-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UtQ5SbI/+WUV5B4+W2A/MCa4P3rOteX5G6b6xioCSogIJMhagsYY4CQlOORHrdAo V0yeBrYCJcpwQlrTj+67bQ== 0000101778-99-000001.txt : 19990125 0000101778-99-000001.hdr.sgml : 19990125 ACCESSION NUMBER: 0000101778-99-000001 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990122 ITEM INFORMATION: FILED AS OF DATE: 19990122 FILER: COMPANY DATA: COMPANY CONFORMED NAME: USX CORP CENTRAL INDEX KEY: 0000101778 STANDARD INDUSTRIAL CLASSIFICATION: PETROLEUM REFINING [2911] IRS NUMBER: 250996816 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-05153 FILM NUMBER: 99510684 BUSINESS ADDRESS: STREET 1: 600 GRANT ST CITY: PITTSBURGH STATE: PA ZIP: 15219-4776 BUSINESS PHONE: 4124331121 FORMER COMPANY: FORMER CONFORMED NAME: UNITED STATES STEEL CORP/DE DATE OF NAME CHANGE: 19860714 8-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------------- FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 ----------------------- Date of Report (Date of earliest event reported): January 22, 1999 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) 2 Item 5. Other Events On January 22, 1999, USX Corporation announced fourth quarter and 1998 earnings for the Marathon Group and the U. S. Steel Group. Copies of the earnings announcement are attached. Item 7. Financial Statements and Exhibits (c) Exhibits 99.1. Marathon Group Earnings Release. 99.2. U. S. Steel Group Earnings Release. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. USX CORPORATION By /s/ Kenneth L. Matheny ----------------------- Kenneth L. Matheny Vice President and Comptroller Dated: January 22, 1999 EX-99.1 2 Contact:William E.Keslar Don H. Herring (412) 433-6870 FOR IMMEDIATE RELEASE
USX CORPORATION REPORTS LOWER FOURTH QUARTER AND 1998 MARATHON GROUP RESULTS REFLECTING LOWER COMMODITY PRICES Earnings Highlights (Dollars in millions except per diluted share data) 4Q 4Q 1998 1997 1998 1997 Net income adjusted for special items $13 $131 $321 $635 - per diluted share $0.04 $0.45 $1.09 $2.20 Net income (loss) ($86) $38 $310 $456 Net income (loss) per diluted share ($0.29) $0.13 $1.05 $1.58 Revenues $5,353 $3,920 $22,075 $15,754
PITTSBURGH, January 22, 1999 -- USX-Marathon Group's (NYSE:MRO) net income adjusted for special items was $13 million, or 4 cents per diluted share, in fourth quarter 1998, compared with $131 million, or 45 cents per diluted share, in fourth quarter 1997. Primarily due to lower commodity prices, the Marathon Group recorded a fourth quarter 1998 net loss of $86 million, or 29 cents per diluted share. As a result of lower crude oil, natural gas and refined product prices, Marathon recorded an unfavorable inventory market valuation ("IMV") reserve adjustment (see note 3 to the attached Marathon Group Statement of Operations) and wrote-off several exploratory wells which had encountered hydrocarbons, but had been suspended pending further evaluation. In addition, Marathon recorded favorable income tax accrual adjustments relating to foreign operations. The net unfavorable aftertax effect of these special items was $99 million. Net income in fourth quarter 1997 was $38 million, or 13 cents per diluted share, including a $93 million unfavorable aftertax IMV reserve adjustment. The Marathon Group reported 1998 net income adjusted for special items of $321 million, or $1.09 per diluted share, compared to 1997 adjusted net income of $635 million, or $2.20 per diluted share. For the year 1998, the Marathon Group recorded net income of $310 million, or $1.05 per diluted share. In addition to the fourth quarter special items discussed above, net income for the year included impairment of certain international investments, a change in interest gain and one- time transition charges relating to the formation of Marathon Ashland Petroleum LLC ("MAP"), and a natural gas contract settlement gain. The net unfavorable aftertax effect of 1998 special items was $11 million. Net income for the year 1997 was $456 million, or $1.58 per diluted share, including a $179 million unfavorable aftertax IMV reserve adjustment. Commenting on 1998 performance, USX Corporation Board Chairman Thomas J. Usher said, "The Marathon Group's earnings were significantly impacted by lower worldwide liquid hydrocarbon and natural gas prices. Nevertheless, 1998 saw us gain momentum in growing and improving the business. Marathon's upstream operations achieved nearly a 20 percent growth in worldwide liquids production. Downstream, MAP had a very successful first year of operations, achieving annual repeatable operating efficiencies of approximately $150 million in 1998 and targeting an additional $100 million in 1999." For 1998, financial measures such as revenues, income from operations and capital expenditures include 100 percent of MAP and are not comparable to prior period amounts (see Note 2 to the attached Marathon Group Statement of Operations). Marathon Group revenues were $5.4 billion in fourth quarter 1998 and $22.1 billion for the year, compared with $3.9 billion and $15.8 billion in the same periods of 1997. Income for Marathon's reportable operating segments, which include 100 percent of MAP, was $178 million in fourth quarter 1998 and $1,207 million for the year 1998, compared with $275 million and $1,384 million in the same periods of 1997. Exploration and production (upstream) operating segment income totaled $21 million in fourth quarter 1998 and $278 million for the year, compared with $178 million and $773 million in the same periods of 1997. Excluding dispositions, Marathon replaced 242 percent of its 1998 worldwide oil and gas production on a barrel of oil equivalent (BOE) basis resulting in a five-year reserve replacement average of 