Contact: William E. Keslar
Don H. Herring
(412) 433-6870
FOR IMMEDIATE RELEASE
USX CORPORATION REPORTS U. S. STEEL GROUP
THIRD QUARTER 2000 RESULTS
EARNINGS HIGHLIGHTS
(Dollars in millions except per diluted share data)
3Q 2000 3Q 1999
Net income adjusted for special items $25 $8
- per diluted share $0.26 $0.07
Net income $19 $(31)
Net income per diluted share $0.19 $(0.37)
Revenues $1,430 $1,337
PITTSBURGH, October 19, 2000 - USX-U. S. Steel Group (NYSE: X) reported
third quarter 2000 adjusted net income of $25 million, or 26 cents per diluted
share, compared with $8 million, or 7 cents per diluted share in third quarter
1999.
U. S. Steel Group recorded third quarter 2000 net income of $19 million, or
19 cents per diluted share, which included after-tax charges of $6 million
related to USX's share of restructuring and impairment charges at Republic
Technologies International, LLC (Republic). In third quarter 1999, U. S. Steel
Group recorded a loss of $31 million, or 37 cents per diluted share, which
included after-tax charges of $39 million related to the impairment of USX's
investment in USS/Kobe Steel Company, certain legal accruals and costs related
to the formation of Republic.
- 2 -
U. S. Steel Group revenues in third quarter 2000 were $1.4 billion,
compared with $1.3 billion in third quarter 1999.
Third quarter 2000 segment income for U. S. Steel operations was $23
million, or $9 per ton. This compares with third quarter 1999 segment income of
$3 million, or $1 per ton. U. S. Steel's average price realization was $454 per
ton in third quarter 2000, up from $405 per ton in third quarter 1999, mainly
the result of better product mix, primarily increased tubular shipments and
lower hot rolled shipments.
Third quarter 2000 shipments were 2.6 million net tons, compared with 2.8
million net tons in third quarter 1999. Third quarter 2000 raw steel capability
utilization was 85.5 percent, compared with 94.9 percent in the 1999 third
quarter.
Commenting on the latest quarter's results, USX Corporation Board Chairman
Thomas J. Usher said, "U. S. Steel Group's third quarter results were adversely
impacted by surging imports, a draw down of inventories by spot purchasers and
growing evidence of a slowing U.S. economy. As a result, U. S. Steel's
shipments declined at a time when rising natural gas prices dramatically
increased our costs. We expect these factors to continue to dampen our business
through the fourth quarter with shipments projected to be somewhat below third
quarter levels." Usher continued, "I am particularly concerned about the
continuing high level of imports and the inability of litigation under our trade
laws to provide comprehensive and timely relief. Due to our reduced order book,
a blast furnace idled at Gary Works on July 24 for a planned 10-day outage is
now expected to remain down through year end."
In early October, U. S. Steel Group announced an agreement with LTV
Corporation to purchase LTV's tin mill products business, including its Indiana
Harbor, Indiana tin operations. Terms of this non-cash
- 3 -
transaction call for U. S. Steel to assume certain employee-related obligations
of LTV. The purchase is expected to become effective around year end.
"This action is consistent with our value-added strategy and is expected to
improve our competitive position in the tin product business," said Usher. "The
acquisition is expected to have a positive impact on U. S. Steel earnings and
cash flow in 2001. We are preparing for an orderly transition at Indiana Harbor
and fully expect to provide our customers with quality products and service from
day one."
In the Slovak Republic, final transaction documents were signed in Kosice
in late September, setting the stage for the U. S. Steel Group to buy the four
million ton-per-year steelmaking operations and related assets of VSZ a.s. On
October 12, VSZ shareholders voted overwhelmingly in favor of the sale to U. S.
Steel. The transaction must now be approved by the Slovak government's anti-
monopoly office. U. S. Steel Kosice s.r.o. is a modern, 100-percent continuous-
cast steel plant, which already ranks as the largest integrated flat rolled
steel producer in Central Europe.
