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/FIRST AND FINAL ADD -- HSW008 -- USX-U. S. Steel Group (NYSE: X)/

PRNewswire
01.24.2001

                     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)                     2000    1999*      2000   1999*
  --------------------------------------------------------------------------
  REVENUES AND OTHER INCOME:
   Revenues                             $1,417   $1,492    $6,090  $5,536
   Loss from investees                     (21)      (3)       (8)    (89)
   Net gains on disposal of assets          12       12        46      21
   Other income (loss)                       5       (1)        4       2
                                        ------   ------    ------  ------
     Total revenues and other income     1,413    1,500     6,132   5,470
                                        ------   ------    ------  ------
  COSTS AND EXPENSES:
   Cost of revenues (excludes
    items shown below)                   1,422    1,360     5,656   5,084
   Selling, general and administrative
    expenses (credits)                     (47)     (57)     (223)   (283)
   Depreciation, depletion and
    amortization                           138       76       360     304
   Taxes other than income taxes            59       46       235     215
                                        ------   ------    ------  ------
     Total costs and expenses            1,572    1,425     6,028   5,320
                                        ------   ------    ------  ------
  INCOME (LOSS) FROM OPERATIONS           (159)      75       104     150
  Net interest and other
   financial costs                          30       26       105      74
                                        ------   ------    ------  ------
  INCOME (LOSS) BEFORE INCOME TAXES
   AND EXTRAORDINARY LOSSES               (189)      49        (1)     76
  Provision (credit) for estimated
   income taxes                            (50)      15        20      25
                                        ------   ------    ------  ------
  INCOME (LOSS) BEFORE
   EXTRAORDINARY LOSSES                   (139)      34       (21)     51
  Extraordinary losses on extinguishment
   of debt, net of income tax               --       --        --       7
                                        ------   ------    ------  ------
  NET INCOME (LOSS)                       (139)      34       (21)     44
  Dividends on preferred stock               2        2         8       9
                                        ------   ------    ------  ------
  NET INCOME (LOSS) APPLICABLE
   TO STEEL STOCK                        $(141)     $32      $(29)    $35
                                        ======   ======    ======  ======
  STEEL STOCK DATA:
   Income (loss) before
    extraordinary losses                 $(141)     $32      $(29)    $42
    - Per share - basic and diluted      (1.59)     .35      (.33)    .48
   Extraordinary losses, net of
    income tax                              --       --        --       7
    - Per share - basic and diluted         --       --        --     .08
   Net income (loss)                     $(141)     $32      $(29)    $35
    - Per share - basic and diluted      (1.59)     .35      (.33)    .40

  Dividends paid per share                 .25      .25      1.00    1.00

  Weighted average shares, in thousands
   - Basic                              88,788   88,419    88,613  88,392
   - Diluted                            88,788   88,428    88,613  88,396

* Certain amounts have been reclassified to conform to 2000 classifications.

  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 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 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). As a result of this transaction, the U. S. Steel Group recorded $47 million in charges related to the impairment of the carrying value of its investment in USS/Kobe and costs related to the formation of Republic. These charges were included in loss from investees in 1999. 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.

4. In the fourth quarter 2000, the U. S. Steel Group adopted the following accounting pronouncements primarily related to the classification of items in the statement of operations. In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 101 (SAB 101) "Revenue Recognition in Financial Statements," which summarizes the SEC staff's interpretations of generally accepted accounting principles related to revenue recognition and classification. During the third quarter 2000, the Emerging Issues Task Force of the Financial Accounting Standards Board (EITF) issued EITF Consensus No. 99-19 "Reporting Revenue Gross as a Principal versus Net as an Agent", which addresses whether certain cost items should be reported as a reduction of revenue or as a component of cost of sales, and EITF Consensus No. 00-10 "Accounting for Shipping and Handling Fees and Costs," which addresses the classification of costs incurred for shipping goods to customers. The adoption of these new pronouncements had no net effect on the financial position or results of operations of the U. S. Steel Group, although they required reclassifications of certain amounts in the statement of operations.