135 percent. Domestic upstream income was $31 million in fourth quarter 1998 and $190 million for the year, compared with $124 million and $500 million in the same periods of 1997. The decreases in domestic upstream income for both the fourth quarter and the year were mainly due to significantly lower liquid hydrocarbon and natural gas prices compared to 1997. Liquid prices declined 41 percent in the fourth quarter and 38 percent for the year. Natural gas prices declined 28 percent and 19 percent respectively in the quarter and year. These price decreases were partially offset by increased liquid hydrocarbon and natural gas production. Domestic liquid hydrocarbon production, which averaged 134,500 barrels per day (bpd) in 1998, increased 19,700 bpd, or 17 percent, over 1997 levels, primarily due to new production in the Gulf of Mexico. International upstream reported a loss of $10 million in fourth quarter 1998 and income of $88 million for the year, compared with income of $54 million and $273 million in the same periods of 1997. These results also reflect significantly lower liquid hydrocarbon prices, partially offset by significantly increased liquid hydrocarbon volumes reflecting liftings from acquired production in Canada and new operations in Gabon. On August 11, 1998, Marathon completed its acquisition of Tarragon Oil and Gas Limited, a Canadian oil and gas exploration and production company (see note 2 to the attached Marathon Group Statement of Operations). Current daily production from Tarragon properties is 160 mmcf of natural gas and 17,000 barrels of liquids. Usher commented, "Tarragon fits well into our growth strategy and provides Marathon core production in one of North America's most attractive gas basins. This acquisition increased our worldwide reserves by 20 percent and provides Marathon numerous growth opportunities in Canada." Refining, marketing and transportation (downstream) segment income, which includes 100 percent of the results of MAP, was $147 million in fourth quarter 1998 and $896 million for the year. On a pro forma basis, segment income for the combined downstream operations of Marathon and Ashland would have been $140 million for the fourth quarter 1997 and $869 million for the year 1997 (see note 2 to the attached Marathon Group Statement of Operations). Usher noted that, "During 1998, MAP was able to overcome significant decreases in refining crack spreads through the realization of operating efficiencies, a strong performance by its asphalt and retail operations, and lower energy costs." Administrative expenses were $22 million in fourth quarter 1998 and $106 million for the year 1998, compared with $34 million and $168 million in the same periods of 1997. These decreases were primarily due to certain administrative costs now reported in MAP results and lower accruals for employee benefit plans and litigation. ***** This release contains forward-looking information concerning the realization of MAP operating efficiencies. Factors that could cause the realization of operating efficiencies at MAP to be less than anticipated include the costs to implement shared technology and delays in leveraging volume procurement advantages. In accordance with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, USX has included in Form 10-K for the year ended December 31, 1997 and in its Form 10-Q for the first, second and third quarter of 1998, cautionary statements identifying important factors, but not necessarily all factors, that could cause actual results to differ materially from those set forth in the forward-looking statements. Statements of Operations and Supplemental Statistics for the Marathon Group and a consolidated Statement of Operations for USX Corporation are attached. For more information on USX Corporation and Marathon Group, visit our websites at www.usx.com or www.marathon.com. -o0o- MARATHON GROUP OF USX CORPORATION STATEMENT OF OPERATIONS (Unaudited) -----------------------------------
Fourth Quarter Year Ended Ended December 31 December 31 (Dollars in millions, except per share amounts) 1998 1997 1998 1997 - ------------------------------------------------------------------------------- REVENUES: Sales $5,327 $3,895 $21,726 $15,668 Dividend and affiliate income 13 14 50 36 Gain on disposal of assets 9 8 28 37 Gain on ownership change in Marathon Ashland Petroleum LLC - - 245 - Other income 4 3 26 13 ------ ------ ------ ------ Total revenues 5,353 3,920 22,075 15,754 ------ ------ ------ ------ COSTS AND EXPENSES: Cost of sales (excludes items shown below) 3,750 2,632 15,325 10,392 Selling, general and administrative expenses 122 92 505 355 Depreciation, depletion and amortization 240 167 941 664 Taxes other than income taxes 1,018 728 3,786 2,938 Exploration expenses 110 60 313 189 Inventory market valuation charges 245 147 267 284 ------ ------ ------ ------ Total costs and expenses 5,485 3,826 21,137 14,822 ------ ------ ------ ------ INCOME (LOSS) FROM OPERATIONS (132) 94 938 932 Net interest and other financial costs 71 58 237 260 Minority interest in income (loss) of Marathon Ashland Petroleum LLC (33) - 249 - ------ ------ ------ ------ INCOME (LOSS) BEFORE INCOME TAXES (170) 36 452 672 Provision (credit) for estimated income taxes (84) (2) 142 216 ------ ------ ------ ------ NET INCOME (LOSS) $(86) $38 $310 $456 ====== ====== ====== ====== MARATHON STOCK DATA: Net income (loss) per share - Basic $(.29) $.14 $1.06 $1.59 - Diluted (.29) .13 1.05 1.58 Dividends paid per share .21 .19 .84 .76 Weighted average shares, in thousands - Basic 301,624 288,566 292,876 288,038 - Diluted 301,624 289,275 293,435 290,520 The following notes are an integral part of this financial statement.