"We expect to take ownership in November," said Usher, "and are committed
to broadening U. S. Steel Kosice's value-added product line, advancing it to the
front ranks among European steel producers and establishing it as the
competitive leader in the Central European steel market."
In addition, Transtar, Inc. recently announced it has entered into a
Reorganization and Exchange Agreement with its two voting shareholders, Transtar
Holdings, L.P. (Holdings), an affiliate of Blackstone Capital Partners L.P., and
USX Corporation. As a result of this transaction, USX would become the sole
owner of Transtar, Inc. and certain of its
- 4 -
subsidiaries, namely, the Birmingham Southern Railroad Company; the Elgin,
Joliet and Eastern Railway Company; the Lake Terminal Railroad Company; the
McKeesport Connecting Railroad Company; the Mobile River Terminal Company, Inc.;
the Union Railroad Company; the Warrior & Gulf Navigation Company; and Tracks
Traffic and Management Services, Inc. and their subsidiaries. Holdings
would become the owner of the other subsidiaries.
*****
This release contains forward-looking statements with respect to fourth
quarter shipments and the completion and impact of the LTV, VSZ and Transtar
transactions. Some factors, among others, that could affect fourth quarter
shipments include import levels, purchaser inventory levels and U.S. economic
performance. The completion of the LTV acquisition may be affected by factors
such as receipt of government approvals, consent of third parties, and
satisfaction of customary closing conditions. The expected positive impact of
the LTV acquisition may be affected by factors such as adverse market conditions
and unrealized synergies. One factor, among others, that could affect the VSZ
acquisition is final approval by the anti-monopoly office of the Slovak
Republic. The completion of the Transtar reorganization and exchange could be
affected by a number of conditions including approval by the Surface
Transportation Board and antitrust clearances. In accordance with the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995, USX
has included in Form 10-K for the year ended December 31, 1999, cautionary
statements identifying important factors, but not necessarily all factors, that
could cause actual results
- 5 -
to differ materially from those set forth in the forward-looking statements.
A Statement of Operations and Preliminary Supplemental Statistics for the
U. S. Steel Group and a Consolidated Statement of Operations for USX Corporation
are attached.
<TABLE>
<CAPTION>
U. S. STEEL GROUP OF USX CORPORATION
STATEMENT OF OPERATIONS (Unaudited)
------------------------------------
Third Quarter Nine Months
Ended Ended
September 30 September 30
(Dollars in millions, except per share amounts) 2000 1999* 2000 1999*
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Sales $1,417 $1,377 $4,542 $3,926
Income (loss) from affiliates 6 (53) 13 (86)
Net gains on disposal of assets 6 11 34 9
Other income (loss) 1 2 (1) 3
------ ------ ------ ------
Total revenues 1,430 1,337 4,588 3,852
------ ------ ------ ------
COSTS AND EXPENSES:
Cost of sales (excludes items shown below) 1,299 1,289 4,103 3,606
Selling, general and administrative
expenses (credits) (56) (61) (176) (226)
Depreciation, depletion and amortization 69 78 222 228
Taxes other than income taxes 58 57 176 169
------ ------ ------ ------
Total costs and expenses 1,370 1,363 4,325 3,777
------ ------ ------ ------
INCOME (LOSS) FROM OPERATIONS 60 (26) 263 75
Net interest and other financial costs 27 20 75 48
------ ------ ------ ------
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY LOSSES 33 (46) 188 27
Provision (credit) for estimated income taxes 14 (17) 70 10
------ ------ ------ ------
INCOME (LOSS) BEFORE EXTRAORDINARY LOSSES 19 (29) 118 17
Extraordinary losses on extinguishment of debt,
net of income tax - 2 - 7
------ ------ ------ ------
NET INCOME (LOSS) 19 (31) 118 10
Dividends on preferred stock 2 2 6 7
------ ------ ------ ------
NET INCOME (LOSS) APPLICABLE TO STEEL STOCK $17 $(33) $112 $3
====== ====== ====== ======
STEEL STOCK DATA:
Income (loss) before extraordinary losses $17 $(31) $112 $10
- Per share - basic and diluted .19 (.35) 1.27 .12
Extraordinary losses, net of income tax - 2 - 7
- Per share - basic and diluted - .02 - .08
Net income (loss) $17 $(33) $112 $3
- Per share - basic and diluted .19 (.37) 1.27 .04
Dividends paid per share .25 .25 .75 .75
Weighted average shares, in thousands
- Basic 88,738 88,394 88,554 88,383
- Diluted 88,738 88,394 88,556 88,385
<FN>
*Certain amounts have been reclassified to conform to current classifications.
