
Provision for estimated income taxes 145 64
------ ------
NET INCOME $254 $119
====== ======
MARATHON STOCK DATA:
Net income per share - basic and diluted $.81 $.38
Dividends paid per share .21 .21
Weighted average shares, in thousands
- Basic 312,128 309,029
- Diluted 312,285 309,196
<FN>
Selected notes to financial statements appear on pages 31-37.
</TABLE>
<PAGE> 29
<TABLE>
MARATHON GROUP OF USX CORPORATION
BALANCE SHEET (Unaudited)
---------------------------------
<CAPTION>
March 31 December 31
(Dollars in millions) 2000 1999
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $102 $111
Receivables, less allowance for doubtful
accounts of $2 and $2 1,837 1,866
Inventories 1,918 1,884
Deferred income tax benefits 26 23
Other current assets 169 218
------ ------
Total current assets 4,052 4,102
Investments and long-term receivables 855 772
Property, plant and equipment, less accumulated
depreciation, depletion and amortization of
$10,782 and $10,567 10,343 10,293
Prepaid pensions 225 225
Other noncurrent assets 297 313
------ ------
Total assets $15,772 $15,705
====== ======
LIABILITIES
Current liabilities:
Notes payable $7 $-
Accounts payable 2,551 2,659
Payroll and benefits payable 134 146
Income taxes payable 37 97
Accrued taxes 198 107
Accrued interest 51 92
Long-term debt due within one year 32 48
------ ------
Total current liabilities 3,010 3,149
Long-term debt, less unamortized discount 3,256 3,320
Deferred income taxes 1,515 1,495
Employee benefits 578 564
Deferred credits and other liabilities 431 440
Preferred stock of subsidiary 184 184
Minority interest in Marathon Ashland Petroleum LLC 1,811 1,753
COMMON STOCKHOLDERS' EQUITY 4,987 4,800
------ ------
Total liabilities and common stockholders' equity $15,772 $15,705
====== ======
<FN>
Selected notes to financial statements appear on pages 31-37.
</TABLE>
<PAGE> 30
<TABLE>
<CAPTION>
MARATHON GROUP OF USX CORPORATION
STATEMENT OF CASH FLOWS (Unaudited)
-----------------------------------
First Quarter Ended
March 31
(Dollars in millions) 2000 1999
- --------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
OPERATING ACTIVITIES:
Net income $254 $119
Adjustments to reconcile to net cash provided from
operating activities:
Minority interest in income of Marathon Ashland
Petroleum LLC 55 145
Depreciation, depletion and amortization 246 237
Exploratory dry well costs 15 31
Inventory market valuation credits - (349)
Pensions and other postretirement benefits (2) 13
Deferred income taxes 4 13
Gain on ownership change in
Marathon Ashland Petroleum LLC (4) -
Net (gains) losses on disposal of assets (92) 10
Changes in:
Current receivables 31 (107)
Inventories (34) (92)
Current accounts payable and accrued expenses (128) 158
All other - net (24) (101)
------ ------
Net cash provided from operating activities 321 77
------ ------
INVESTING ACTIVITIES:
Capital expenditures (337) (196)
Disposal of assets 197 21
Restricted cash - withdrawals 126 29
- deposits (185) (15)
Affiliates - investments (21) -
- loans and advances - (20)
- returns and repayments 1 1
All other - net 25 -
------ ------
Net cash used in investing activities (194) (180)
------ ------
FINANCING ACTIVITIES:
Increase (decrease) in Marathon Group's portion of USX
consolidated debt (78) 188
Specifically attributed debt - borrowings 231 138
- repayments (222) (138)
Marathon Stock issued - 6
Dividends paid (66) (65)
Distributions to minority shareholder of
Marathon Ashland Petroleum LLC - (103)
------ ------
Net cash provided from (used in)
financing activities (135) 26
------ ------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (1) (1)
------ ------
NET DECREASE IN CASH AND CASH EQUIVALENTS (9) (78)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 111 137
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $102 $59
====== ======
Cash used in operating activities included:
Interest and other financial costs paid (net of
amount capitalized) $(111) $(104)
Income taxes paid, including settlements with the
U. S. Steel Group (113) (1)
<FN>
Selected notes to financial statements appear on pages 31-37.
</TABLE>
<PAGE> 31
MARATHON GROUP OF USX CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS
--------------------------------------
(Unaudited)
1. The information furnished in these financial statements is unaudited
but, in the opinion of management, reflects all adjustments necessary for a
fair presentation of the results for the periods covered. All such
adjustments are of a normal recurring nature unless disclosed otherwise.
These financial statements, including selected notes, have been prepared in
accordance with the applicable rules of the Securities and Exchange
Commission and do not include all of the information and disclosures
required by generally accepted accounting principles for complete financial
statements. Certain reclassifications of prior year data have been made to
conform to 2000 classifications. Additional information is contained in
the USX Annual Report on Form 10-K for the year ended December 31, 1999.
EITF Topic No. D-88, issued in March 2000, requires companies to disclose
their accounting policy for costs incurred in connection with planned major
maintenance activities. For the Marathon Group, such costs primarily are
associated with refinery turnarounds, which are expensed in the same annual
period as incurred; however, estimated annual turnaround costs are
recognized in income throughout the year on a pro rata basis.
2. The financial statements of the Marathon Group include the financial
position, results of operations and cash flows for the businesses of
Marathon Oil Company (Marathon) and certain other subsidiaries of USX, and
a portion of the corporate assets and liabilities and related transactions
which are not separately identified with ongoing operating units of USX.
These financial statements are prepared using the amounts included in the
USX consolidated financial statements. Corporate amounts reflected in
these financial statements are determined based upon methods which
management believes to be reasonable. The accounting policies applicable
to the preparation of the financial statements of the Marathon Group may be
modified or rescinded in the sole discretion of the Board of Directors of
USX (Board), although the Board has no present intention to do so. The
Board may also adopt additional policies depending on the circumstances.
Although the financial statements of the Marathon Group and the U. S.
Steel Group separately report the assets, liabilities (including contingent
liabilities) and stockholders' equity of USX attributed to each such Group,
such attribution of assets, liabilities (including contingent liabilities)
and stockholders' equity between the Marathon Group and the U. S. Steel
Group for the purpose of preparing their respective financial statements
does not affect legal title to such assets and responsibility for such
liabilities. Holders of USX-Marathon Group Common Stock (Marathon Stock)
and USX-U. S. Steel Group Common Stock (Steel Stock) are holders of common
stock of USX and continue to be subject to all the risks associated with an
investment in USX and all of its businesses and liabilities. Financial
impacts arising from one Group that affect the overall cost of USX's
capital could affect the results of operations and financial condition of
the other Group. In addition, net losses of either Group, as well as
dividends or distributions on any class of USX Common Stock or series of
Preferred Stock and repurchases of any class of USX Common Stock or series
of Preferred Stock at prices in excess of par or stated value, will reduce
the funds of USX legally available for payment of dividends on both classes
of Common Stock. Accordingly, the USX consolidated financial information
should be read in connection with the Marathon Group financial information.
<PAGE> 32
MARATHON GROUP OF USX CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)
2. (Continued)
The financial statement provision for estimated income taxes and
related tax payments or refunds have been reflected in the Marathon Group
and the U. S. Steel Group financial statements in accordance with USX's tax
allocation policy for such groups. In general, such policy provides that
the consolidated tax provision and related tax payments or refunds are
allocated between the Marathon Group and the U. S. Steel Group for group
financial statement purposes, based principally upon the financial income,
taxable income, credits, preferences and other amounts directly related to
the respective groups.
The provision for estimated income taxes for the Marathon Group is
based on tax rates and amounts which recognize management's best estimate
of current and deferred tax assets and liabilities. Differences between
the combined interim tax provisions of the Marathon and U. S. Steel Groups
and USX consolidated are allocated to each group based on the relationship
of the individual group provisions to the combined interim provisions.
3. The method of calculating net income (loss) per common share for the
Marathon Stock and Steel Stock reflects the Board's intent that the
separately reported earnings and surplus of the Marathon Group and the
U. S. Steel Group, as determined consistent with the USX Restated
Certificate of Incorporation, are available for payment of dividends on the
respective classes of stock, although legally available funds and
liquidation preferences of these classes of stock do not necessarily
correspond with these amounts.
Basic net income per share is based on the weighted average number of
common shares outstanding.
Diluted net income per share assumes conversion of convertible
securities for the applicable periods outstanding and assumes exercise of
stock options, provided in each case, the effect is not antidilutive.
See Note 6 of the Notes to USX Consolidated Financial Statements for
the computation of income per share.
4. In 1998, Marathon and Ashland Inc. (Ashland) combined the major
elements of their refining, marketing and transportation (RM&T) operations.
Marathon transferred certain RM&T assets to Marathon Ashland Petroleum LLC
(MAP), a new consolidated subsidiary. Also, Marathon acquired certain RM&T
net assets from Ashland in exchange for a 38% interest in MAP. In
accordance with MAP closing agreements, Marathon and Ashland made capital
contributions to MAP for environmental improvements. The closing
agreements stipulate that ownership interests in MAP will not be adjusted
as a result of such contributions. Accordingly, Marathon recognized a gain
on ownership change of $4 million in the first quarter of 2000.
<PAGE> 33
MARATHON GROUP OF USX CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)
5. The items below are included in both revenues and costs and expenses,
resulting in no effect on income.
<TABLE>
<CAPTION>
(In millions)
-------------------
First Quarter Ended
March 31
2000 1999
---- ----
<S> <C> <C>
Matching crude oil and refined product buy/sell
transactions settled in cash $1,055 $872
Consumer excise taxes on petroleum products and
merchandise 1,039 913
</TABLE>
6. The Marathon Group's total comprehensive income was $252 million for
the first quarter of 2000 and $121 million for the first quarter of 1999.
7. The Marathon Group's operations consist of three reportable operating
segments: 1) Exploration and Production (E&P) - explores for and produces
crude oil and natural gas on a worldwide basis; 2) Refining, Marketing and
Transportation (RM&T) - refines, markets and transports crude oil and
petroleum products, primarily in the Midwest and southeastern United States
through MAP; and 3) Other Energy Related Businesses (OERB). OERB is an
aggregation of two segments which fall below the quantitative reporting
thresholds: 1) Natural Gas and Crude Oil Marketing and Transportation -
markets and transports its own and third-party natural gas and crude oil in
the United States; and 2) Power Generation - develops, constructs and
operates independent electric power projects worldwide. The results of
segment operations are as follows:
<PAGE> 34
MARATHON GROUP OF USX CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)
7. (Continued)
<TABLE>
<CAPTION>
Total
(In millions) E&P RM&T OERB Segments
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FIRST QUARTER 2000
Revenues:
Customer $991 $6,495 $350 $7,836
Intersegment (a) 69 20 19 108
Intergroup (a) 5 - 5 10
Equity in earnings (losses) of
unconsolidated affiliates (1) 4 4 7
Other 3 10 4 17
------ ------ ------ ------
Total revenues $1,067 $6,529 $382 $7,978
====== ====== ====== ======
Segment income $309 $140 $13 $462
====== ====== ====== ======
FIRST QUARTER 1999
Revenues:
Customer $572 $4,179 $82 $4,833
Intersegment (a) 34 5 9 48
Intergroup (a) 3 - 4 7
Equity in earnings of
unconsolidated affiliates 1 3 8 12
Other 6 6 3 15
------ ------ ------ ------
Total revenues $616 $4,193 $106 $4,915
====== ====== ====== ======
Segment income $36 $45 $15 $96
====== ====== ====== ======
<FN>
(a)Intersegment and intergroup sales and transfers were conducted under terms
comparable to those with unrelated parties.
</TABLE>
<PAGE> 35
MARATHON GROUP OF USX CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)
7. (Continued)
The following schedule reconciles segment revenues and income to amounts
reported in the Marathon Group financial statements:
<TABLE>
<CAPTION>
First Quarter Ended
March 31
(In millions) 2000 1999
- --------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Revenues of reportable segments $7,978 $4,915
Items not allocated to segments:
Gain on ownership change in MAP 4 -
Other 87 (16)
Elimination of intersegment revenues (108) (48)
------ ------
Total Group revenues $7,961 $4,851
====== ======
Income:
Income for reportable segments $462 $96
Items not allocated to segments:
Gain on ownership change in MAP 4 -
Administrative expenses (28) (26)
Inventory market valuation adjustments - 349
Other (a) 87 (16)
------ ------
Total Group income from operations $525 $403
====== ======
<FN>
(a)Represents in 2000, gain on disposition of Angus/Stellaria and in 1999,
estimated loss on sale of Scurlock Permian LLC.