MARATHON GROUP OF USX CORPORATION SELECTED NOTES TO FINANCIAL STATEMENT ------------------------------------- 1.The statement of operations of the Marathon Group includes the results of operations for the businesses of Marathon Oil Company (Marathon) and certain other subsidiaries of USX and a portion of USX's net financial costs, general and administrative costs and income taxes attributed to the groups in accordance with USX's accounting and tax allocation policies. This statement should be read in connection with the consolidated statement of operations of USX. 2.In August 1998, Marathon acquired Tarragon Oil and Gas Limited (Tarragon), a Canadian oil and gas exploration and production company, for $1.1 billion. Securityholders of Tarragon received, at their election, Cdn$14.25 for each Tarragon share, or the economic equivalent in Exchangeable Shares of an indirect Canadian subsidiary of Marathon, which are exchangeable solely on a one-for- one basis into USX-Marathon Group Common Stock. The purchase price included cash payments of $686 million, issuance of approximately 878,000 Exchangeable Shares valued at $29 million and the assumption of $345 million in debt. Marathon accounted for the acquisition using the purchase method of accounting. Results of operations include the operations of Marathon Canada Limited, formerly known as Tarragon, commencing August 12, 1998. During 1997, Marathon and Ashland Inc. (Ashland) agreed to combine the major elements of their refining, marketing and transportation (RM&T) operations. On January 1, 1998, Marathon transferred certain RM&T net assets to Marathon Ashland Petroleum LLC (MAP), a new consolidated subsidiary. Also on January 1, 1998, Marathon acquired certain RM&T net assets from Ashland in exchange for a 38% interest in MAP. The acquisition was accounted for under the purchase method of accounting. The purchase price was determined to be $1.9 billion, based upon an external valuation. The change in Marathon's ownership interest in MAP resulted in a gain of $245 million, which is included in 1998 revenues. See attached supplemental unaudited pro forma data relating to the inclusion of Tarragon and MAP operations. 3.When USX acquired Marathon in March 1982, crude oil and refined product prices were at historically high levels. USX established a new LIFO cost basis for Marathon's inventories by reference to these prices. Generally accepted accounting principles require that inventories be reported at the lower of recorded cost or current market value. Marathon has established an inventory market valuation (IMV) reserve to reduce the cost basis of its inventories to current market value. Quarterly adjustments to the IMV reserve result in noncash charges or credits to income from operations. Decreases in market prices below the cost basis result in charges to income from operations. Once a reserve has been established, subsequent increases in prices (up to the cost basis) result in credits to income from operations. The charges or credits to income resulting from IMV reserve adjustments affect the comparability of financial results from period to period. They also affect comparisons with other energy companies, many of which do not have such adjustments. Therefore, USX reports separately the effects of IMV reserve adjustments on financial results. In management's opinion, the effects of such adjustments should be considered separately when evaluating operating performance. MARATHON GROUP OF USX CORPORATION SELECTED NOTES TO FINANCIAL STATEMENT (Continued) ------------------------------------------------- 3.(Continued) When USX acquired the crude oil and refined product inventories associated with Ashland's RM&T operations in January 1998, a new cost basis was established for those inventories. The acquisition cost of these inventories lowered the overall average cost of the combined RM&T inventories; as a result, the price threshold at which an IMV reserve will be recorded has also been lowered. This acquisition resulted in a one-time reduction in the IMV reserve, yielding a net favorable IMV reserve adjustment in the first quarter of 1998.
MARATHON GROUP OF USX CORPORATION SUPPLEMENTAL STATISTICS (Unaudited) ----------------------------------- Fourth Quarter Year Ended Ended December 31 December 31 (Dollars in millions) 1998 1997 1998 1997 - ------------------------------------------------------------------------------- INCOME (LOSS) FROM OPERATIONS Exploration & Production ("E&P") Domestic $31 $124 $190 $500 International (10) 54 88 273 ------ ------ ------ ------ Income For E&P Reportable Segment 21 178 278 773 Refining, Marketing & Transportation(a) 147 88 896 563 Other Energy Related Businesses(b) 10 9 33 48 ------ ------ ------ ------ Income For Reportable Segments $178 $275 $1,207 $1,384 Items Not Allocated To Reportable Segments: Administrative Expenses $(22) $(34) $(106) $(168) Inventory Market Val. Res. Adjustment. (245) (147) (267) (284) Gain on Ownership Change & Transition Charges-MAP - - 223 - E&P Int'l Property Impairments, Suspended Expl. Well Write-offs & Gas Contract Settlement (43) - (119) - ------ ------ ------ ------ Marathon Group Income From Operations $(132) $94 $938 $932 CAPITAL EXPENDITURES (a) $435 $386 $1,270 $1,038 INVESTMENTS IN EQUITY AFFILIATES-NET 23 36 75 233 OPERATING STATISTICS Net Liquid Hydrocarbon Production (c): Domestic 137.0 117.4 134.5 114.8 International (Liftings) 67.5 45.8 61.3 49.4 ------ ------ ------ ------ Worldwide 204.5 163.2 195.8 164.2 Net Natural Gas Production (d): Domestic 775.0 737.4 743.8 721.9 International - Equity 524.0 415.5 441.2 423.1 International - Other (e) 19.6 27.9 22.7 31.7 ------- ------- ------- ------- Total Consolidated 1318.6 1180.8 1207.7 1176.7 Equity Affiliate 30.7 41.7 33.2 42.3 ------- ------- ------- ------- Worldwide 1349.3 1222.5 1240.9 1219.0 Average Equity Sales Prices (f): Liquid Hydrocarbons (per Bbl) Domestic $9.57 $16.25 $10.42 $16.88 International 11.31 18.37 12.24 18.77 Natural Gas (per Mcf) Domestic $1.72 $2.38 $1.79 $2.20 International 1.72 1.99 1.94 2.00 Natural Gas Sales (d) (g): Domestic 1208.4 1106.4 1143.8 1136.9 International 543.7 443.4 463.9 454.8 ------- ------- ------- ------- Total Consolidated 1752.1 1549.8 1607.7 1591.7 Equity Affiliate 30.7 41.7 33.2 42.3 ------- ------- ------- ------- Worldwide 1782.8 1591.5 1640.9 1634.0 Crude Oil Refined (a) (c) 862.1 558.6 883.9 524.6 Refined Products Sold (a) (c) 1238.8 824.6 1197.6 775.4 Matching buy/sell volumes included in refined products sold (a) (c)........................ 40.7 58.8 39.0 51.0 - -------------- (a) In 1998, income from operations, capital expenditures, refined products sold, crude oil refined and matching buy/sell volumes include 100 percent of MAP and are not comparable to prior periods. For further discussion of MAP, see Note 2 to the Marathon Group Statement Of Operations. (b) Includes domestic natural gas and crude oil marketing and transportation, and power generation (c) Thousands of barrels per day (d) Millions of cubic feet per day (e) Represents gas acquired for injection and subsequent resale (f) Prices exclude gains and losses from hedging activities (g) Represents equity, royalty and resale volumes
MARATHON GROUP OF USX CORPORATION SUPPLEMENTAL STATISTICS (Continued) (Unaudited) ----------------------------------- The following unaudited pro forma data for the Marathon Group includes the pro forma results of operations of Tarragon for the years 1998 and 1997 and fourth quarter 1997; and the Ashland RM&T net assets for 1997, giving effect to the acquisitions as if they had been consummated at the beginning of the years presented. The pro forma data is based on historical information and does not necessarily reflect the actual results that would have occurred, nor is it necessarily indicative of future results of operations. See Note 2 to the Marathon Group Statement Of Operations for additional information.