The following notes are an integral part of this financial statement.
</TABLE>
U. S. STEEL GROUP OF USX CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENT
--------------------------------------
1. The statement of operations of the U. S. Steel Group includes the results
of operations for the businesses of USX other than businesses included in the
Marathon Group and a portion of USX's net financial costs, general and
administrative costs and income taxes attributed to the groups in accordance
with USX's accounting and tax allocation policies. This statement should be
read in connection with the consolidated statement of operations of USX.
2. In 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.
Republic Technologies International, LLC, an equity method affiliate of USX,
recorded in the third quarter of 1999 an extraordinary loss related to the
early extinguishment of debt. As a result, the U. S. Steel Group recorded
an extraordinary loss of $2 million, net of a $1 million income tax benefit,
representing its share of the extraordinary loss.
3. In August 1999, USX and Kobe Steel, Ltd. (Kobe Steel) completed a
transaction that combined the steelmaking and bar producing assets of
USS/Kobe Steel Company (USS/Kobe) with companies controlled by Blackstone
Capital Partners II. The combined entity was named Republic Technologies
International, LLC (Republic). In addition, USX made a $15 million equity
investment in Republic. USX owned 50% of USS/Kobe and now owns 16% of
Republic. USX accounts for its investment in Republic under the equity
method of accounting. The seamless pipe business of USS/Kobe was excluded
from this transaction. That business, now known as Lorain Tubular Company
LLC, is a wholly owned subsidiary of USX.
Third quarter 2000 income (loss) from affiliates includes $10 million in
charges related to USX's share of impairment and restructuring charges of
Republic. In addition, third quarter 1999 income (loss) from affiliates
includes $50 million in charges related to the impairment of the carrying
value of USX's investment in USS/Kobe and costs related to the formation of
Republic.
<TABLE>
<CAPTION>
U. S. STEEL GROUP OF USX CORPORATION
PRELIMINARY SUPPLEMENTAL STATISTICS (Unaudited)
-----------------------------------------------
Third Quarter Nine Months
Ended Ended
September 30 September 30
(Dollars in millions) 2000 1999 2000 1999
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES $1,430 $1,337 $4,588 $3,852
INCOME (LOSS) FROM OPERATIONS
U. S. Steel operations (a) (b) (c) $23 $3 $145 $43
Items not allocated to segment:
Net Pension Credits (c) 67 46 199 186
Administrative Expenses (7) (4) (18) (17)
Cost related to former business activities (d) (23) (21) (63) (65)
Impairment of USX's investment in USS/Kobe
and costs related to the formation of
Republic (e) - (50) - (50)
Loss on settlement of indexed debt with
RTI International Metals, Inc. Stock - - - (22)
---- ---- ---- ----
Total U. S. Steel Group 60 (26) 263 75
CAPITAL EXPENDITURES $36 $68 $133 $221
OPERATING STATISTICS
Average steel price per ton $454 $405 $448 $421
Steel Shipments (f) 2,557 2,835 8,441 7,764
Raw Steel-Production (f) 2,752 3,061 8,938 8,901
Raw Steel-Capability Utilization (g) 85.5% 94.9% 93.3% 93.0%
Iron ore shipments (f) 4,770 4,706 11,455 10,892
<FN>
----------
(a) Results in the third quarter and first nine months of 2000 included
$10 million for USX's share of Republic's special charges. Results in the
first nine months of 2000 included charges totaling $15 million for
certain environmental and legal accruals. Results in the third quarter
and first nine months of 1999 included charges of $7 million and $17
million, respectively, for certain legal and 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. Net pension credits for 1999 periods include $35
million for a pension settlement gain primarily related to the early
retirement program completed during the second quarter 1999.