</TABLE>
<PAGE> 36
MARATHON GROUP OF USX CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)
8. Inventories are carried at the lower of cost or market. Cost of
inventories of crude oil and refined products is determined under the last-
in, first-out (LIFO) method.
<TABLE>
<CAPTION>
(In millions)
------------------------
March 31 December 31
2000 1999
----------- -----------
<S> <C> <C>
Crude oil and natural gas liquids $682 $729
Refined products and merchandise 1,131 1,046
Supplies and sundry items 105 109
------ ------
Total (at cost) 1,918 1,884
Less inventory market valuation reserve - -
------ ------
Net inventory carrying value $1,918 $1,884
====== ======
</TABLE>
The inventory market valuation reserve reflects the extent that the
recorded LIFO cost basis of crude oil and refined products inventories
exceeds net realizable value. The reserve is decreased to reflect
increases in market prices and inventory turnover and increased to reflect
decreases in market prices. Changes in the inventory market valuation
reserve result in noncash charges or credits to costs and expenses. For
additional information, see discussion of results of operations in the
Marathon Group's Management's Discussion and Analysis of Financial
Condition and Results of Operations.
9. At March 31, 2000, and December 31, 1999, income taxes payable
represents an estimated income tax payable to the U. S. Steel Group. In
addition, included in deferred credits and other liabilities at March 31,
2000, and December 31, 1999, is $97 million income taxes payable to the
U. S. Steel Group. These amounts have been determined in accordance with
the tax allocation policy discussed in Note 2.
10. USX is the subject of, or a party to, a number of pending or
threatened legal actions, contingencies and commitments relating to the
Marathon Group involving a variety of matters, including laws and
regulations relating to the environment. Certain of these matters are
discussed below. The ultimate resolution of these contingencies could,
individually or in the aggregate, be material to the Marathon Group
financial statements. However, management believes that USX will remain a
viable and competitive enterprise even though it is possible that these
contingencies could be resolved unfavorably to the Marathon Group. See
discussion of Liquidity in USX Consolidated Management's Discussion and
Analysis of Financial Condition and Results of Operations.
The Marathon Group is subject to federal, state, local and foreign
laws and regulations relating to the environment. These laws generally
provide for control of pollutants released into the environment and require
responsible parties to undertake remediation of hazardous waste disposal
sites. Penalties may be imposed for noncompliance. At March 31, 2000, and
December 31, 1999, accrued liabilities for remediation totaled $72 million
and $69 million, respectively. It is not presently possible to estimate
the ultimate amount of
<PAGE> 37
MARATHON GROUP OF USX CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)
10. (Continued)
all remediation costs that might be incurred or the penalties that may
be imposed. Receivables for recoverable costs from certain states, under
programs to assist companies in cleanup efforts related to underground
storage tanks at retail marketing outlets, were $55 million at March 31,
2000, and $52 million at December 31, 1999.
For a number of years, the Marathon Group has made substantial capital
expenditures to bring existing facilities into compliance with various laws
relating to the environment. In the first quarter of 2000 and for the
years 1999 and 1998, such capital expenditures totaled $8 million, $46
million and $83 million, respectively. The Marathon Group anticipates
making additional such expenditures in the future; however, the exact
amounts and timing of such expenditures are uncertain because of the
continuing evolution of specific regulatory requirements.
At March 31, 2000, and December 31, 1999, accrued liabilities for
platform abandonment and dismantlement totaled $157 million and $152
million, respectively.
Guarantees by USX and its consolidated subsidiaries of the liabilities
of an affiliated entity of the Marathon Group totaled $131 million at March
31, 2000, and December 31, 1999.
At March 31, 2000, the Marathon Group's pro rata share of obligations
of LOOP LLC and various pipeline affiliates secured by throughput and
deficiency agreements totaled $145 million. Under the agreements, the
Marathon Group is required to advance funds if the affiliates are unable to
service debt. Any such advances are prepayments of future transportation
charges.
The Marathon Group's contract commitments to acquire property, plant
and equipment and long-term investments at March 31, 2000, totaled $542
million compared with $485 million at December 31, 1999.
<PAGE> 38
MARATHON GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
The Marathon Group includes Marathon Oil Company ("Marathon") and certain
other subsidiaries of USX Corporation ("USX"), which are engaged in worldwide
exploration and production of crude oil and natural gas; domestic refining,
marketing and transportation of petroleum products primarily through Marathon
Ashland Petroleum ("MAP"), owned 62 percent by Marathon; and other energy
related businesses. The Management's Discussion and Analysis should be read in
conjunction with the Marathon Group's Financial Statements and Notes to
Financial Statements. The discussion of Results of Operations should be read in
conjunction with the Supplemental Statistics provided on page 49.
Certain sections of Management's Discussion and Analysis include forward-
looking statements concerning trends or events potentially affecting the
businesses of the Marathon Group. These statements typically contain words such
as "anticipates", "believes", "estimates", "expects", "targets", "scheduled" or
similar words indicating that future outcomes are uncertain. 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 additional risk factors affecting the businesses of the
Marathon Group, see Supplementary Data - Disclosures About Forward-Looking
Statements in the USX Annual Report on Form 10-K for the year ended December 31,
1999.
<PAGE> 39
MARATHON GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Results of Operations
- ---------------------
Revenues for the first quarter of 2000 and 1999 are summarized in the
following table:
<TABLE>
<CAPTION>
First Quarter Ended
March 31
(Dollars in millions) 2000 1999
- --------------------------------------------------------------------------------
<S> <C> <C>
Exploration & production ("E&P") $1,067 $616
Refining, marketing & transportation ("RM&T") 6,529 4,193
Other energy related businesses (a) 382 106
------ ------
Revenues of reportable segments $7,978 $4,915
Revenues not allocated to segments:
Gain on ownership change in MAP 4 -
Other (b) 87 (16)
Elimination of intersegment revenues (108) (48)
------ ------
Total Group revenues $7,961 $4,851
====== ======
Items included in both revenues and costs and expenses, resulting in no effect
on income:
Consumer excise taxes on petroleum
products and merchandise $1,039 $913
Matching crude oil and refined product
buy/sell transactions settled in cash:
E&P $155 $114
RM&T 900 758
------ -----
Total buy/sell transactions $1,055 $872
- --------
<FN>
(a) Includes domestic natural gas and crude oil marketing and transportation,
and power generation.
(b) Represents in 2000, a gain on the disposition of Angus/Stellaria and in
1999, an estimated loss on the sale of Scurlock Permian LLC.
</TABLE>
E&P segment revenues increased by $451 million in the first quarter of 2000
from the comparable prior-year period. The increase primarily reflected higher
worldwide liquid hydrocarbon and natural gas prices.
RM&T segment revenues increased by $2,336 million in the first quarter of
2000 from the comparable prior-year period. The increase primarily reflected
higher refined product prices and increased volumes of refined product sales,
partially offset by the loss of revenues from Scurlock Permian LLC.
Other energy related businesses segment revenues increased by $276 million
in the first quarter of 2000 from the comparable prior-year period. The
increase primarily reflected higher natural gas and crude oil purchase and
resale activity accompanied by higher crude oil and natural gas prices.
<PAGE> 40
MARATHON GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Income from operations for the first quarter of 2000 and 1999 is summarized
in the following table:
<TABLE>
<CAPTION>
First Quarter Ended
March 31
(Dollars in millions) 2000 1999
- --------------------------------------------------------------------------------
<S> <C> <C>
E&P
Domestic $201 $38
International 108 (2)
---- ----
Income of E&P reportable segment 309 36
RM&T 140 45
Other energy related businesses 13 15
---- ----
Income for reportable segments $462 $96
Items not allocated to reportable segments:
Administrative expenses (a) $(28) $(26)
IMV reserve adjustment (b) - 349
Estimated loss on sale of Scurlock Permian LLC - (16)
Gain on disposition of Angus/Stellaria (c) 87 -
Gain on ownership change - MAP (d) 4 -
---- ----
Total income from operations $525 $403
- --------
<FN>
(a) Includes the portion of the Marathon Group's administrative costs not
charged to the operating segments and the portion of USX corporate general
and administrative costs allocated to the Marathon Group.
(b) The inventory market valuation ("IMV") reserve reflects the extent to which
the recorded LIFO cost basis of crude oil and refined products inventories
exceeds net realizable value. For additional discussion of the IMV, see
Note 8 to the Marathon Group Financial Statements.
(c) Resulted from the disposition of Marathon's 33.34 percent interest in the
Angus/Stellaria development located in the Gulf of Mexico.
(d) For additional discussion of the gain on ownership change in MAP, see Note
4 to the Marathon Group Financial Statements.
</TABLE>
Income for reportable segments in the first quarter of 2000 increased by
$366 million from last year's first quarter, due primarily to higher worldwide
liquid hydrocarbon and natural gas prices and higher refined product margins.
<PAGE> 41
MARATHON GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Worldwide E&P segment income in the first quarter of 2000 increased by $273
million from last year's first quarter, primarily due to the factors discussed
below.
Domestic E&P income in the first quarter of 2000 increased by $163 million
from last year's first quarter. This increase was mainly due to higher liquid
hydrocarbon and natural gas prices, partially offset by increased lease
impairment and dry well expense, derivative losses from other than trading
activities and lower liquid hydrocarbon volumes. The lower volumes were
primarily attributable to natural field declines and the Ewing Bank 873 field
which was shut-in on January 21, 2000, after an anchor from a third party in-tow
submersible drilling rig damaged the Poseidon Pipeline which transports this
platform's liquids. Following repairs, production resumed on February 13, 2000.
The Poseidon Pipeline returned to full operation on March 29, 2000.
International E&P income in the first quarter of 2000 increased by $110
million from last year's first quarter. This increase was mainly due to higher
liquid hydrocarbon and natural gas prices and lower dry well expense, partially
offset by a decrease in natural gas volumes resulting from the sale of certain
Egyptian properties, depletion of the Heimdal field reserves in Norway and lower
production in Ireland and Canada.
RM&T segment income in the first quarter of 2000 increased by $95 million
from last year's first quarter. The increase in downstream segment income was
primarily due to higher refined product margins and increased refined product
sales volumes, the latter due primarily from the fourth quarter 1999 acquisition
of Ultramar Diamond Shamrock's marketing assets in Michigan.
Other energy related businesses segment income in the first quarter of 2000
decreased by $2 million from last year's first quarter.
Item not allocated to reportable segments: IMV reserve adjustment - When
United States Steel Corporation acquired Marathon Oil Company in March 1982,
crude oil and refined product prices were at historically high levels. In
applying the purchase method of accounting, the Marathon Group's crude oil and
refined product inventories were revalued by reference to current prices at the
time of acquisition, and this became the new LIFO cost basis of the inventories.
Generally accepted accounting principles require that inventories be carried at
lower of cost or market. Accordingly, the Marathon Group has established an IMV
reserve to reduce the cost basis of its inventories to net realizable value.
Quarterly adjustments to the IMV reserve result in noncash charges or credits to
income from operations.
These adjustments affect the comparability of financial results from period
to period as well as comparisons with other energy companies, many of which do
not have such adjustments. Therefore, the Marathon Group reports separately the
effects of the IMV reserve adjustments on financial results. In management's
opinion, the effects of such adjustments should be considered separately when
evaluating operating performance.
<PAGE> 42
MARATHON GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Net interest and other financial costs were $71 million in the first
quarter of 2000, compared with $75 million in the first quarter of 1999.
The minority interest in income of MAP, which represents Ashland's 38
percent ownership interest, decreased by $90 million in the first quarter of
2000 from the comparable 1999 period, primarily due to the favorable effects in
1999 of the IMV reserve adjustment as discussed above, partially offset by
higher RM&T segment income, also discussed above.
The provision for estimated income taxes in the first quarter of 2000
increased by $81 million from last year's first quarter primarily due to an
increase in income before income taxes.
Net income for the first quarter increased by $135 million in 2000 from
1999, primarily reflecting the factors discussed above.
Cash Flows
- ----------
Net cash provided from operating activities was $321 million in the first
quarter of 2000, compared with $77 million in the first quarter of 1999. The
$244 million increase mainly reflected the favorable effects of improved net
income (excluding noncash items), partially offset by increased income tax
payments.