Fourth Quarter Year Ended Ended December 31 December 31 (Dollars in millions, except per share amounts) 1998 1997 1998 1997 - ------------------------------------------------------------------------------- Marathon Group: Revenues $5,353 $5,736 $22,169 $23,333 Income for reportable segments (a) 178 335 1,199 1,728 Net income (loss)(b) (86) 47 279 457 Net income (loss) per common share: Basic (.29) .16 .95 1.58 Diluted (.29) .16 .95 1.58 RM&T Operations (c) (d): Income for reportable segment (a) $147 $140 $896 $869 Thousands of barrels per day: Crude oil refined 862.1 909.6 883.9 869.3 Refined products sold 1238.8 1234.6 1197.6 1186.9 Matching buy/sell volumes include in refined products sold 40.7 67.5 39.0 68.6 (a) Excludes the inventory market valuation reserve adjustments, administrative expenses and items not allocated to reportable segments. (b) Excluding the inventory market valuation reserve adjustment, pro forma net income would have been $383 million for 1998 and $132 million and $619 million for the 1997 fourth quarter and twelve months, respectively. (c) Pro forma data is based on results of operations from RM&T assets contributed to MAP by Marathon and Ashland, purchase accounting effects and other pro forma adjustments and reclassifications. (d) Results for 1998 are actuals. There are no pro forma effects in 1998, since MAP commenced operations January 1, 1998.
USX CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) ------------------------------------------------ Fourth Quarter Year Ended Ended December 31 December 31 (Dollars in millions) 1998 1997 1998 1997 - -------------------------------------------------------------------------------- REVENUES: Sales $6,659 $5,650 $27,887 $22,375 Dividend and affiliate income 13 44 96 105 Gain on disposal of assets 24 37 82 94 Gain on ownership change in Marathon Ashland Petroleum LLC - - 245 - Other income 4 3 25 14 ------ ------ ------ ------ Total revenues 6,700 5,734 28,335 22,588 ------ ------ ------ ------ COSTS AND EXPENSES: Cost of sales (excludes items shown below) 4,947 4,095 20,712 16,047 Selling, general and administrative expenses 71 55 304 218 Depreciation, depletion and amortization 303 245 1,224 967 Taxes other than income taxes 1,061 786 3,998 3,178 Exploration expenses 110 60 313 189 Inventory market valuation charges 245 147 267 284 ------ ------ ------ ------ Total costs and expenses 6,737 5,388 26,818 20,883 ------ ------ ------ ------ INCOME (LOSS) FROM OPERATIONS (37) 346 1,517 1,705 Net interest and other financial costs 53 75 279 347 Minority interest in income (loss) of Marathon Ashland Petroleum LLC (33) - 249 - ------ ------ ------ ------ INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (57) 271 989 1,358 Provision (credit) for estimated income taxes (47) 81 315 450 ------ ------ ------ ------ INCOME (LOSS) FROM CONTINUING OPERATIONS (10) 190 674 908 ------ ------ ------ ------ DISCONTINUED OPERATIONS: Loss from operations (net of income tax) - - - (1) Gain on disposal (net of income tax) - 81 - 81 ------ ------ ------ ------ INCOME FROM DISCONTINUED OPERATIONS - 81 - 80 ------ ------ ------ ------ NET INCOME (LOSS) (10) 271 674 988 Noncash credit from exchange of preferred stock - - - 10 Dividends on preferred stock (2) (3) (9) (13) ------ ------ ------ ------ NET INCOME (LOSS) APPLICABLE TO COMMON STOCKS $(12) $268 $665 $985 ====== ====== ====== ======
USX CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF OPERATIONS (Continued) (Unaudited) INCOME PER COMMON SHARE ------------------------------------------------------------ Fourth Quarter Year Ended Ended December 31 December 31 (Dollars in millions, except per share amounts) 1998 1997 1998 1997 - -------------------------------------------------------------------------------- APPLICABLE TO MARATHON STOCK: Net income (loss) $(86) $38 $310 $456 - Per share - basic (.29) .14 1.06 1.59 - diluted (.29) .13 1.05 1.58 Dividends paid per share .21 .19 .84 .76 Weighted average shares, in thousands - Basic 301,624 288,566 292,876 288,038 - Diluted 301,624 289,275 293,435 290,520 APPLICABLE TO STEEL STOCK: Net income $74 $149 $355 $449 - Per share - basic .83 1.74 4.05 5.24 - diluted .81 1.64 3.92 4.88 Dividends paid per share .25 .25 1.00 1.00 Weighted average shares, in thousands - Basic 88,354 86,285 87,508 85,672 - Diluted 95,613 94,274 94,943 94,203 The following notes are an integral part of this financial statement.