5. In November 2000, USX acquired U. S. Steel Kosice s.r.o. (USSK), which is located in the Slovak Republic. USSK was formed to hold the steel operations and related assets of VSZ a.s (VSZ), a diversified Slovak corporation. The cash purchase price was $69 million. Additional payments to VSZ of not less than $25 million and up to $75 million are contingent upon the future performance of USSK. Additionally, $325 million of debt was included with the acquisition. The acquisition was accounted for under the purchase method of accounting. The 2000 results of operations include the operations of USSK commencing November 24, 2000.

Prior to this transaction, USX and VSZ were equal partners in VSZ U. S. Steel s.r.o. (VSZUSS), a tin mill products manufacturer. The assets of USSK included VSZ's interest in VSZUSS. The acquisition of the remaining interest in VSZUSS was accounted for under the purchase method of accounting. Previously, USX had accounted for its investment in VSZUSS under the equity method of accounting.

                     U. S. STEEL GROUP OF USX CORPORATION
               PRELIMINARY SUPPLEMENTAL STATISTICS (Unaudited)
               -----------------------------------------------

                                        Fourth Quarter           Year
                                             Ended               Ended
                                          December 31         December 31
  (Dollars in millions)                   2000     1999      2000    1999
  --------------------------------------------------------------------------

  REVENUES AND OTHER INCOME             $1,413   $1,500    $6,132  $5,470

  INCOME (LOSS) FROM OPERATIONS
  Domestic Steel (a) (b)                  (122)     $48       $23     $91
  U. S. Steel Kosice (c)                     2       --         2      --
                                          ----     ----      ----    ----
     Income from Reportable Segments      (120)      48        25      91

  Items not allocated to segments:
   Net Pension Credits                      67       42       266     228
   Administrative Expenses                  (7)      --       (25)    (17)
   Cost related to former
    business activities (d)                (28)     (18)      (91)    (83)
   Asset Impairments - Coal                (71)      --       (71)     --
   Impairment of USX's investment
    in USS/Kobe and costs related
     to the formation of Republic (e)       --        3        --     (47)
   Loss on settlement of indexed debt with
    RTI International Metals, Inc. Stock    --       --        --     (22)
                                          ----     ----      ----    ----
  Total U. S. Steel Group                 (159)      75       104     150

  CAPITAL EXPENDITURES
   Domestic Steel                         $106      $66      $239    $287
   U. S. Steel Kosice                        5       --         5      --
                                          ----     ----      ----    ----
     Total                                $111      $66      $244    $287

  OPERATING STATISTICS
  Average steel price per ton: ($/net ton)
   Domestic Steel                         $459     $418      $450    $420
   U. S. Steel Kosice                      269       --       269      --
  Steel Shipments: (f)
   Domestic Steel                        2,315    2,865    10,756  10,629
   U. S. Steel Kosice                      317       --       317      --
                                          ----     ----      ----    ----
     Total                               2,632    2,865    11,073  10,629
  Raw Steel-Production: (f)
   Domestic Steel                        2,424    3,131    11,362  12,032
   U. S. Steel Kosice                      382       --       382      --
                                          ----     ----      ----    ----
     Total                               2,806    3,131    11,744  12,032
  Raw Steel-Capability Utilization: (g)
   Domestic Steel                        75.3%    97.1%     88.8%   94.0%
   U. S. Steel Kosice                    79.9%       --     79.9%      --
  Iron ore shipments
    - Domestic Steel (f)                 4,215    4,133    15,020  15,025
  ----------

(a) Results in the fourth quarter and year 2000 included $34 million to establish reserves against notes and receivables from financially distressed steel companies and $21 million for environmental accruals. Results for 2000 also included $10 million for USX's share of Republic's special charges and $15 million for certain other environmental and legal accruals. Results in fourth quarter 1999 included equity investee charges, which totaled $7 million unfavorable. In addition, results in 1999 included $17 million unfavorable charges for environmental and legal accruals.

(b) Includes the sale and domestic production 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. Also includes results of real estate development and management.

(c) Includes the production and sale of steel products from facilities primarily located in the Slovak Republic.

(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 Financial Statements.

(f) Thousands of net tons.

(g) Based on annual raw steel production capability of 12.8 million tons for Domestic Steel and 4.5 million tons for U. S. Steel Kosice.