Capital expenditures in the first quarter of 2000 totaled $337 million,
compared with $196 million in the first quarter of 1999. The $141 million
increase mainly reflected increased spending on domestic production property
acquisitions. For additional information regarding capital expenditures, refer
to the Supplemental Statistics on page 49.
Cash from disposal of assets was $197 million in the first quarter of 2000,
compared with $21 million in the first quarter of 1999. Proceeds in 2000 were
mainly from the disposition of Marathon's 33.34 percent interest in the
Angus/Stellaria development in the Gulf of Mexico.
The net change in restricted cash was a net deposit of $59 million in the
first quarter of 2000, compared to a net withdrawal of $14 million in the first
quarter of 1999. Restricted cash in both periods primarily reflected the net
effects of cash deposited and withdrawn from domestic production property
dispositions and acquisitions.
Net investments in affiliates were $20 million in the first quarter of
2000, compared with $19 million in the first quarter of 1999. Cash outflows in
both periods primarily reflected continued development spending for the Sakhalin
II project in Russia.
Contract commitments for property, plant and equipment acquisitions and
long-term investments at March 31, 2000, totaled $542 million compared with $485
million at December 31, 1999.
<PAGE> 43
MARATHON GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Financial obligations, which consist of the Marathon Group's portion of USX
debt and preferred stock of a subsidiary attributed to both groups, as well as
debt specifically attributed to the Marathon Group, decreased by $69 million in
the first quarter of 2000. Financial obligations decreased primarily because
cash from operating activities and asset sales exceeded capital expenditures and
dividend payments. For further details, see Management's Discussion and
Analysis of USX Consolidated Financial Condition, Cash Flows and Liquidity.
Distributions to minority shareholder of MAP were $103 million in the first
quarter of 1999, reflecting a distribution related to fourth quarter 1998 MAP
activity.
Derivative Instruments
- ----------------------
See Quantitative and Qualitative Disclosure About Market Risk for
discussion of derivative instruments and associated market risk for the Marathon
Group.
Liquidity
- ---------
For discussion of USX's liquidity and capital resources, see Management's
Discussion and Analysis of USX Consolidated Financial Condition, Cash Flows and
Liquidity.
Environmental Matters, Contingencies and Commitments
- ----------------------------------------------------
The Marathon Group has incurred and will continue to incur substantial
capital, operating and maintenance, and remediation expenditures as a result of
environmental laws and regulations. To the extent these expenditures, as with
all costs, are not ultimately reflected in the prices of the Marathon Group's
products and services, operating results will be adversely affected. The
Marathon Group believes that substantially all of its competitors are subject to
similar environmental laws and regulations. However, the specific impact on
each competitor may vary depending on a number of factors, including the age and
location of its operating facilities, marketing areas, production processes and
whether or not it is engaged in the petrochemical business, power business or
the marine transportation of crude oil and refined products.
USX has been notified that it is a potentially responsible party ("PRP") at
16 waste sites related to the Marathon Group under the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA") as of March
31, 2000. In addition, there are 7 sites related to the Marathon Group where
USX has received information requests or other indications that USX may be a PRP
under CERCLA but where sufficient information is not presently available to
confirm the existence of liability.
There are also 110 additional sites, excluding retail marketing outlets,
related to the Marathon Group where remediation is being sought under other
environmental statutes, both federal and state, or where private parties are
seeking remediation through discussions or litigation. Of these sites, 17 were
associated with properties conveyed to MAP by Ashland for which Ashland has
retained liability for all costs associated with remediation.
<PAGE> 44
MARATHON GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
At many of these sites, USX is one of a number of parties involved and the
total cost of remediation, as well as USX's share thereof, is frequently
dependent upon the outcome of investigations and remedial studies. The Marathon
Group accrues for environmental remediation activities when the responsibility
to remediate is probable and the amount of associated costs is reasonably
determinable. As environmental remediation matters proceed toward ultimate
resolution or as additional remediation obligations arise, charges in excess of
those previously accrued may be required.
In October 1998, the National Enforcement Investigations Center and Region
V of the United States Environmental Protection Agency conducted a multi-media
inspection of MAP's Detroit refinery. Subsequently, in November 1998, Region V
conducted a multi-media inspection of MAP's Robinson refinery. These
inspections covered compliance with the Clean Air Act (New Source Performance
Standards, Prevention of Significant Deterioration, and the National Emission
Standards for Hazardous Air Pollutants for Benzene), the Clean Water Act (Permit
exceedances for the Waste Water Treatment Plant), reporting obligations under
the Emergency Planning and Community Right to Know Act and the handling of
process waste. Although MAP has been advised as to certain compliance issues
regarding MAP's Detroit refinery, complete findings on the results of the
inspections have not been issued. Thus far, MAP has been served with two
Notices of Violation ("NOV") and three Findings of Violation in connection with
the multi-media inspections at its Detroit refinery. The Detroit notices allege
violations of the Michigan State Air Pollution Regulations, the EPA New Source
Performance Standards and National Emission Standards for Hazardous Air
Pollutants for benzene. On March 6, 2000, MAP received its first NOV arising
out of the multi-media inspection of the Robinson Refinery conducted in November
1998. The NOV is for alleged Resource Conservation and Recovery Act (hazardous
waste) violations. MAP can contest the factual and legal basis for the
allegations prior to the EPA taking enforcement action. At this time, it is not
known when complete findings on the results of these multi-media inspections
will be issued.
On February 3, 2000, the Commonwealth of Kentucky, Natural Resources and
Environmental Protection Cabinet, Department for Environmental Protection
("DEP") issued a NOV to Marathon Ashland Pipe Line LLC ("MAPL"), a wholly owned
subsidiary of MAP for the January 27, 2000, pipeline release in Winchester,
Kentucky. Currently, no civil penalty amount has been demanded, but the NOV
references potential penalties up to $25,000 per day. MAPL has submitted an
assessment plan to the DEP, which was approved on April 7, 2000.
On January 25, 2000, the DEP issued a NOV to Catlettsburg Refining, LLC, a
wholly owned subsidiary of MAP. The NOV relates to a rupture of a storage tank
on November 8, 1999, and a release of the tank's contents. The NOV cites
numerous violations with potential civil penalties up to $25,000 per day.
<PAGE> 45
MARATHON GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
USX is the subject of, or a party to, a number of pending or threatened
legal actions, contingencies and commitments relating to the Marathon Group
involving a variety of matters, including laws and regulations relating to the
environment. See Note 10 to the Marathon Group Financial Statements for a
discussion of certain of these matters. The ultimate resolution of these
contingencies could, individually or in the aggregate, be material to the
Marathon Group Financial Statements. However, management believes that USX will
remain a viable and competitive enterprise even though it is possible that these
contingencies could be resolved unfavorably to the Marathon Group. See
Management's Discussion and Analysis of USX Consolidated Financial Condition,
Cash Flows and Liquidity.
Outlook
- -------
The outlook regarding the Marathon Group's upstream revenues and income is
largely dependent upon future prices and volumes of liquid hydrocarbons and
natural gas. Prices have historically been volatile and have frequently been
affected by unpredictable changes in supply and demand resulting from
fluctuations in worldwide economic activity and political developments in the
world's major oil and gas producing and consuming areas. Any significant
decline in prices could have a material adverse effect on the Marathon Group's
results of operations. A prolonged decline in such prices could also adversely
affect the quantity of crude oil and natural gas reserves that can be
economically produced and the amount of capital available for exploration and
development.
On March 15, 2000, it was announced Marathon was the high bidder on 13
blocks in the Gulf of Mexico Outer Continental Shelf lease sale 175. Subject to
award of these blocks, Marathon's total lease inventory position in the Gulf of
Mexico would increase to 164 blocks, which includes 116 deepwater blocks.
In 1999, Marathon agreed to sell certain company-operated Egyptian
properties. These included its 100 percent interest in the Gebel El Zeit
concession and the Ras El Ush field, along with its 60 percent interest in the
El Manzala concession. The closing of the transactions is pending final
approval of the Egyptian authorities and satisfaction of customary closing
conditions.
<PAGE> 46
MARATHON GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Downstream income of the Marathon Group is largely dependent upon refined
product margins, which reflect the difference between the selling prices of
refined products and the cost of raw materials refined and manufacturing costs.
Refined product margins have been historically volatile and vary with the level
of economic activity in the various marketing areas, the regulatory climate,
crude oil costs, manufacturing costs and the available supply of crude oil and
refined products.
On March 9, 2000, Marathon Ashland Petroleum LLC ("MAP") announced it
joined CMS Energy Corporation and TEPPCO Partners, L.P., in an agreement to form
a limited liability company with equal ownership to operate an interstate
refined petroleum products pipeline extending from the U.S. Gulf of Mexico to
the Midwest. The new company plans to build a 70-mile, 24-inch diameter
pipeline connecting TEPPCO's facility in Beaumont, Texas, with an existing 720-
mile, 26-inch diameter pipeline extending from Longville, Louisiana to Bourbon,
Illinois. The system will be called Centennial Pipeline and will pass through
seven states. It is expected to be completed in the fourth quarter of 2001.
This is a forward-looking statement. Some factors that could potentially affect
the timing of the Centennial Pipeline completion include (among others) the
price of petroleum products, levels of cash flow from operations, securing
acceptable financing, obtaining the necessary construction and environmental
permits, unforeseen hazards such as weather conditions, acquisitions of rights-
of-way and regulatory approval constraints.
MAP's subsidiary, Ohio River Pipe Line LLC ("ORPL"), plans to build a
pipeline from Kenova, West Virginia to Columbus, Ohio. ORPL is a common carrier
pipeline company and the pipeline will be an interstate common carrier pipeline.
The pipeline is expected to initially move about 50,000 bpd of refined petroleum
into the central Ohio region. Construction is currently expected to begin in
late 2000. However, the construction schedule is largely dependent on obtaining
the necessary rights-of-way, of which approximately 90 percent have been
obtained to date, and final regulatory approvals. ORPL is still negotiating
with various landowners to obtain the remaining rights-of-way. In addition,
where appropriate, ORPL has brought condemnation actions to acquire rights-of-
way. These actions are at various stages of litigation with one adverse
decision on appeal.
<PAGE> 47
MARATHON GROUP OF USX CORPORATION
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
---------------------------------
Commodity Price Risk and Related Risks
- --------------------------------------
Sensitivity analysis of the incremental effects on pretax income of
hypothetical 10% and 25% changes in commodity prices for open derivative
commodity instruments are provided in the following table: (a)
<TABLE>
<CAPTION>
Incremental Decrease
in Pretax Income
Assuming a Hypothetical
Price Change of:
10% 25% 10% 25%
March 31, March 31,
(Dollars in millions) 2000 1999
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Derivative Commodity Instruments
Marathon Group (b) (c)
Crude oil
Trading (f) $- $2.5 (e) $- $-
Other than trading (f) 22.7 64.8 (d) 4.8 28.3(e)
Natural gas
Trading - - - -
Other than trading (f) 4.0 13.6 (e) 9.2 23.7(e)
Refined products
Trading - - - -
Other than trading (f) 3.9 10.6 (d) 4.1 10.8(e)
<FN>
(a) Gains and losses on derivative commodity instruments used for other
than trading activities are generally offset by price changes in the
underlying commodity. Effects of these offsets are not reflected in the
sensitivity analyses. Amounts reflect the estimated incremental effect
on pretax income of hypothetical 10% and 25% changes in closing commodity
prices for each open contract position at March 31, 2000 and March 31,
1999. Marathon Group management evaluates its portfolio of derivative
commodity instruments on an ongoing basis and adds or revises strategies
to reflect anticipated market conditions and changes in risk profiles.
Changes to the portfolio subsequent to March 31, 2000, may cause future
pretax income effects to differ from those presented in the table.
(b) The number of net open contracts varied throughout first quarter
2000, from 15,084 contracts at January 10, to a high of 27,135 contracts
at January 21, and averaged 20,246 for the quarter. The derivative
commodity instruments used and hedging positions taken also varied
throughout first quarter 2000, and will continue to vary in the future.
Because of these variations in the composition of the portfolio over
time, the number of open contracts, by itself, cannot be used to predict
future income effects.
(c) The calculation of sensitivity amounts for basis swaps assumes that
the physical and paper indices are perfectly correlated. Gains and
losses on options are based on changes in intrinsic value only.
(d) Price increase.
(e) Price decrease.
(f) The direction of the price change used in calculating the
sensitivity amount for each commodity reflects that which would result in
the largest incremental decrease in pretax income when applied to the
derivative commodity instruments used to hedge that commodity.