USX CORPORATION AND SUBSIDIARY COMPANIES SELECTED NOTES TO FINANCIAL STATEMENT ---------------------------------------- 1. In August 1998, Marathon Oil Company (Marathon) acquired Tarragon Oil and Gas Limited (Tarragon), a Canadian oil and gas exploration and production company, for $1.1 billion. Securityholders of Tarragon received, at their election, Cdn$14.25 for each Tarragon share, or the economic equivalent in Exchangeable Shares of an indirect Canadian subsidiary of Marathon, which are exchangeable solely on a one-for-one basis into USX-Marathon Group Common Stock. The purchase price included cash payments of $686 million, issuance of approximately 878,000 Exchangeable Shares valued at $29 million and the assumption of $345 million in debt. USX accounted for the acquisition using the purchase method of accounting. Results of operations include the operations of Marathon Canada Limited, formerly known as Tarragon, commencing August 12, 1998. During 1997, Marathon and Ashland Inc. (Ashland) agreed to combine the major elements of their refining, marketing and transportation (RM&T) operations. On January 1, 1998, Marathon transferred certain RM&T net assets to Marathon Ashland Petroleum LLC (MAP), a new consolidated subsidiary. Also on January 1, 1998, Marathon acquired certain RM&T net assets from Ashland in exchange for a 38% interest in MAP. The acquisition was accounted for under the purchase method of accounting. The purchase price was determined to be $1.9 billion, based upon an external valuation. The change in Marathon's ownership interest in MAP resulted in a gain of $245 million, which is included in 1998 revenues. 2. Effective October 31, 1997, USX sold its stock in Delhi Gas Pipeline Corporation and other subsidiaries of USX that comprised all of the Delhi Group. The 1997 financial results of the Delhi Group have been reclassified as discontinued operations in the Consolidated Statement of Operations. 3. When USX acquired Marathon in March 1982, crude oil and refined product prices were at historically high levels. USX established a new LIFO cost basis for Marathon's inventories by reference to these prices. Generally accepted accounting principles require that inventories be reported at the lower of recorded cost or current market value. Marathon has established an inventory market valuation (IMV) reserve to reduce the cost basis of its inventories to current market value. Quarterly adjustments to the IMV reserve result in noncash charges or credits to income from operations. Decreases in market prices below the cost basis result in charges to income from operations. Once a reserve has been established, subsequent increases in prices (up to the cost basis) result in credits to income from operations. The charges or credits to income resulting from IMV reserve adjustments affect the comparability of financial results from period to period. They also affect comparisons with other energy companies, many of which do not have such adjustments. Therefore, USX reports separately the effects of IMV reserve adjustments on financial results. In management's opinion, the effects of such adjustments should be considered separately when evaluating operating performance. When USX acquired the crude oil and refined product inventories associated with Ashland's RM&T operations in January 1998, a new cost basis was established for those inventories. The acquisition cost of these inventories lowered the overall average cost of the combined RM&T inventories; as a result, the price threshold at which an IMV reserve will be recorded has also been lowered. This acquisition resulted in a one-time reduction in the IMV reserve, yielding a net favorable IMV reserve adjustment in the first quarter of 1998. USX CORPORATION AND SUBSIDIARY COMPANIES SELECTED NOTES TO FINANCIAL STATEMENT (Continued) ------------------------------------------------- 4. In December 1996, USX issued $117 million of debt (notes) indexed to the common stock price of RTI International Metals, Inc. (RTI) (formerly RMI Titanium Company). At maturity in February 2000, USX must exchange these notes for shares of RTI common stock, or redeem the notes for the equivalent amount of cash. Since USX's investment in RTI is attributed to the U. S. Steel Group, the indexed debt is also attributed to the U. S. Steel Group. Generally accepted accounting principles require that indexed debt be reported at the settlement value. Quarterly adjustments to the carrying value of this indexed debt result in noncash charges or credits to interest and other financial costs. Net interest and other financial costs included credits of $37 million and $4 million in the fourth quarter of 1998 and 1997, respectively, as a result of the quarterly adjustments in the carrying value of indexed debt. For the years 1998 and 1997, such adjustments were credits of $44 million and $10 million, respectively. USX holds a 26% interest in RTI and accounts for this investment under the equity method of accounting. Changes in the market value of USX's investment in RTI generally offset changes in the settlement value of the indexed debt. However, under the equity method of accounting, USX cannot recognize in income these corresponding changes in the market value of its investment in RTI. Such changes will be realized upon disposition of this investment. The charges or credits to income resulting from indexed debt adjustments affect the comparability of financial results from period to period. Therefore, USX discusses separately the effects of indexed debt adjustments on financial results. In management's opinion, the effects of such adjustments should be considered separately when evaluating financial performance. EX-99.2 3 Contact: W. E. Keslar Don H. Herring (412) 433-6870 FOR IMMEDIATE RELEASE
USX CORPORATION REPORTS DECLINE IN FOURTH QUARTER AND 1998 U. S. STEEL GROUP RESULTS DUE TO RECORD IMPORTS Earnings Highlights (Dollars in millions except per share data) 4Q 4Q 1998 1997 1998 1997 Net income adjusted for special items $59 $141 $315 $417 - per diluted share $.63 $1.52 $3.40 $4.51 Net income $76 $152 $364 $452 Net income per diluted share $.81 $1.64 $3.92 $4.88 Revenues $1,357 $1,838 $6,283 $6,941
PITTSBURGH, January 22, 1999 -- USX-U. S. Steel Group (NYSE: X) reported fourth quarter 1998 adjusted net income of $59 million, or 63 cents per diluted share, compared to $141 million, or $1.52 per diluted share in the fourth quarter 1997. Revenues were $1.4 billion in fourth quarter 1998 compared to $1.8 billion in the same period of 1997. U. S. Steel Group recorded fourth quarter 1998 net income of $76 million, or 81 cents per diluted share. Results included a $23 million aftertax reduction to interest expense as a result of adjusting the carrying value of indexed debt (see note 2 to the attached U. S. Steel Group statement of operations), partially offset by a $6 million aftertax charge related to a voluntary early retirement program. Fourth quarter 1997 net income of $152 million, or $1.64 per diluted share, included a gain on the sale of a plate mill and a reduction to interest expense related to indexed debt. The favorable aftertax effect of these special items was $11 million. Fourth quarter 1998 segment income for U. S. Steel operations was $29 million, or $ 12 per ton, which included a $10 million pretax charge related to a voluntary early retirement program. Fourth quarter 1997 income for U. S. Steel operations was $208 million, or $70 per ton, which included a $15 million gain on the sale of a plate mill. Fourth quarter 1998 results were negatively impacted by the combined effects of a dramatic increase in imported steel and the decline in demand for tubular products, resulting in lower average realized prices and a 21 percent decline in U. S. Steel's fourth quarter shipments. Shipments in fourth quarter 1998 were 2.3 million net tons, compared to 3.0 million net tons in fourth quarter 1997. In response to market conditions, operating levels were reduced to a less efficient 76 percent of raw steel capability in fourth quarter 1998, versus 99 percent in the comparable 1997 quarter. For the year 1998, U. S. Steel Group net income adjusted for special items was $315 million, or $3.40 per diluted share, compared to $417 million, or $4.51 per diluted share in 1997. Revenues in 1998 were $6.3 billion compared with $6.9 billion in 1997. For the year 1998, the U. S. Steel Group recorded net income of $364 million, or $3.92 per diluted share, which included the following special items: favorable effects of indexed debt adjustments; blast furnace insurance litigation recoveries; a favorable foreign tax adjustment; and a charge for the voluntary early retirement program. The net favorable aftertax effect of these special items was $49 million. For the year 1997, the U. S. Steel Group recorded net income of $452 million, or $4.88 per diluted share, which included the following special items: blast furnace insurance recoveries; a gain on the plate mill sale; favorable effects of indexed debt adjustments; and unfavorable environmental accrual adjustments. The net favorable aftertax effect of these special items was $35 million. Segment income for l998 for U. S. Steel operations was $330 million, or $31 per ton, on shipments of 10.7 million net tons. These results included approximately $30 million for the blast furnace insurance litigation recoveries and a $10 million charge for the voluntary early retirement program. This compares with 1997 income for U. S. Steel operations of $618 million, or $53 per ton, on shipments of 11.6 million net tons. These 1997 results included $40 million in blast furnace insurance recoveries, a $15 million gain on the plate mill sale, and a net charge of $9 million for environmental accrual adjustments. Commenting on the l998 results, USX Board Chairman Thomas J. Usher said, "During the first half of l998, the U. S. Steel Group achieved solid financial results comparable to the record 1997 pace. However, in mid-l998 imported steel, including unprecedented volumes at predatory prices, began flooding U. S. markets. As a result, the Group's shipments, average steel prices and operating levels suffered dramatically throughout the remainder of the year." In an attempt to stem the tide of imports, U. S. Steel joined an industry-labor coalition and filed trade cases for hot rolled products against Japan, Russia and Brazil in September. "As a result of this action," added Usher, "the U. S. International Trade Commission (ITC), in its preliminary determination, found the domestic steel industry was being threatened with material injury as a result of imports of hot-rolled carbon sheet products from these three countries. This preliminary determination of injury is subject to further investigation by the ITC and U.S. Department of Commerce. In addition, the Department of Commerce is expected to announce its preliminary determination on anti-dumping duties on February 12, l999." In early January 1999, the Clinton Administration sent a congressionally mandated report to Congress outlining its plan for responding to the increase in steel imports. "Unfortunately, the Administration's Plan was extremely disappointing and fell far short of what will be required to rectify the import crisis and the extreme hardship it is imposing on the domestic steel industry, its workers and their communities," said Usher. "Through the coalition, we will continue to work with the Administration and Congress in seeking immediate actions to restore fair trade." Added Usher, "The flood of imports caused U. S. Steel to curtail production to less efficient levels at all locations in the fourth quarter. One blast furnace remained idle at Gary Works. Raw steel production at the Mon Valley and Fairfield Works continued at levels well below capability. In addition, sections of the plant were idled at Fairless Works and one of five taconite pellet production lines in Minnesota was idled." To reduce costs, a voluntary early retirement program was offered to certain nonunion employees in November. Based on the acceptance by approximately 400 employees, a $10 million pretax charge was recorded in fourth quarter 1998 results. Most of the retirements will occur by March 31, 1999. Looking ahead, Usher said, "It is uncertain at this time how soon the import crisis will be resolved. Steel consumption in the U.S. remains strong entering 1999. With current world conditions, the import problem is far broader than hot-rolled products from three countries and we continue to evaluate new trade cases against these and other nations covering a number of products." ****** Statements of Operation and Supplemental Statistics for the U. S. Steel Group and a Consolidated Statement of Operations for USX Corporation are attached. For more information on USX Corporation and U. S. Steel Group, visit our websites at www.usx.com or www.ussteel.com. U. S. STEEL GROUP OF USX CORPORATION STATEMENT OF OPERATIONS (Unaudited) ------------------------------------
Fourth Quarter Year Ended Ended December 31 December 31 (Dollars in millions, except per share amounts) 1998 1997 1998 1997 - ------------------------------------------------------------------------------ REVENUES: Sales $1,342 $1,779 $6,184 $6,814 Income from affiliates - 30 46 69 Gain on disposal of assets 15 29 54 57 Other income (loss) - - (1) 1 ------ ------ ------ ------ Total revenues 1,357 1,838 6,283 6,941 ------ ------ ------ ------ COSTS AND EXPENSES: Cost of sales (excludes items shown below) 1,207 1,487 5,410 5,762 Selling, general and administrative expenses (credits) (51) (37) (201) (137) Depreciation, depletion and amortization 63 78 283 303 Taxes other than income taxes 43 58 212 240 ------ ------ ------ ------ Total costs and expenses 1,262 1,586 5,704 6,168 ------ ------ ------ ------ INCOME FROM OPERATIONS 95 252 579 773 Net interest and other financial costs (18) 17 42 87 ------ ------ ------ ------ INCOME BEFORE INCOME TAXES 113 235 537 686 Provision for estimated income taxes 37 83 173 234 ------ ------ ------ ------ NET INCOME 76 152 364 452 Noncash credit from exchange of preferred stock - - - 10 Dividends on preferred stock (2) (3) (9) (13) ------ ------ ------ ------ NET INCOME APPLICABLE TO STEEL STOCK $74 $149 $355 $449 ====== ====== ====== ====== STEEL STOCK DATA: Net income per share - Basic $.83 $1.74 $4.05 $5.24 - Diluted .81 1.64 3.92 4.88 Dividends paid per share .25 .25 1.00 1.00 Weighted average shares, in thousands - Basic 88,354 86,285 87,508 85,672 - Diluted 95,613 94,274 94,943 94,203 The following notes are an integral part of this financial statement.