(d) Includes other postretirement benefit costs and certain other
expenses principally attributable to former business units of the U. S.
Steel Group.
(e) For additional information on the impairment, see Note 3 to the
U. S. Steel Group Statement of Operations.
(f) Thousands of net tons.
(g) Based on annual raw steel production capability of 12.8 million
tons.
</TABLE>
<TABLE>
<CAPTION>
USX CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
------------------------------------------------
Third Quarter Nine Months
Ended Ended
September 30 September 30
(Dollars in millions) 2000 1999* 2000 1999*
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Sales $10,621 $7,827 $30,425 $20,636
Dividend and affiliate income (loss) 46 (39) 81 (28)
Net gains (losses) on disposal of assets 7 5 129 (8)
Gain on ownership change in Marathon Ashland
Petroleum LLC 1 11 9 11
Other income 18 9 31 22
------ ------ ------ ------
Total revenues 10,693 7,813 30,675 20,633
------ ------ ------ ------
COSTS AND EXPENSES:
Cost of sales (excludes items shown below) 8,198 5,896 23,324 15,260
Selling, general and administrative expenses 95 60 233 149
Depreciation, depletion and amortization 310 297 949 906
Taxes other than income taxes 1,250 1,121 3,650 3,269
Exploration expenses 51 40 142 162
Inventory market valuation credits - (136) - (551)
------ ------ ------ ------
Total costs and expenses 9,904 7,278 28,298 19,195
------ ------ ------ ------
INCOME FROM OPERATIONS 789 535 2,377 1,438
Net interest and other financial costs 80 92 267 266
Minority interest in income of Marathon Ashland
Petroleum LLC 115 148 373 405
------ ------ ------ ------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY
LOSSES 594 295 1,737 767
Provision for estimated income taxes 454 94 877 267
------ ------ ------ ------
INCOME BEFORE EXTRAORDINARY LOSSES 140 201 860 500
Extraordinary losses on extinguishment of debt,
net of income tax - 2 - 7
------ ------ ------ ------
NET INCOME 140 199 860 493
Dividends on preferred stock 2 2 6 7
------ ------ ------ ------
NET INCOME APPLICABLE TO COMMON STOCKS $138 $197 $854 $486
====== ====== ====== ======
<FN>
*Certain amounts have been reclassified to conform to current classifications.
</TABLE>
<TABLE>
<CAPTION>
USX CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF OPERATIONS (Continued) (Unaudited)
INCOME PER COMMON SHARE
------------------------------------------------------------
Third Quarter Nine Months
Ended Ended
September 30 September 30
(Dollars in millions, except per share amounts) 2000 1999 2000 1999
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
APPLICABLE TO MARATHON STOCK:
Net income $121 $230 $742 $483
- Per share- basic .38 .74 2.38 1.56
- diluted .38 .74 2.37 1.56
Dividends paid per share .23 .21 .65 .63
Weighted average shares, in thousands
- Basic 311,847 309,392 312,068 309,160
- Diluted 312,094 309,810 312,272 309,491
APPLICABLE TO STEEL STOCK:
Income (loss) before extraordinary losses* $17 $(31) $112 $10
- Per share - basic and diluted* .19 (.35) 1.27 .12
Extraordinary losses, net of income tax* - 2 - 7
- Per share - basic and diluted* - .02 - .08
Net income (loss) $17 $(33) $112 $3
- Per share - basic and diluted .19 (.37) 1.27 .04
Dividends paid per share .25 .25 .75 .75
Weighted average shares, in thousands
- Basic 88,738 88,394 88,554 88,383
- Diluted 88,738 88,394 88,556 88,385
<FN>
*1999 amounts have been reclassified to conform to current classifications.