</TABLE>
<PAGE> 48
MARATHON GROUP OF USX CORPORATION
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
-----------------------------------------
Interest Rate Risk
- ------------------
As of March 31, 2000, the discussion of the Marathon Group's interest rate
risk has not changed materially from that presented in Quantitative and
Qualitative Disclosures About Market Risk included in USX's 1999 Form 10-K.
Foreign Currency Exchange Rate Risk
- -----------------------------------
As of March 31, 2000, the discussion of the Marathon Group's foreign
currency exchange rate risk has not changed materially from that presented in
Quantitative and Qualitative Disclosures About Market Risk included in USX's
1999 Form 10-K.
Equity Price Risk
- -----------------
As of March 31, 2000, the Marathon Group had no material exposure to equity
price risk.
Safe Harbor
- -----------
The Marathon Group's quantitative and qualitative disclosures about market
risk include forward-looking statements with respect to management's opinion
about risks associated with the Marathon Group's use of derivative instruments.
These statements are based on certain assumptions with respect to market prices
and industry supply and demand for crude oil, natural gas and refined products.
To the extent that these assumptions prove to be inaccurate, future outcomes
with respect to the Marathon Group's hedging programs may differ materially from
those discussed in the forward-looking statements.
<PAGE> 49
<TABLE>
<CAPTION>
MARATHON GROUP OF USX CORPORATION
SUPPLEMENTAL STATISTICS (Unaudited)
-----------------------------------------------
First Quarter
Ended March 31
(Dollars in millions) 2000 1999
- -----------------------------------------------------------------------------
<S> <C> <C>
INCOME (LOSS) FROM OPERATIONS
Exploration & Production ("E&P")
Domestic $201 $38
International 108 (2)
----- -----
Income For E&P Reportable Segment 309 36
Refining, Marketing & Transportation 140 45
Other Energy Related Businesses (a) 13 15
----- -----
Income For Reportable Segments $462 $96
Items Not Allocated To Reportable Segments:
Administrative Expenses $(28) $(26)
Inventory Market Valuation Reserve Adjustment - 349
Estimated Loss on Sale of Scurlock Permian - (16)
Gain on Disposition of Angus/Stellaria 87 -
Gain on Ownership Change - MAP 4 -
----- -----
Marathon Group Income From Operations $525 $403
CAPITAL EXPENDITURES
Exploration & Production $271 $149
Refining, Marketing & Transportation 60 46
Other (b) 6 1
----- -----
Total $337 $196
EXPLORATION EXPENSE
Domestic $31 $22
International 14 41
----- -----
Total $45 $63
INVESTMENTS IN EQUITY AFFILIATES - NET $20 $19
OPERATING STATISTICS
Net Liquid Hydrocarbon Production (c):
United States 128.7 143.1
Europe 29.4 34.0
Other International 36.2 31.0
----- -----
Worldwide 194.3 208.1
Net Natural Gas Production (d):
United States 751.4 769.3
Europe (e) 361.5 399.5
Other International 135.0 189.5
----- -------
Total Consolidated 1,247.9 1,358.3
Equity Affiliate (CLAM) 36.8 35.6
----- -------
Worldwide 1,284.7 1,393.9
Average Equity Sales Prices (f) (g):
Liquid Hydrocarbons (per Bbl)
Domestic $24.12 $9.16
International 25.85 10.73
Natural Gas (per Mcf)
Domestic $2.18 $1.48
International 2.42 1.86
Crude Oil Refined (c) 851.4 848.2
Refined Products Sold (c) 1,218.6 1,121.0
Matching buy/sell volumes included in refined
products sold (c) 49.0 38.1
MAP Merchandise Sales $541 $459
- ------------
<FN>
(a) Includes domestic natural gas and crude oil marketing and
transportation, and power generation.
(b) Includes other energy related businesses and corporate capital
expenditures.
(c) Thousands of barrels per day
(d) Millions of cubic feet per day
(e) Includes gas acquired for injection and subsequent resale of 14 and
20 mmcfd in the first quarter of 2000 and 1999, respectively.
(f) Prices exclude gains and losses from hedging activities.
(g) Prices exclude equity affiliates and purchase/resale gas.
</TABLE>
<PAGE> 50
Part I - Financial Information (Continued):
C. U. S. Steel Group
<TABLE>
<CAPTION>
U. S. STEEL GROUP OF USX CORPORATION
STATEMENT OF OPERATIONS (Unaudited)
------------------------------------
First Quarter Ended
March 31
(Dollars in millions, except per share amounts) 2000 1999
- --------------------------------------------------------------------------------
<S> <C> <C>
REVENUES:
Sales $1,540 $1,246
Income (loss) from affiliates (7) (23)
Net gains (losses) on disposal of assets 15 (12)
Other income (loss) (1) -
------ ------
Total revenues 1,547 1,211
------ ------
COSTS AND EXPENSES:
Cost of sales (excludes items shown below) 1,387 1,157
Selling, general and administrative expenses (credits) (63) (70)
Depreciation, depletion and amortization 75 71
Taxes other than income taxes 57 55
------ ------
Total costs and expenses 1,456 1,213
------ ------
INCOME (LOSS) FROM OPERATIONS 91 (2)
Net interest and other financial costs 24 8
------ ------
INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY LOSS 67 (10)
Provision (credit) for estimated income taxes 24 (1)
------ ------
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS 43 (9)
Extraordinary loss on extinguishment of debt,
net of income tax - 5
------ ------
NET INCOME (LOSS) 43 (14)
Dividends on preferred stock 2 2
------ ------
NET INCOME (LOSS) APPLICABLE TO STEEL STOCK $41 $(16)
====== ======
STEEL STOCK DATA:
Income (loss) before extraordinary loss $41 $(11)
- Per share - basic and diluted .45 (.13)
Extraordinary loss, net of income tax - 5
- Per share - basic and diluted - .05
Net income (loss) $41 $(16)
- Per share - basic and diluted .45 (.18)
Dividends paid per share .25 .25
Weighted average shares, in thousands
- Basic 88,422 88,368
- Diluted 88,430 88,368
<FN>
Selected notes to financial statements appear on pages 53-57.
</TABLE>
<PAGE> 51
<TABLE>
<CAPTION>
U. S. STEEL GROUP OF USX CORPORATION
BALANCE SHEET (Unaudited)
------------------------------------
March 31 December 31
(Dollars in millions) 2000 1999
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $5 $22
Receivables, less allowance for doubtful
accounts of $12 and $10 884 838
Income taxes receivable 37 97
Inventories 758 743
Deferred income tax benefits 281 281
Other current assets 3 -
------ ------
Total current assets 1,968 1,981
Investments and long-term receivables,
less reserves of $3 and $3 572 572
Property, plant and equipment, less accumulated
depreciation, depletion and amortization of
$6,282 and $6,232 2,478 2,516
Prepaid pensions 2,474 2,404
Other noncurrent assets 57 52
------ ------
Total assets $7,549 $7,525
====== ======
LIABILITIES
Current liabilities:
Accounts payable $695 $739
Payroll and benefits payable 323 322
Accrued taxes 169 177
Accrued interest 11 15
Long-term debt due within one year 9 13
------ ------
Total current liabilities 1,207 1,266
Long-term debt, less unamortized discount 931 902
Deferred income taxes 418 348
Employee benefits 2,231 2,245
Deferred credits and other liabilities 448 459
Preferred stock of subsidiary 66 66
USX obligated mandatorily redeemable convertible preferred
securities of a subsidiary trust holding solely junior
subordinated convertible debentures of USX 183 183
STOCKHOLDERS' EQUITY
Preferred stock 2 3
Common stockholders' equity 2,063 2,053
------ ------
Total stockholders' equity 2,065 2,056
------ ------
Total liabilities and stockholders' equity $7,549 $7,525
====== ======
<FN>
Selected notes to financial statements appear on pages 53-57.
</TABLE>
<PAGE> 52
<TABLE>
<CAPTION>
U. S. STEEL GROUP OF USX CORPORATION
STATEMENT OF CASH FLOWS (Unaudited)
------------------------------------
First Quarter Ended
March 31
(Dollars in millions) 2000 1999
- --------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
OPERATING ACTIVITIES:
Net income (loss) $43 $(14)
Adjustments to reconcile to net cash provided
from operating activities:
Extraordinary loss - 5
Depreciation, depletion and amortization 75 71
Pensions and other postretirement benefits (75) (51)
Deferred income taxes 69 22
Net (gains) losses on disposal of assets (15) 12
Changes in:
Current receivables - sold - 30
- operating turnover 13 (33)
Inventories (15) (14)
Current accounts payable and accrued expenses (56) 30
All other - net (3) 22
------ ------
Net cash provided from operating activities 36 80
------ ------
INVESTING ACTIVITIES:
Capital expenditures (45) (79)
Disposal of assets 13 2
Restricted cash - withdrawals 1 -
- deposits (1) (4)
Affiliates - investments (11) -
All other - net 1 -
------ ------
Net cash used in investing activities (42) (81)
------ ------
FINANCING ACTIVITIES:
Increase in U. S. Steel Group's portion of USX
consolidated debt 26 42
Specifically attributed debt repayments (2) (8)
Preferred stock repurchased (11) -
Dividends paid (24) (24)
------ ------
Net cash provided from (used in) financing activities (11) 10
------ ------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (17) 9
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 22 9
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $5 $18
====== ======
Cash provided from (used in) operating activities included:
Interest and other financial costs paid (net of
amount capitalized) $(25) $(25)
Income taxes (paid) refunded, including settlements
with the Marathon Group 94 (2)
<FN>
Selected notes to financial statements appear on pages 53-57.
</TABLE>
<PAGE> 53
U. S. STEEL GROUP OF USX CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS
--------------------------------------
(Unaudited)
1. The information furnished in these financial statements is unaudited
but, in the opinion of management, reflects all adjustments necessary for a
fair presentation of the results for the periods covered. All such
adjustments are of a normal recurring nature unless disclosed otherwise.
These financial statements, including selected notes, have been prepared in
accordance with the applicable rules of the Securities and Exchange
Commission and do not include all of the information and disclosures
required by generally accepted accounting principles for complete financial
statements. Certain reclassifications of prior year data have been made to
conform to 2000 classifications. Additional information is contained in
the USX Annual Report on Form 10-K for the year ended December 31, 1999.
EITF Topic No. D-88, issued in March 2000, requires companies to disclose
their accounting policy for costs incurred in connection with planned major
maintenance activities. For the U. S. Steel Group, such costs primarily
are associated with blast furnace relines, which are separately capitalized
in property, plant and equipment. Such costs are amortized over their
estimated useful life, which is generally the period until the next
scheduled reline.
2. The financial statements of the U. S. Steel Group include the
financial position, results of operations and cash flows for all businesses
of USX other than the businesses, assets and liabilities included in the
Marathon Group and a portion of the corporate assets and liabilities and
related transactions which are not separately identified with ongoing
operating units of USX. These financial statements are prepared using the
amounts included in the USX consolidated financial statements. Corporate
amounts reflected in these financial statements are determined based upon
methods which management believes to be reasonable. The accounting
policies applicable to the preparation of the financial statements of the
U. S. Steel Group may be modified or rescinded in the sole discretion of
the Board of Directors of USX (Board), although the Board has no present
intention to do so. The Board may also adopt additional policies depending
on the circumstances.
Although the financial statements of the U. S. Steel Group and the
Marathon Group separately report the assets, liabilities (including
contingent liabilities) and stockholders' equity of USX attributed to each
such Group, such attribution of assets, liabilities (including contingent
liabilities) and stockholders' equity between the U. S. Steel Group and the
Marathon Group for purposes of preparing their respective financial
statements does not affect legal title to such assets and responsibility
for such liabilities. Holders of USX-U. S. Steel Group Common Stock (Steel
Stock) and USX-Marathon Group Common Stock (Marathon Stock) are holders of
common stock of USX and continue to be subject to all the risks associated
with an investment in USX and all of its businesses and liabilities.
Financial impacts arising from one Group that affect the overall cost of
USX's capital could affect the results of operations and financial
condition of the other Group. In addition, net losses of either Group, as
well as dividends or distributions on any class of USX Common Stock or
series of Preferred Stock and repurchases of any class of USX Common Stock
or series of Preferred Stock at prices in excess of par or stated value,
will reduce the funds of USX legally available for payment of dividends on
both classes of Common Stock. Accordingly, the USX consolidated financial
information should be read in connection with the U. S. Steel Group
financial information.