U. S. STEEL GROUP OF USX CORPORATION SELECTED NOTES TO FINANCIAL STATEMENT -------------------------------------- 1.The statement of operations of the U. S. Steel Group includes the results of operations for the businesses of USX other than businesses included in the Marathon Group and a portion of USX's net financial costs, general and administrative costs and income taxes attributed to the groups in accordance with USX's accounting and tax allocation policies. This statement should be read in connection with the consolidated statement of operations of USX. 2.In December 1996, USX issued $117 million of debt (notes) indexed to the common stock price of RTI International Metals, Inc. (RTI) (formerly RMI Titanium Company). At maturity in February 2000, USX must exchange these notes for shares of RTI common stock, or redeem the notes for the equivalent amount of cash. Since USX's investment in RTI is attributed to the U. S. Steel Group, the indexed debt is also attributed to the U. S. Steel Group. Generally accepted accounting principles require that indexed debt be reported at the settlement value. Quarterly adjustments to the carrying value of this indexed debt result in noncash charges or credits to interest and other financial costs. Net interest and other financial costs included credits of $37 million and $4 million in the fourth quarter of 1998 and 1997, respectively, as a result of the quarterly adjustments in the carrying value of indexed debt. For the years 1998 and 1997, such adjustments were credits of $44 million and $10 million, respectively. USX holds a 26% interest in RTI and accounts for this investment under the equity method of accounting. Changes in the market value of USX's investment in RTI generally offset changes in the settlement value of the indexed debt. However, under the equity method of accounting, USX cannot recognize in income these corresponding changes in the market value of its investment in RTI. Such changes will be realized upon disposition of this investment. The charges or credits to income resulting from indexed debt adjustments affect the comparability of financial results from period to period. Therefore, USX discusses separately the effects of indexed debt adjustments on financial results. In management's opinion, the effects of such adjustments should be considered separately when evaluating financial performance.
U.S. STEEL GROUP OF USX CORPORATION SUPPLEMENTAL STATISTICS (Unaudited) ----------------------------------- ($ in Millions) Fourth Quarter Year Ended Ended December 31 December 31 1998 1997(e) 1998 1997(e) ------ ------ ------ ------ REVENUES $1,357 $1,838 $6,283 $6,941 INCOME FROM OPERATIONS U. S. Steel Operations(a) $29 $208 $330 $618 Unallocated: Pension credits 93 78 373 313 Administrative expenses (4) (7) (24) (33) Costs related to former business activities(b)(23) (27) (100) (125) ---- ---- ---- ---- Total U. S. Steel Group $95 $252 $579 $773 PENSION COSTS INCLUDED IN U. S. STEEL OPERATIONS $54 $44 $187 $169 CAPITAL EXPENDITURES $82 $85 $310 $261 OPERATING STATISTICS Steel Shipments (c) 2,342 2,973 10,686 11,643 Raw Steel-Production (c) 2,440 3,193 11,214 12,350 Raw Steel-Capability Utilization (d) 75.6% 99.0% 87.6% 96.5% - ------------ (a) 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/Kobe Steel Company, USS-POSCO Industries, PRO- TEC Coating Company, Transtar, Inc., and RTI International Metals, Inc. (formerly RMI Titanium Company). Also includes results of real estate development and management, 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. 1997 results included charges of $9 million related to environmental accruals and the adoption of SOP 96-1. (c) Thousands of net tons. (d) Based on annual raw steel production capability of 12.8 million tons. (e) Certain 1997 amounts have been reclassified to conform to 1998 classifications.
USX CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) ------------------------------------------------ Fourth Quarter Year Ended Ended December 31 December 31 (Dollars in millions) 1998 1997 1998 1997 - -------------------------------------------------------------------------------- REVENUES: Sales $6,659 $5,650 $27,887 $22,375 Dividend and affiliate income 13 44 96 105 Gain on disposal of assets 24 37 82 94 Gain on ownership change in Marathon Ashland Petroleum LLC - - 245 - Other income 4 3 25 14 ------ ------ ------ ------ Total revenues 6,700 5,734 28,335 22,588 ------ ------ ------ ------ COSTS AND EXPENSES: Cost of sales (excludes items shown below) 4,947 4,095 20,712 16,047 Selling, general and administrative expenses 71 55 304 218 Depreciation, depletion and amortization 303 245 1,224 967 Taxes other than income taxes 1,061 786 3,998 3,178 Exploration expenses 110 60 313 189 Inventory market valuation charges 245 147 267 284 ------ ------ ------ ------ Total costs and expenses 6,737 5,388 26,818 20,883 ------ ------ ------ ------ INCOME (LOSS) FROM OPERATIONS (37) 346 1,517 1,705 Net interest and other financial costs 53 75 279 347 Minority interest in income (loss) of Marathon Ashland Petroleum LLC (33) - 249 - ------ ------ ------ ------ INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (57) 271 989 1,358 Provision (credit) for estimated income taxes (47) 81 315 450 ------ ------ ------ ------ INCOME (LOSS) FROM CONTINUING OPERATIONS (10) 190 674 908 ------ ------ ------ ------ DISCONTINUED OPERATIONS: Loss from operations (net of income tax) - - - (1) Gain on disposal (net of income tax) - 81 - 81 ------ ------ ------ ------ INCOME FROM DISCONTINUED OPERATIONS - 81 - 80 ------ ------ ------ ------ NET INCOME (LOSS) (10) 271 674 988 Noncash credit from exchange of preferred stock - - - 10 Dividends on preferred stock (2) (3) (9) (13) ------ ------ ------ ------ NET INCOME (LOSS) APPLICABLE TO COMMON STOCKS $(12) $268 $665 $985 ====== ====== ====== ======
USX CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF OPERATIONS (Continued) (Unaudited) INCOME PER COMMON SHARE ------------------------------------------------------------ Fourth Quarter Year Ended Ended December 31 December 31 (Dollars in millions, except per share amounts) 1998 1997 1998 1997 - -------------------------------------------------------------------------------- APPLICABLE TO MARATHON STOCK: Net income (loss) $(86) $38 $310 $456 - Per share - basic (.29) .14 1.06 1.59 - diluted (.29) .13 1.05 1.58 Dividends paid per share .21 .19 .84 .76 Weighted average shares, in thousands - Basic 301,624 288,566 292,876 288,038 - Diluted 301,624 289,275 293,435 290,520 APPLICABLE TO STEEL STOCK: Net income $74 $149 $355 $449 - Per share - basic .83 1.74 4.05 5.24 - diluted .81 1.64 3.92 4.88 Dividends paid per share .25 .25 1.00 1.00 Weighted average shares, in thousands - Basic 88,354 86,285 87,508 85,672 - Diluted 95,613 94,274 94,943 94,203 The following notes are an integral part of this financial statement.