The following notes are an integral part of this financial statement.
</TABLE>
USX CORPORATION AND SUBSIDIARY COMPANIES
SELECTED NOTES TO FINANCIAL STATEMENT
----------------------------------------
1. When USX acquired Marathon in March 1982, crude oil and refined product
prices were at historically high levels. USX established a new LIFO cost
basis for Marathon's inventories by reference to these prices.
Generally accepted accounting principles require that inventories be
reported at the lower of recorded cost or current market value. Marathon
has established an inventory market valuation (IMV) reserve to reduce the
cost basis of its inventories to current market value. Quarterly
adjustments to the IMV reserve result in noncash charges or credits to
income from operations. Decreases in market prices below the cost basis
result in charges to income from operations. Once a reserve has been
established, subsequent increases in prices (up to the cost basis) result in
credits to income from operations.
The charges or credits to income resulting from IMV reserve adjustments
affect the comparability of financial results from period to period. They
also affect comparisons with other energy companies, many of which do not
have such adjustments. Therefore, USX reports separately the effects of IMV
reserve adjustments on financial results. In management's opinion, the
effects of such adjustments should be considered separately when evaluating
operating performance.
2. 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.
Republic Technologies International, LLC, an equity method affiliate of USX,
recorded in the third quarter of 1999 an extraordinary loss related to the
early extinguishment of debt. As a result, USX recorded an extraordinary
loss of $2 million, net of a $1 million income tax benefit, representing its
share of the extraordinary loss.
USX CORPORATION AND SUBSIDIARY COMPANIES
SELECTED NOTES TO FINANCIAL STATEMENT (Continued)
-------------------------------------------------
3. In August 1999, USX and Kobe Steel, Ltd. (Kobe Steel) completed a
transaction that combined the steelmaking and bar producing assets of
USS/Kobe Steel Company (USS/Kobe) with companies controlled by Blackstone
Capital Partners II. The combined entity was named Republic Technologies
International, LLC (Republic). In addition, USX made a $15 million equity
investment in Republic. USX owned 50% of USS/Kobe and now owns 16% of
Republic. USX accounts for its investment in Republic under the equity
method of accounting. The seamless pipe business of USS/Kobe was excluded
from this transaction. That business, now known as Lorain Tubular Company
LLC, is a wholly owned subsidiary of USX.
Third quarter 2000 dividend and affiliate income (loss) includes $10 million
in charges related to USX's share of impairment and restructuring charges of
Republic. In addition, third quarter 1999 dividend and affiliate income
(loss) includes $50 million in charges related to the impairment of the
carrying value of USX's investment in USS/Kobe and costs related to the
formation of Republic.
4. On October 19, 2000, the Marathon Group of USX signed a definitive agreement
with Shell to transfer its 37.5 percent interest in Sakhalin Energy
Investment Company Ltd.(Sakhalin Energy). In exchange, the Marathon Group
will receive certain Shell interests in the UK Atlantic Margin area and the
U.S. Gulf of Mexico as well as reimbursement for all Sakhalin project
capital expenditures made by the Marathon Group in 2000. The closing and
transfer of operations are expected to take place in early December 2000.
The increased likelihood of closing this transaction resulted in a one-time,
noncash deferred tax charge of $235 million in the third quarter of 2000.
Balance sheet net deferred tax liabilities include deferred U.S. tax
benefits related to certain foreign subsidiaries. Until now, management
concluded it was likely that income from foreign sources, such as Sakhalin
Energy, would allow these benefits to be realized in the future. The
definitive agreement to transfer the Marathon Group's interest in Sakhalin
Energy affects the timing, amount and nature of expected future foreign
source income, decreasing the likelihood that these tax benefits will be
realized.