<PAGE> 54
U. S. STEEL GROUP OF USX CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)
2. (Continued)
The financial statement provision for estimated income taxes and
related tax payments or refunds have been reflected in the U. S. Steel
Group and the Marathon Group financial statements in accordance with USX's
tax allocation policy for such groups. In general, such policy provides
that the consolidated tax provision and related tax payments or refunds are
allocated between the U. S. Steel Group and the Marathon Group for group
financial statement purposes, based principally upon the financial income,
taxable income, credits, preferences and other amounts directly related to
the respective groups.
The provision for estimated income taxes for the U. S. Steel Group is
based on tax rates and amounts which recognize management's best estimate
of current and deferred tax assets and liabilities. Differences between
the combined interim tax provisions of the U. S. Steel and Marathon Groups
and USX consolidated are allocated to each group based on the relationship
of the individual group provisions to the combined interim provisions.
3. The U. S. Steel Group's total comprehensive income (loss) was
$44 million for the first quarter of 2000 and $(18) million for the first
quarter of 1999.
4. The method of calculating net income (loss) per common share for the
Steel Stock and Marathon Stock reflects the Board's intent that the
separately reported earnings and surplus of the U. S. Steel Group and the
Marathon Group, as determined consistent with the USX Restated Certificate
of Incorporation, are available for payment of dividends on the respective
classes of stock, although legally available funds and liquidation
preferences of these classes of stock do not necessarily correspond with
these amounts.
Basic net income (loss) per share is calculated by adjusting net
income for dividend requirements of preferred stock and is based on the
weighted average number of common shares outstanding.
Diluted net income (loss) per share assumes conversion of convertible
securities for the applicable periods outstanding and assumes exercise of
stock options, provided in each case, the effect is not antidilutive.
See Note 6, of the Notes to USX Consolidated Financial Statements for
the computation of income per share.
5. In 1999, USX irrevocably deposited with a trustee the entire 5.5
million common shares it owned in RTI International Metals (RTI). The
deposit of the shares resulted in the satisfaction of USX's obligation
under its 6-3/4% Exchangeable Notes (indexed debt) due February 1, 2000.
Under the terms of the indenture, the trustee exchanged one RTI share for
each note at maturity; therefore, none reverted back to USX.
<PAGE> 55
U. S. STEEL GROUP OF USX CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)
5. (Continued)
As a result of the above transaction, USX recorded in the first
quarter of 1999 an extraordinary loss of $5 million, net of a $3 million
income tax benefit, representing prepaid interest expense and the write-off
of unamortized debt issue costs, and a pretax charge of $22 million,
representing the difference between the carrying value of the investment in
RTI and the carrying value of the indexed debt, which is included in net
gains (losses) on disposal of assets.
Additionally, a $13 million credit to adjust the indexed debt to
settlement value at March 31, 1999, is included in net interest and other
financial costs.
In December 1996, USX had issued the $117 million of notes indexed to
the common share price of RTI. At maturity, USX would have been required
to exchange the notes for shares of RTI common stock, or redeem the notes
for the equivalent amount of cash. Since USX's investment in RTI was
attributed to the U. S. Steel Group, the indexed debt was also attributed
to the U. S. Steel Group. USX had a 26% investment in RTI and accounted
for its investment using the equity method of accounting.
6. The U. S. Steel Group consists of one operating segment, U. S. Steel.
U. S. Steel is engaged in the production and sale of steel mill products,
coke and taconite pellets. U. S. Steel also engages in the following
related business activities: the management of mineral resources, domestic
coal mining, engineering and consulting services, and real estate
development and management. The results of segment operations are as
follows:
<TABLE>
<CAPTION>
First Quarter Ended
March 31
(In millions) 2000 1999
- --------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Customer $1,536 $1,245
Intergroup (a) 4 1
Equity in losses of unconsolidated affiliates (7) (23)
Other 14 10
------ ------
Total revenues $1,547 $1,233
====== ======
Segment income (loss) $54 $(3)
====== ======
<FN>
(a) Intergroup sales and transfers were conducted under terms comparable
to those with unrelated parties.
</TABLE>
Effective January 1, 2000, USX changed its methodology for allocating
the pension credit or cost associated with its principal pension plans for
internal business performance reporting purposes. Since future
contributions to these plans are expected to be minimal due to their
overfunded position, no pension credit or cost is allocated to the U. S.
Steel operating segment. Prior years' segment income or loss has been
restated to conform with the current allocation methodology.
<PAGE> 56
U. S. STEEL GROUP OF USX CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)
6. (Continued)
The following schedule reconciles segment revenue and income (loss) to
amounts reported in the U. S. Steel Group's financial statements:
<TABLE>
<CAPTION>
First Quarter Ended
March 31
(In millions) 2000 1999
- --------------------------------------------------------------------------------
<S> <C> <C>
Revenues of reportable segment $1,547 $1,233
Loss on investment in RTI stock used to satisfy
indexed debt obligations - (22)
------ ------
Total Group revenues $1,547 $1,211
====== ======
Income (loss) for reportable segment $54 $(3)
Items not allocated to segment:
Administrative expenses (6) (5)
Net pension credits 65 52
Costs related to former business activities (22) (24)
Loss on investment in RTI stock used to satisfy
indexed debt obligations - (22)
------ ------
Total Group income (loss) from operations $91 $(2)
====== ======
</TABLE>
7. Inventories are carried at the lower of cost or market. Cost of
inventories is determined primarily under the last-in, first-out (LIFO)
method.
<TABLE>
<CAPTION>
(In millions)
-------------------------
March 31 December 31
2000 1999
----------- -----------
<S> <C> <C>
Raw materials $114 $101
Semi-finished products 378 392
Finished products 211 193
Supplies and sundry items 55 57
---- ----
Total $758 $743
==== ====
</TABLE>
<PAGE> 57
U. S. STEEL GROUP OF USX CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (Continued)
--------------------------------------------------
(Unaudited)
8. At March 31, 2000, and December 31, 1999, income taxes receivable
represents an estimated income tax receivable from the Marathon Group. In
addition, included in investments and long-term receivables at March 31,
2000, and December 31, 1999, is $97 million income taxes receivable from
the Marathon Group. These amounts have been determined in accordance with
the tax allocation policy discussed in Note 2.
9. USX is the subject of, or a party to, a number of pending or
threatened legal actions, contingencies and commitments relating to the
U. S. Steel Group involving a variety of matters including laws and
regulations relating to the environment. Certain of these matters are
discussed below. The ultimate resolution of these contingencies could,
individually or in the aggregate, be material to the U. S. Steel Group
financial statements. However, management believes that USX will remain a
viable and competitive enterprise even though it is possible that these
contingencies could be resolved unfavorably to the U. S. Steel Group. See
discussion of Liquidity in USX Consolidated Management's Discussion and
Analysis of Financial Condition and Results of Operations.
The U. S. Steel Group is subject to federal, state and local laws and
regulations relating to the environment. These laws generally provide for
control of pollutants released into the environment and require responsible
parties to undertake remediation of hazardous waste disposal sites.
Penalties may be imposed for noncompliance. At March 31, 2000, and
December 31, 1999, accrued liabilities for remediation totaled $100 million
and $101 million, respectively. It is not presently possible to estimate
the ultimate amount of all remediation costs that might be incurred or the
penalties that may be imposed.
For a number of years, the U. S. Steel Group has made substantial
capital expenditures to bring existing facilities into compliance with
various laws relating to the environment. In the first quarter of 2000 and
for the years 1999 and 1998, such capital expenditures totaled $8 million,
$32 million and $49 million, respectively. The U. S. Steel Group
anticipates making additional such expenditures in the future; however, the
exact amounts and timing of such expenditures are uncertain because of the
continuing evolution of specific regulatory requirements.
Guarantees by USX of the liabilities of affiliated entities of the
U. S. Steel Group totaled $88 million at March 31, 2000. In the event that
any defaults of guaranteed liabilities occur, USX has access to its
interest in the assets of the affiliates to reduce U. S. Steel Group losses
resulting from these guarantees. As of March 31, 2000, the largest
guarantee for a single affiliate was $61 million.
The U. S. Steel Group's contract commitments to acquire property,
plant and equipment at March 31, 2000, totaled $58 million compared with
$83 million at December 31, 1999.
<PAGE> 58
U. S. STEEL GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
-----------------------------------------------
The U. S. Steel Group includes U. S. Steel, which is engaged in the
production, transportation and sale of steel mill products, coke, and taconite
pellets; the management of mineral resources; domestic coal mining; real estate
development; and engineering and consulting services. Certain business
activities are conducted through joint ventures and partially owned companies,
such as USS-POSCO Industries ("USS-POSCO"), PRO-TEC Coating Company ("PRO-TEC"),
Transtar, Inc. ("Transtar"), Clairton 1314B Partnership, VSZ U. S. Steel,
s. r.o, and Republic Technologies International, LLC ("Republic"). Management's
Discussion and Analysis should be read in conjunction with the U. S. Steel
Group's Financial Statements and Notes to Financial Statements. The discussion
of Results of Operations should be read in conjunction with the Supplemental
Statistics provided on page 68.
Certain sections of Management's Discussion and Analysis include forward-
looking statements concerning trends or events potentially affecting the
businesses of the U. S. Steel Group. 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 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 additional risk factors affecting
the businesses of the U. S. Steel Group, see Supplementary Data -- Disclosures
About Forward-Looking Information in USX 1999 Form 10-K.
Results of Operations
- ---------------------
Revenues for the first quarter of 2000 and 1999 are set forth in the
following table:
<TABLE>
<CAPTION>
First Quarter Ended
March 31
(Dollars in millions) 2000 1999
- --------------------------------------------------------------------------------
<S> <C> <C>
Revenues of reportable segment $1,547 $1,233
Revenues not allocated to reportable segment - (22)
------ ------
Total revenues $1,547 $1,211
====== ======
</TABLE>
Total reportable segment revenues increased by $314 million in the first
quarter of 2000 compared with the first quarter of 1999. The increase primarily
reflected higher shipment volumes (total steel shipments increased almost
600,000 tons), better product mix, particularly in plate and tubular products,
and better results from affiliates.
<PAGE> 59
U. S. STEEL GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
--------------------------------------------
Income (loss) from operations for the U. S. Steel Group for the first
quarter of 2000 and 1999 are set forth in the following table:
<TABLE>
<CAPTION>
First Quarter Ended
March 31
(Dollars in millions) 2000 1999
- --------------------------------------------------------------------------------
<S> <C> <C>
Segment income (loss) for U. S. Steel operations (a) $54 $(3)
Items not allocated to segment:
Net pension credits 65 52
Administrative expenses (6) (5)
Costs related to former business activities (b) (22) (24)
Loss on investment in RTI stock used to satisfy indexed
debt obligations (c) - (22)
------ ------
Total income (loss) from operations $91 $(2)
====== ======
- ------
<FN>
(a) Includes income from the production and sale of steel products, coke
and taconite pellets; domestic coal mining; the management of mineral
resources; engineering and consulting services; and equity income from
joint ventures and partially owned companies, such as USS-POSCO
Industries, PRO-TEC Coating Company, Transtar Inc., Republic Technologies
International, LLC and VSZ U. S. Steel, s. r.o. Also includes results of
real estate development and leasing and financing activities.
(b) Includes other postretirement benefit costs and certain other
expenses principally attributable to former business units of the
U. S. Steel Group.
(c) For further details, see Note 5 to the U. S. Steel Group Financial
Statements.
</TABLE>
Segment income for U. S. Steel operations
Segment income for U. S. Steel operations increased $57 million in the
first quarter of 2000, compared with the first quarter of 1999, which included a
$10 million charge for environmental accruals. The increase in segment income
in the first quarter of 2000 for U. S. Steel operations was primarily due to
higher shipments, better product mix, particularly plate and tubular products,
and better results from affiliates. Segment income for 1999 was restated to
conform with the current pension allocation methodology; therefore no pension
credit or cost is allocated to the U. S. Steel operations segment.
Item not allocated to segment
Net pension credits associated with all of U. S. Steel's pension plans are
not included in segment income for U. S. Steel operations. These net pension
credits, which are primarily noncash, totaled $65 million in first quarter of
2000, compared to $52 million in first quarter of 1999. Future net pension
credits can vary depending upon the market performance of plan assets, changes
in actuarial assumptions regarding such factors as a selection of a discount
rate and rate of return on assets, changes in the amortization levels of
transition amounts or prior period service costs, plan amendments affecting
benefit payout levels and profile changes in the beneficiary populations being
valued. To the extent net pension credits decline in the future, income from
operations would be adversely affected.