USX CORPORATION AND SUBSIDIARY COMPANIES SELECTED NOTES TO FINANCIAL STATEMENT ---------------------------------------- 1. In August 1998, Marathon Oil Company (Marathon) acquired Tarragon Oil and Gas Limited (Tarragon), a Canadian oil and gas exploration and production company, for $1.1 billion. Securityholders of Tarragon received, at their election, Cdn$14.25 for each Tarragon share, or the economic equivalent in Exchangeable Shares of an indirect Canadian subsidiary of Marathon, which are exchangeable solely on a one-for-one basis into USX-Marathon Group Common Stock. The purchase price included cash payments of $686 million, issuance of approximately 878,000 Exchangeable Shares valued at $29 million and the assumption of $345 million in debt. USX accounted for the acquisition using the purchase method of accounting. Results of operations include the operations of Marathon Canada Limited, formerly known as Tarragon, commencing August 12, 1998. During 1997, Marathon and Ashland Inc. (Ashland) agreed to combine the major elements of their refining, marketing and transportation (RM&T) operations. On January 1, 1998, Marathon transferred certain RM&T net assets to Marathon Ashland Petroleum LLC (MAP), a new consolidated subsidiary. Also on January 1, 1998, Marathon acquired certain RM&T net assets from Ashland in exchange for a 38% interest in MAP. The acquisition was accounted for under the purchase method of accounting. The purchase price was determined to be $1.9 billion, based upon an external valuation. The change in Marathon's ownership interest in MAP resulted in a gain of $245 million, which is included in 1998 revenues. 2. Effective October 31, 1997, USX sold its stock in Delhi Gas Pipeline Corporation and other subsidiaries of USX that comprised all of the Delhi Group. The 1997 financial results of the Delhi Group have been reclassified as discontinued operations in the Consolidated Statement of Operations. 3. When USX acquired Marathon in March 1982, crude oil and refined product prices were at historically high levels. USX established a new LIFO cost basis for Marathon's inventories by reference to these prices. Generally accepted accounting principles require that inventories be reported at the lower of recorded cost or current market value. Marathon has established an inventory market valuation (IMV) reserve to reduce the cost basis of its inventories to current market value. Quarterly adjustments to the IMV reserve result in noncash charges or credits to income from operations. Decreases in market prices below the cost basis result in charges to income from operations. Once a reserve has been established, subsequent increases in prices (up to the cost basis) result in credits to income from operations. The charges or credits to income resulting from IMV reserve adjustments affect the comparability of financial results from period to period. They also affect comparisons with other energy companies, many of which do not have such adjustments. Therefore, USX reports separately the effects of IMV reserve adjustments on financial results. In management's opinion, the effects of such adjustments should be considered separately when evaluating operating performance. When USX acquired the crude oil and refined product inventories associated with Ashland's RM&T operations in January 1998, a new cost basis was established for those inventories. The acquisition cost of these inventories lowered the overall average cost of the combined RM&T inventories; as a result, the price threshold at which an IMV reserve will be recorded has also been lowered. This acquisition resulted in a one-time reduction in the IMV reserve, yielding a net favorable IMV reserve adjustment in the first quarter of 1998. USX CORPORATION AND SUBSIDIARY COMPANIES SELECTED NOTES TO FINANCIAL STATEMENT (Continued) ------------------------------------------------- 4. In December 1996, USX issued $117 million of debt (notes) indexed to the common stock price of RTI International Metals, Inc. (RTI) (formerly RMI Titanium Company). At maturity in February 2000, USX must exchange these notes for shares of RTI common stock, or redeem the notes for the equivalent amount of cash. Since USX's investment in RTI is attributed to the U. S. Steel Group, the indexed debt is also attributed to the U. S. Steel Group. Generally accepted accounting principles require that indexed debt be reported at the settlement value. Quarterly adjustments to the carrying value of this indexed debt result in noncash charges or credits to interest and other financial costs. Net interest and other financial costs included credits of $37 million and $4 million in the fourth quarter of 1998 and 1997, respectively, as a result of the quarterly adjustments in the carrying value of indexed debt. For the years 1998 and 1997, such adjustments were credits of $44 million and $10 million, respectively. USX holds a 26% interest in RTI and accounts for this investment under the equity method of accounting. Changes in the market value of USX's investment in RTI generally offset changes in the settlement value of the indexed debt. However, under the equity method of accounting, USX cannot recognize in income these corresponding changes in the market value of its investment in RTI. Such changes will be realized upon disposition of this investment. The charges or credits to income resulting from indexed debt adjustments affect the comparability of financial results from period to period. Therefore, USX discusses separately the effects of indexed debt adjustments on financial results. In management's opinion, the effects of such adjustments should be considered separately when evaluating financial performance. -----END PRIVACY-ENHANCED MESSAGE-----