<PAGE> 60
U. S. STEEL GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
--------------------------------------------
Net interest and other financial costs for the first quarter of 2000 and
1999 are set forth in the following table:
<TABLE>
<CAPTION>
First Quarter Ended
March 31
(Dollars in millions) 2000 1999
- --------------------------------------------------------------------------------
<S> <C> <C>
Net interest and other financial costs $24 $8
Less:
Favorable adjustment to carrying
value of indexed debt(a) - (13)
------ ------
Net interest and other financial costs
adjusted to exclude above item $24 $21
====== ======
- -------
<FN>
(a) In December 1996, USX issued $117 million of 6-3/4% Exchangeable Notes Due
February 1, 2000 ("indexed debt"), mandatorily exchangeable at maturity for
common stock of RTI International Metals, Inc. ("RTI") or for the
equivalent amount of cash, at USX's option. The carrying value of indexed
debt was adjusted quarterly to settlement value based on changes in the
value of RTI common stock. Any resulting adjustment was charged or
credited to income and included in interest and other financial costs. In
1999, USX satisfied its obligation by irrevocably depositing with a trustee
the RTI common stock. For further discussion, see Note 5 to the U. S.
Steel Group Financial Statements.
</TABLE>
The provision for estimated income taxes in the first quarter of 2000
increased compared to the same period in 1999 primarily due to an increase in
income before income taxes.
The extraordinary loss on extinguishment of debt of $5 million (net of $3
million income tax benefit) in the first quarter of 1999 represents prepaid
interest expense and the write-off of unamortized debt issue costs resulting
from the satisfaction of USX's obligation of its indexed debt. For further
discussion, see Note 5 to the U. S. Steel Group Financial Statements.
Net income in the first quarter of 2000 was $43 million, compared with a
net loss of $14 million in the first quarter of 1999. Net income increased $57
million in the first quarter of 2000 compared to the same period in 1999,
primarily reflecting the factors discussed above.
Operating Statistics
- --------------------
First quarter 2000 steel shipments of 3.0 million tons and raw steel
production of 3.2 million tons increased 25% and 15%, respectively, from the
same period in 1999. Raw steel capability utilization in the first quarter of
2000 averaged 99%, compared to 87% in the same period in 1999.
<PAGE> 61
U. S. STEEL GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
--------------------------------------------
Cash Flows
- ----------
Net cash provided from operating activities decreased $44 million in the
first quarter of 2000, compared with the first quarter of 1999. The decrease
was due primarily to unfavorable working capital changes, partially offset by
improved net income.
Capital expenditures in the first quarter of 2000 were $45 million,
compared with $79 million in the same period in 1999. The decrease of $34
million is due to a reduction in budgeted projects.
Financial obligations increased by $24 million in the first quarter of
2000, reflecting dividend payments, preferred stock repurchases and a decrease
in cash from operations, partially offset by lower capital expenditures.
Financial obligations consist of the U. S. Steel Group's portion of USX debt and
preferred stock of a subsidiary attributed to both groups, as well as debt and
financing agreements specifically attributed to the U. S. Steel Group.
Contract commitments at March 31, 2000, totaled $58 million, compared with
$83 million at December 31, 1999.
Derivative Instruments
- ----------------------
See Quantitative and Qualitative Disclosures About Market Risk for
discussion of derivative instruments and associated market risk for U. S. Steel
Group.
Liquidity
- ---------
For discussion of USX's liquidity and capital resources, see Management's
Discussion and Analysis of USX Consolidated Financial Condition, Cash Flows and
Liquidity.
Environmental Matters, Litigation and Contingencies
- ---------------------------------------------------
The U. S. Steel Group has incurred and will continue to incur substantial
capital, operating and maintenance, and remediation expenditures as a result of
environmental laws and regulations. In recent years, these expenditures have
been mainly for process changes in order to meet Clean Air Act obligations,
although ongoing compliance costs have also been significant. To the extent
these expenditures, as with all costs, are not ultimately reflected in the
prices of the U. S. Steel Group's products and services, operating results will
be adversely affected. The U. S. Steel Group believes that all of its domestic
competitors are subject to similar environmental laws and regulations. However,
the specific impact on each competitor may vary depending on a number of
factors, including the age and location of its operating facilities, marketing
areas, production processes and the specific products and services it provides.
To the extent that competitors are not required to undertake equivalent costs in
their operations, the competitive position of the U. S. Steel Group could be
adversely affected.
<PAGE> 62
U. S. STEEL GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
--------------------------------------------
USX has been notified that it is a potential responsible party ("PRP") at
27 waste sites related to the U. S. Steel Group under the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA") as of March
31, 2000. In addition, there are 12 sites related to the U. S. Steel Group
where USX has received information requests or other indications that USX may be
a PRP under CERCLA but where sufficient information is not presently available
to confirm the existence of liability or make any judgment as to the amount
thereof. There are also 31 additional sites related to the U. S. Steel Group
where remediation is being sought under other environmental statutes, both
federal and state, or where private parties are seeking remediation through
discussions or litigation. At many of these sites, USX is one of a number of
parties involved and the total cost of remediation, as well as USX's share
thereof, is frequently dependent upon the outcome of investigations and remedial
studies. The U. S. Steel Group accrues for environmental remediation activities
when the responsibility to remediate is probable and the amount of associated
costs is reasonably determinable. As environmental remediation matters proceed
toward ultimate resolution or as additional remediation obligations arise,
charges in excess of those previously accrued may be required.
In 1997, USS/Kobe Steel Company ("USS/Kobe"), a joint venture between USX
and Kobe Steel, Ltd. ("Kobe"), was the subject of a multi-media audit by the
United States Environmental Protection Agency ("EPA") that included an air,
water and hazardous waste compliance review. USS/Kobe and the EPA entered into
a tolling agreement pending issuance of the final audit and commenced settlement
negotiations in July 1999. In August 1999, the steelmaking and bar producing
operations of USS/Kobe were combined with companies controlled by Blackstone
Capital Partners II to form Republic. The tubular operations of USS/Kobe were
transferred to a newly formed entity, Lorain Tubular Company, LLC ("Lorain
Tubular"), which operated as a joint venture between USX and Kobe until December
31, 1999 when USX purchased all of Kobe's interest in Lorain Tubular. Republic
and Lorain Tubular are continuing negotiations with the EPA. Most of the
matters raised by the EPA relate to Republic's facilities; however, air
discharges from Lorain Tubular's #3 seamless pipemill have also been cited.
Lorain Tubular will be responsible for matters relating to its facilities. The
final report and citations from the EPA have not been issued.
USX is the subject of, or a party to, a number of pending or threatened
legal actions, contingencies and commitments relating to the U. S. Steel Group
involving a variety of matters, including laws and regulations relating to the
environment, certain of which are discussed in Note 9 to the U. S. Steel Group
Financial Statements. The ultimate resolution of these contingencies could,
individually or in the aggregate, be material to the U. S. Steel Group Financial
Statements. However, management believes that USX will remain a viable and
competitive enterprise even though it is possible that these contingencies could
be resolved unfavorably to the U. S. Steel Group.
Outlook
- -------
U. S. Steel expects shipment volumes and average steel product prices to be
higher in 2000 compared to 1999. In recent years, demand for steel in the
United States has been at high levels. However, average steel product prices,
while on the rebound, continue to be restrained by the ongoing effects of steel
imports. Any weakness in the U.S. economy for capital goods or consumer
durables could adversely impact U. S. Steel Group's product prices and shipment
levels.
<PAGE> 63
U. S. STEEL GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
--------------------------------------------
USX owns a 16 percent equity method investment in Republic (through USX's
ownership in Republic Technologies International Holdings, LLC ("Republic
Holdings"), which is the sole owner of Republic). In its Annual Report on Form
10-K for the year ended December 31, 1999, which was filed with the SEC on May
9, 2000, Republic Holdings stated that "[it] and its [p]redecessors have
historically incurred substantial losses...[Republic's] performance during the
third and fourth quarters of 1999 was below expectations, causing the
[c]ompany's liquidity position to be negatively affected. [Republic's]
liquidity position has also been negatively impacted by the implementation of
[Republic's] consolidation plan...." Republic Holdings' 10-K also discusses a
number of actions that Republic's management has taken to improve its liquidity
position. In the same report, Republic's independent accountants rendered an
unqualified opinion and stated that "[Republic] and [its] [p]redecessors'
recurring losses and negative cash flows from operations and ... [Republic's]
members' interest deficiency and limited available liquidity from existing
credit resources raise substantial doubt about its ability to continue as a
going concern."
At March 31, 2000, U. S. Steel Group's financial exposure to Republic
totaled approximately $96 million consisting of its equity investment in
Republic, an unsecured note receivable, unsecured trade accounts
receivable and contingent liabilities on USX obligations assumed by Republic.
USX is continuing to monitor this situation and if conditions continue to
deteriorate, it may be necessary for USX to impair some or all of its investment
in and receivables from Republic, and USX may further be responsible for the
obligations of USX assumed by Republic.
In March 2000, U. S. Steel announced it had reached a tentative agreement
to acquire ownership of the steel and related assets of VSZ a.s. ("VSZ") located
in the Slovak Republic. VSZ has an annual capacity of 4 million tons of raw
steel production. The agreement is subject to satisfactory completion of U. S.
Steel's due diligence investigation and approval by the shareholders of VSZ. The
Board of Directors of USX Corporation has already approved the transaction.
U. S. Steel already participates in a tin mill joint venture with VSZ,
VSZ U. S. Steel, s. r.o. Due diligence and documentation efforts are underway
with the intent of having a closing date in late June and taking ownership by
July 1, 2000.
The above discussion includes forward-looking statements concerning
shipments, pricing, equity affiliate performance, and completion of the VSZ
acquisition. These statements are based on assumptions as to future product
demand, prices and mix, production and the prompt closing of the VSZ
acquisition. Steel shipments and prices can be affected by imports and actions
of the U.S. Government and its agencies pertaining to trade, domestic and
international economies, domestic production capacity, and customer demand. In
the event these assumptions prove to be inaccurate, actual results may differ
significantly from those presently anticipated. Some factors that could
potentially affect the completion or timing of the VSZ closing include, among
others, approval by the shareholders of VSZ and satisfactory completion of all
necessary agreements and financing arrangements.
Steel imports to the United States accounted for an estimated 27%, 26% and
30% of the domestic steel market in the first two months of 2000, and for the
years 1999 and 1998, respectively.
<PAGE> 64
U. S. STEEL GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
--------------------------------------------
On September 30, 1998, U. S. Steel joined with 11 other producers, the USWA
and the Independent Steelworkers Union ("ISU") to file trade cases against hot-
rolled carbon steel products from Japan, Russia, and Brazil. A final antidumping
("AD") order against Japan was issued on June 23, 1999. In the cases against
Brazil, on July 7, 1999, the U. S. Department of Commerce ("Commerce") announced
final countervailing ("CVD") and AD duty determinations and, contemporaneously,
announced that it had entered into agreements with Brazil to suspend the
investigations. In the case against Russia, on July 13, 1999, Commerce
announced final AD duty determinations and, contemporaneously, announced that it
had entered into an agreement with Russia to suspend the investigation. In
addition, Commerce announced that it had also entered into a comprehensive
agreement concerning all steel product imports from Russia except for plate
products and hot-rolled products. Plate products from Russia are subject to a
suspension agreement signed in 1997. Appeals are pending at the U.S. Court of
International Trade ("CIT") in which various domestic producers have challenged
the hot-rolled carbon steel suspension agreements with Brazil and Russia and
respondents from all three countries have challenged various decisions of
Commerce.
On February 16, 1999, U. S. Steel joined with four other producers and the
USWA to file trade cases against eight countries (Japan, South Korea, India,
Indonesia, Macedonia, the Czech Republic, France, and Italy) concerning imports
of cut-to-length plate products. AD cases were filed against all the countries
and CVD duty cases were filed against all of the countries except Japan and the
Czech Republic. On April 2, 1999, the U. S. International Trade Commission
("ITC") determined that the volume of imports from Macedonia and the Czech
Republic were negligible, thereby terminating the investigations as to those
countries. On February 11, 2000, final AD orders were issued against all the
remaining countries, and final CVD orders were issued in all of the remaining
CVD cases. Appeals by petitioners and respondent countries are pending at the
CIT challenging various CVD decisions of Commerce in the cases against France,
Italy and South Korea, and respondents from India are challenging the AD
decisions of Commerce and the decision of the ITC.
On June 2, 1999, U. S. Steel joined with eight other producers, the USWA
and the ISU to file trade cases against twelve countries (Argentina, Brazil,
China, Indonesia, Japan, Russia, South Africa, Slovakia, Taiwan, Thailand,
Turkey, and Venezuela) concerning imports of cold-rolled sheet products. AD
cases were filed against all the countries and CVD duty cases were filed against
Brazil, Indonesia, Thailand, and Venezuela. On July 19, 1999, the ITC issued
its preliminary determination that the domestic industry was being injured or
threatened with injury as the result of imports from all of the countries. It
decided, however, to discontinue the investigations of subsidies on imports from
Indonesia, Thailand, and Venezuela. After having found preliminary margins
against each of the countries in each of the remaining cases, Commerce has
announced final AD margins against Argentina, Brazil, Japan, Russia, South
Africa, Thailand, Turkey and Venezuela and final CVD margins against Brazil.
Final decisions from Commerce as to the remaining countries are expected in the
first half of 2000. Commerce has announced that it has entered into an agreement
with Russia to suspend the investigation. After a final injury hearing, on
March 3, 2000, the ITC determined that the imports from
<PAGE> 65
U. S. STEEL GROUP OF USX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
--------------------------------------------
Argentina, Brazil, Japan, Russia, South Africa, Thailand, Turkey and Venezuela
were not causing material injury to the domestic industry, terminating the cases
against these countries. The ITC's final injury determination for the remaining
four countries is still pending. Appeals are pending at the CIT in which
various domestic producers are challenging the ITC decisions.
On June 30, 1999, U. S. Steel joined with four other producers and the USWA
to file trade cases against five countries (the Czech Republic, Japan, Mexico,
Romania, and South Africa) concerning imports of large and small diameter
seamless carbon and alloy standard, line, and pressure pipe. On August 13,
1999, the ITC issued its preliminary determination that the domestic industry
was being injured or threatened with injury as the result of imports from all of
the countries. Commerce has announced preliminary duty determinations in each
of the cases and final determinations with respect to Japan and South Africa.
The remaining cases are subject to further investigation by Commerce and all
cases are subject to further investigation by the ITC.
U. S. Steel intends to file additional antidumping and countervailing duty
petitions if unfairly traded imports adversely impact, or threaten to adversely
impact, the results of the U. S. Steel Group.
On September 1, 1999, Commerce and the ITC published public notices
announcing the initiation of the mandatory five-year "sunset reviews" of
antidumping and countervailing duty orders issued as a result of the cold-
rolled, corrosion-resistant, and cut-to-length plate cases filed by the domestic
industry in 1992. Under the "sunset review" procedure, an order must be revoked
after five years unless Commerce and the ITC determine that dumping or a
countervailable subsidy is likely to continue or recur and that material injury
to the domestic industry is likely to continue or recur. Of the 34 orders issued
concerning the various products imported from various countries, 26 are the
subject of expedited review at Commerce because there was no response,
inadequate response, or waiver of participation by the respondent parties.
Therefore, at Commerce, only eight of the orders (corrosion-resistant, cold-
rolled, and cut-to-length plate from Germany; corrosion-resistant and cut-to-
length plate from Canada; corrosion-resistant from Japan; cold-rolled from the
Netherlands; and cut-to-length plate from Romania) are the subject of a full
review. On March 29, 2000, Commerce issued its final determinations of margins
in the expedited reviews and found that if the CVD or AD orders were to be
revoked, further dumping or subsidization would occur. In all eight cases
subject to full review, it issued preliminary margins and a preliminary
determination that, if the CVD or AD orders were to be revoked, further dumping
or subsidization would occur. The ITC will conduct full reviews in all 34 of
the cases, despite the fact that responses by some of the respondent countries
were inadequate.
On October 28, 1999, Weirton Steel, along with the USWA and the ISU, filed
a trade case against tin- and chromium-coated steel sheet imports from Japan.
In December 1999, the ITC issued its preliminary determination that the domestic
industry is being injured as a result of the imports from Japan and in April
2000, Commerce announced preliminary duty margins. This case is subject to
further investigation by both the ITC and Commerce.
<PAGE> 66
U. S. STEEL GROUP OF USX CORPORATION
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
-------------------------------------
Commodity Price Risk and Related Risks
- --------------------------------------
Sensitivity analysis of the incremental effects on pretax income of
hypothetical 10% and 25% decreases in commodity prices for open derivative
commodity instruments are provided in the following table: (a)
<TABLE>
<CAPTION>
Incremental Decrease
in Pretax Income
Assuming a Hypothetical
Price Change of:
10% 25% 10% 25%
March 31, March 31,
(Dollars in millions) 2000 1999
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Derivative Commodity Instruments
U. S. Steel Group
Natural gas
Other than trading $- $- (b) $2.4 $6.0(b)
Zinc
Other than trading .9 2.2 (b) 2.0 4.6(b)
<FN>
(a) Gains and losses on derivative commodity instruments are generally offset
by price changes in the underlying commodity. Effects of these offsets
are not reflected in the sensitivity analyses. Amounts reflect the
estimated incremental effect on pretax income of hypothetical 10% and 25%
changes in closing commodity prices for each open contract position at
March 31, 2000, and March 31, 1999. U. S. Steel Group management
evaluates its portfolio of derivative commodity instruments on an ongoing
basis and adds or revises strategies to reflect anticipated market
conditions and changes in risk profiles. Changes to the portfolio
subsequent to March 31, 2000, may cause future pretax income effects to
differ from those presented in the table.
(b) Price decrease.
</TABLE>
Interest Rate Risk
- ------------------
As of March 31, 2000, the discussion of the U. S. Steel Group's interest
rate risk has not changed materially from that presented in Quantitative and
Qualitative Disclosures About Market Risk included in USX's 1999 Form 10-K.
Foreign Currency Exchange Rate Risk
- -----------------------------------
As of March 31, 2000, the U. S. Steel Group had no material exposure to
foreign currency exchange rate risk.
Equity Price Risk
- -----------------
As of March 31, 2000, the U. S. Steel Group had no material exposure to
equity price risk.
<PAGE> 67
U. S. STEEL GROUP OF USX CORPORATION
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
------------------------------------
Safe Harbor
- -----------
The U. S. Steel Group's quantitative and qualitative disclosures about
market risk include forward-looking statements with respect to management's
opinion about risks associated with the U. S. Steel Group's use of derivative
instruments. These statements are based on certain assumptions with respect to
market prices and industry supply and demand for steel products and certain raw
materials. To the extent that these assumptions prove to be inaccurate, future
outcomes with respect to the U. S. Steel Group's hedging programs may differ
materially from those discussed in the forward-looking statements.
<PAGE> 68
<TABLE>
<CAPTION>
U. S. STEEL GROUP OF USX CORPORATION
SUPPLEMENTAL STATISTICS (Unaudited)
------------------------------------
First Quarter Ended
March 31
(Dollars in millions) 2000 1999
- --------------------------------------------------------------------------------
<S> <C> <C>
REVENUES $1,547 $1,211
INCOME (LOSS) FROM OPERATIONS
U. S. Steel operations (a) (b) (c) $54 $(3)
Items not allocated to segment:
Net Pension Credits (c) 65 52
Administrative Expenses (6) (5)
Costs related to former business activities (d) (22) (24)
Loss on investment in RTI stock used to satisfy indexed
debt obligations - (22)
----- -----
Total U. S. Steel Group $91 $(2)
CAPITAL EXPENDITURES $45 $79
OPERATING STATISTICS
Average steel price per ton $438 $436
Steel Shipments (e) 2,980 2,381
Raw Steel-Production (e) 3,152 2,749
Raw Steel-Capability Utilization (f) 99.0% 87.1%
Iron ore shipments (e) 2,029 1,363
<FN>
- -----------
(a) Results in first quarter 1999 included a $10 million charge for
environmental accruals.
(b) Includes the production and sale of steel products, coke and taconite
pellets; domestic coal mining; the management of mineral resources;
engineering and consulting services; and equity income from joint
ventures and partially owned companies, such as USS-POSCO Industries,
PRO-TEC Coating Company, Transtar Inc., Republic Technologies
International, LLC and VSZ U. S. Steel, s. r.o. Also includes results
of real estate development and leasing and financing activities.
(c) Effective January 1, 2000, USX changed its methodology for allocating
the pension credit or cost associated with its principal pension plans
for internal business performance reporting purposes. Since future
contributions to these plans are expected to be minimal due to their
overfunded position, no pension credit or cost is allocated to current
business activities. Accordingly, no pension credit or cost has been
allocated to the U. S. Steel operations segment. Prior years' segment
profit or loss has been restated to conform with the current
allocation methodology.
(d) Includes other postretirement benefit costs and certain other
expenses principally attributable to former business units of the
U. S. Steel Group.
(e) Thousands of net tons.
(f) Based on annual raw steel production capability of 12.8 million tons.
</TABLE>
<PAGE> 69
Part II - Other Information:
- ---------------------------
Item 1. LEGAL PROCEEDINGS
Marathon Group
Environmental Proceedings
In October 1998, the National Enforcement Investigations Center and Region
V of the United States Environmental Protection Agency conducted a multi-media
inspection of MAP's Detroit refinery. Subsequently, in November 1998, Region V
conducted a multi-media inspection of MAP's Robinson refinery. These inspections
covered compliance with the Clean Air Act (New Source Performance Standards,
Prevention of Significant Deterioration, and the National Emission Standards for
Hazardous Air Pollutants for Benzene), the Clean Water Act (Permit exceedances
for the Waste Water Treatment Plant), reporting obligations under the Emergency
Planning and Community Right to Know Act and the handling of process waste.
Although MAP has been advised as to certain compliance issues regarding MAP's
Detroit refinery, complete findings on the results of the inspections have not
been issued. Thus far, MAP has been served with two Notices of Violation
("NOV") and three Findings of Violation in connection with the multi-media
inspections at its Detroit refinery. The Detroit notices allege violations of
the Michigan State Air Pollution Regulations, the EPA New Source Performance
Standards and National Emission Standards for Hazardous Air Pollutants for
benzene. On March 6, 2000, MAP received its first NOV arising out of the multi-
media inspection of the Robinson Refinery conducted in November 1998. The NOV
is for alleged Resource Conservation and Recovery Act (hazardous waste)
violations. MAP can contest the factual and legal basis for the allegations
prior to the EPA taking enforcement action. At this time, it is not known when
complete findings on the results of these multi-media inspections will be
issued.
On February 3, 2000, Commonwealth of Kentucky, Natural Resources and
Environmental Protection Cabinet, Department for Environmental Protection
("DEP") issued a NOV to Marathon Ashland Pipe Line LLC ("MAPL"), a wholly owned
subsidiary of MAP for the January 27, 2000, pipeline release in Winchester,
Kentucky. Currently, no civil penalty amount has been demanded, but the NOV
references potential penalties up to $25,000 per day. MAPL has submitted an
assessment plan to the DEP which was approved on April 7, 2000.
On January 25, 2000, the DEP issued a NOV to Catlettsburg Refining, LLC, a
wholly owned subsidiary of MAP. The NOV relates to a rupture of a storage tank
on November 8, 1999, and a release of the tank's contents. The NOV cites
numerous violations with potential civil penalties up to $25,000 per day.
<PAGE> 70
Item 1. LEGAL PROCEEDINGS (Continued)
Marathon has been advised that it is named as a defendant in a recently unsealed
complaint in Wright v. AGIP, et al., a qui tam case which alleges that federal
and Indian lessees violated the False Claims Act with respect to the reporting
and payment of royalties on natural gas and natural gas liquids. The Department
of Justice has reportedly announced that it would intervene against some of the
companies other than Marathon. The Government is not required to file a
complaint until the end of May.
U. S. Steel Group
Environmental Proceedings
In 1997, USS/Kobe Steel Company ("USS/Kobe"), a joint venture between USX and
Kobe Steel, Ltd. ("Kobe"), was the subject of a multi-media audit by the EPA
that included an air, water and hazardous waste compliance review. USS/Kobe and
the EPA entered into a tolling agreement pending issuance of the final audit and
commenced settlement negotiations in July 1999. In August 1999, the steelmaking
and bar producing operations of USS/Kobe were combined with companies controlled
by Blackstone Partners II to form Republic Technologies International, LLC
("Republic"). The tubular operations of USS/Kobe were transferred to a newly
formed entity, Lorain Tubular Company, LLC ("Lorain Tubular"), which operated as
a joint venture between USX and Kobe until December 1999 when USX purchased all
of Kobe's interest in Lorain Tubular. Republic and Lorain Tubular are
continuing negotiations with EPA. Most of the matters raised by the EPA relate
to Republic's facilities; however, air discharges from Lorain Tubular's #3
seamless pipemill have also been cited. Lorain Tubular will be responsible for
matters relating to its facilities. The final report and citations from the EPA
have not been issued.
<PAGE>71
Part II - Other Information (Continued):
- ----------------------------------------
Item 5. OTHER INFORMATION
Marathon Group
SUMMARIZED CONSOLIDATED FINANCIAL INFORMATION OF MARATHON OIL COMPANY
Supplementary Data
---------------------------------------------------------------------
(Unaudited)
The following summarized consolidated financial information of Marathon Oil
Company, a wholly owned subsidiary of USX, is included in this Form 10-Q in
satisfaction of the reporting obligation of Marathon which has debt securities
registered under the Securities Exchange Act. All such securities are
guaranteed by USX.
<TABLE>
<CAPTION>
(In millions)
-------------------
First Quarter Ended
March 31
2000 1999
---- ----
<S> <C> <C>
INCOME DATA:
Revenues $7,961 $4,842
Income from operations 533 408
Net income 262 111
</TABLE>
<TABLE>
<CAPTION>
(In millions)
----------------------
March 31 December 31
2000 1999
-------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Assets:
Current assets $6,027 $6,067
Noncurrent assets 11,616 11,499
------ ------
Total assets $17,643 $17,566
====== ======
Liabilities and Stockholder's Equity:
Current liabilities $3,280 $3,294
Noncurrent liabilities 9,047 9,276
Preferred stock of subsidiary 10 10
Minority interest in income of Marathon
Ashland Petroleum LLC 1,811 1,753
Stockholder's equity 3,495 3,233
------ ------
Total liabilities and stockholder's equity $17,643 $17,566
====== ======
</TABLE>
<PAGE> 72
Part II - Other Information (Continued):
- ----------------------------------------
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10(f)USX Supplemental Thrift Program,
As Amended January 1, 2000
12.1 Computation of Ratio of Earnings to Combined
Fixed Charges and Preferred Stock Dividends
12.2 Computation of Ratio of Earnings to
Fixed Charges
27. Financial Data Schedule
(b) REPORTS ON FORM 8-K
NONE
<PAGE> 73
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 chief accounting officer thereunto duly authorized.
USX CORPORATION
By /s/ Larry G. Schultz
-----------------------
Larry G. Schultz
Vice President -
Accounting
May 11, 2000
EXHIBIT 10(F)
USX CORPORATION SUPPLEMENTAL THRIFT PROGRAM
Effective April 1, 1983
As amended January 1, 2000
1. PURPOSE
The purpose of this program is to compensate individuals for the loss of Company
matching contributions under the USX Corporation Savings Fund Plan for Salaried
Employees ("Savings Plan") that occurs due to certain limits established under
the Internal Revenue Code ("Code") or that are required under the Code. The
term "Corporation" shall mean USX Corporation and any other company that is a
participating employer in the Savings Plan.
2. ELIGIBILITY
Except as otherwise provided herein, an individual is a "Member" of the USX
Corporation Supplemental Thrift Program (the "Program") if he or she is an
employee of the Corporation who is eligible to participate in the Savings Plan
and either (a) is a member of the Executive Management Group, or (b) is not
permitted to make contributions to the Savings Plan at least equal to the
maximum rate of matching Company contributions applicable to his service because
of the limitations of the Code.
3. AMOUNT OF BENEFITS
With respect to a month in which a Member's (a) ability to save on both a pre-
tax and after-tax basis under the Savings Plan at a rate at least equal to the
maximum rate of matching Company contributions applicable to his service is
restricted by law (including the limitations under Code sections 401(a)(17),
401(k), 402(g), and 415), or (b) ability to save on an after-tax basis under the
Savings Plan at a rate at least equal to the maximum rate of matching Company
contributions applicable to his service is restricted by Code section 401(m),
the full matching Company contributions which would otherwise have been
deposited into the Savings Plan on behalf of the Member will be credited for
such month to the Member's account under the Program (regardless of the Member's
rate of savings under the Savings Plan).
The amount credited to a Member's account in the Program (book entry only) will
be credited in the same manner as if the amount had been deposited in the
Savings Plan for investment in Corporation stock. For purposes of this Program,
Corporation stock shall mean, with respect to Members who are employed in the
steel and diversified businesses of the Corporation, USX-U.S. Steel Group Common
Stock ("Steel Stock"). For all other Members, Corporation stock shall mean a
combination of USX-Marathon Group Common Stock ("Marathon Stock") and Steel
Stock having the same ratio to each other as the ratio of the Market
Capitalization of the Marathon Stock to the Market Capitalization of the Steel
Stock as of the last day of the month preceding the date on which such amounts
are credited to the Member's account.
EXHIBIT 10(F) (CONTINUED)
"Market Capitalization" shall mean, on any day, the product of the total number
of shares of Marathon Stock or Steel Stock, as the case may be, outstanding on
such day, times the closing market price on the New York Stock Exchange of a
share of Marathon Stock or Steel Stock, as the case may be, on such day.
Except as otherwise provided, the rules under the Savings Plan for eligibility,
Corporation stock values, share determination, beneficiary designation, and
vesting will be applicable under this Program.
4. FORM OF BENEFIT
A Member shall receive a lump sum distribution of the benefits payable under
this Program upon the Member's (a) termination of employment with five or more
years of continuous service, (b) termination of employment prior to attaining
five years of continuous service with the consent of the Corporation, or (c)
pre-retirement death. Benefits provided by this Program shall be paid by the
Corporation in cash out of the general assets of the Member's Employing Company.
In the event a Member dies prior to retirement (or after retirement but prior to
receiving the benefits credited to his account under the Program), the benefits
will be paid to the Member's surviving spouse (or to the Member's estate, if
there is no surviving spouse) in the form of a lump sum distribution.
5. SUPPLEMENTAL TAX BENEFIT
The benefits payable under the Program will be increased, where applicable, by a
supplemental tax benefit for those Members who are eligible for favorable tax
treatment (5/10-year forward averaging and/or capital gain treatment) with
respect to a distribution from a tax-qualified plan, except in the case of a
Member who terminates employment prior to age 60 without the consent of the
Corporation. The supplemental tax benefit is the amount necessary to provide
the net after-tax distribution from the Program (based on the maximum individual
tax rate in effect at the date of distribution) which would have been realized
had the value of the matching Company contributions credited to the Member's
account in the Program been included with the Member's account under the Savings
Plan and the total combined value been distributed in cash. In determining the
supplemental tax benefit, any favorable tax treatment the Member would be
entitled to receive will be based solely on the total combined distribution from
the Savings Plan, while the effects, if any, of the additional early
distribution tax or the excise tax on excess distributions from the Savings Plan
will be disregarded.
6. GENERAL PROVISIONS
a. Administration
The Vice President-Administration, United States Steel and Carnegie Pension
Fund, is responsible for the administration of this Program. The
administrator shall decide all questions arising out of and relating to the
administration of this Program. The decision of the administrator shall be
final and conclusive as to all questions of interpretations and application
of the Program.
EXHIBIT 10(F) (CONTINUED)
b. Amendment or Termination of Program
------------------------------------
The Corporation reserves the right to make any changes in this Program or to
terminate this Program as to any or all groups of employees covered under
this Program, but in no event shall such amendment or termination adversely
affect the benefits accrued hereunder prior to the effective date of such
amendment or termination. Any amendment to this Program which changes this
Program (including any amendment which increases, reduces or alters the
benefits of this Program) or any action which terminates this Program to any
or all groups shall be made by a resolution of the USX Corporation Board of
Directors (or any authorized committee of such Board) adopted in accordance
with the bylaws of USX Corporation and the corporation law of the state of
Delaware.
c. No Guarantee of Employment
---------------------------
Neither the creation of this Program nor anything contained herein shall be
construed as giving an individual hereunder any right to remain in the
employ of the Corporation.
d. Nonalienation
--------------
No benefits payable under this Program shall be subject in any way to
alienation, sale, transfer, assignment, pledge, attachment, garnishment,
execution, or encumbrance of any kind by operation of law or otherwise.
However, this section shall not apply to portions of benefits applied to
satisfy (i) obligations for withholding of employment taxes, or (ii)
obligations under a qualified domestic relations order.
e. No Requirement to Fund
-----------------------
Benefits provided by this Program shall be paid out of general assets of the
Corporation. No provisions in this Program, either directly or indirectly,
shall be construed to require the Corporation to reserve, or otherwise set
aside, funds for the payment of benefits hereunder.
f. Controlling Law
----------------
To the extent not preempted by the laws of the United States of America, the
laws of the Commonwealth of Pennsylvania shall be the controlling state law
in all matters relating to this Program.
g. Severability
-------------
If any provisions of this Program shall be held illegal or invalid for any
reason, said illegality or invalidity shall not affect the remaining parts
of this Program, but this Program shall be construed and enforced as if such
illegal or invalid provision had never been included herein.
<TABLE>
<CAPTION>
Exhibit 12.1
USX CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
TOTAL ENTERPRISE BASIS - (Unaudited)
CONTINUING OPERATIONS
----------------------------------------------------------
(Dollars in Millions)
First Quarter
Ended Year Ended December 31
March 31 ----------------------------
2000 1999 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Portion of rentals
representing interest $24 $26 $95 $105 $82 $78 $76
Capitalized interest 2 9 26 46 31 11 13
Other interest and fixed
charges 100 81 365 318 352 428 486
Pretax earnings which would
be required to cover
preferred stock dividend
requirements of parent 3 4 14 15 20 37 46
---- ---- ---- ---- ---- ---- ----
Combined fixed charges
and preferred stock
dividends (A) $129 $120 $500 $484 $485 $554 $621
==== ==== ==== ==== ==== ==== ====
Earnings-pretax income
with applicable
adjustments (B) $666 $454 $2098 $1671 $1761 $1887 $909
==== ==== ==== ==== ==== ==== ====
Ratio of (B) to (A) 5.16 3.78 4.20 3.45 3.63 3.41 1.46
==== ==== ==== ==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
Exhibit 12.2
USX CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
TOTAL ENTERPRISE BASIS - (Unaudited)
CONTINUING OPERATIONS
-------------------------------------------------
(Dollars in Millions)
First Quarter
Ended Year Ended December 31
March 31 --------------------------------
2000 1999 1999 1998 1997 1996 1995
---- ---- ---- ---- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Portion of rentals
representing interest $24 $26 $95 $105 $82 $78 $76
Capitalized interest 2 9 26 46 31 11 13
Other interest and fixed
charges 100 81 365 318 352 428 486
---- ---- ---- ---- ---- ---- -----
Total fixed charges (A) $126 $116 $486 $469 $465 $517 $575
==== ==== ==== ==== ==== ==== ====
Earnings-pretax income
with applicable
adjustments (B) $666 $454 $2098 $1671 $1761 $1887 $909
==== ==== ==== ==== ==== ==== ====
Ratio of (B) to (A) 5.29 3.91 4.32 3.56 3.79 3.65 1.58
==== ==== ==== ==== ==== ==== ====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 107
<SECURITIES> 0
<RECEIVABLES> 2728
<ALLOWANCES> 14
<INVENTORY> 2676
<CURRENT-ASSETS> 5976
<PP&E> 29885
<DEPRECIATION> 17064
<TOTAL-ASSETS> 23115
<CURRENT-LIABILITIES> 4178
<BONDS> 4187
183
2
<COMMON> 400<F1>
<OTHER-SE> 6650
<TOTAL-LIABILITY-AND-EQUITY> 23115
<SALES> 9372
<TOTAL-REVENUES> 9494
<CGS> 7278
<TOTAL-COSTS> 8878
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 95
<INCOME-PRETAX> 466
<INCOME-TAX> 169
<INCOME-CONTINUING> 297
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 297
<EPS-BASIC> 0<F2>
<EPS-DILUTED> 0<F3>
<FN>
<F1>CONSISTS OF MARATHON STOCK ISSUED, $312 MILLION; STEEL STOCK ISSUED $88
MILLION.
<F2>BASIC EARNINGS PER SHARE APPLICABLE TO MARATHON STOCK, $.81; STEEL STOCK, $.45
<F3>DILUTED EARNINGS PER SHARE APPLICABLE TO MARATHON STOCK, $.81; STEEL STOCK,
$.45
</FN>
</TABLE>