                   USX CORPORATION AND SUBSIDIARY COMPANIES
               CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
               ------------------------------------------------

                                        Fourth Quarter           Year
                                             Ended               Ended
                                          December 31         December 31
  (Dollars in millions)                   2000    1999*      2000   1999*
  --------------------------------------------------------------------------
  REVENUES AND OTHER INCOME:
   Revenues                            $10,274   $8,725   $40,487 $29,068
   Dividend and investee income (loss)      18        8        99     (20)
   Net gains (losses) on disposal
    of assets                             (868)      29      (739)     21
   Gain on ownership change in
    Marathon Ashland Petroleum LLC           3        6        12      17
  Other income                              10       10        42      33
                                        ------   ------    ------  ------
     Total revenues and other income     9,437    8,778    39,901  29,119
                                        ------   ------    ------  ------
  COSTS AND EXPENSES:
   Cost of revenues (excludes
    items shown below)                   7,930    6,711    31,043  21,679
   Selling, general and
    administrative expenses                169       54       402     203
   Depreciation, depletion and
    amortization                           656      348     1,605   1,254
   Taxes other than income taxes         1,211    1,164     4,861   4,433
   Exploration expenses                     96       76       238     238
   Inventory market valuation credits       --       --        --    (551)
                                        ------   ------    ------  ------
     Total costs and expenses           10,062    8,353    38,149  27,256
                                        ------   ------    ------  ------
  INCOME (LOSS) FROM OPERATIONS           (625)     425     1,752   1,863
  Net interest and other financial costs    74       96       341     362
  Minority interest in income of
   Marathon Ashland Petroleum LLC          125       42       498     447
                                        ------   ------    ------  ------
  INCOME (LOSS) BEFORE INCOME TAXES
   AND EXTRAORDINARY LOSSES               (824)     287       913   1,054
  Provision (credit) for estimated
   income taxes                           (375)      82       502     349
                                        ------   ------    ------  ------
  INCOME (LOSS) BEFORE
   EXTRAORDINARY LOSSES                   (449)     205       411     705
  Extraordinary losses on extinguishment
   of debt, net of income tax               --       --        --       7
                                        ------   ------    ------  ------
  NET INCOME (LOSS)                       (449)     205       411     698
  Dividends on preferred stock               2        2         8       9
                                        ------   ------    ------  ------
  NET INCOME (LOSS) APPLICABLE
   TO COMMON STOCKS                      $(451)    $203      $403    $689
                                        ======   ======    ======  ======

* Certain amounts have been reclassified to conform to 2000 classifications.

                   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)                     2000     1999      2000    1999
  --------------------------------------------------------------------------
  APPLICABLE TO MARATHON STOCK:

  Net income (loss)                     $(310)     $171      $432    $654
   - Per share - basic and diluted      (1.00)      .55      1.39    2.11

  Dividends paid per share                 .23      .21       .88     .84

  Weighted average shares, in thousands
   - Basic                             309,930  311,289   311,531 309,696
   - Diluted                           309,930  311,553   311,761 310,010

  APPLICABLE TO STEEL STOCK:

  Income (loss) before extraordinary
   losses                               $(141)      $32     $(29)     $42
    - Per share - basic and diluted     (1.59)      .35     (.33)     .48

  Extraordinary losses, net of
   income tax                               --       --        --       7
    - Per share - basic and diluted         --       --        --     .08

  Net income (loss)                     $(141)      $32     $(29)     $35
   - Per share - basic and diluted      (1.59)      .35     (.33)     .40

  Dividends paid per share                 .25      .25      1.00    1.00

  Weighted average shares, in thousands
   - Basic                              88,788   88,419    88,613  88,392
   - Diluted                            88,788   88,428    88,613  88,396


  The following notes are an integral part of this financial statement.


                 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.

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). As a result of this transaction, USX recorded $47 million in charges related to the impairment of the carrying value of its investment in USS/Kobe and costs related to the formation of Republic. These charges were included in dividend and investee income (loss) in 1999. 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.

4. In the fourth quarter 2000, Marathon exchanged its 37.5 percent interest in Sakhalin Energy Investment Company Ltd. (Sakhalin Energy) for certain 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 in 2000. As a result of the absence of future foreign source income from Sakhalin Energy, an additional valuation allowance of $235 million to reduce deferred federal tax benefits was recognized in the third quarter 2000.

5. In the fourth quarter 2000, USX adopted the following accounting pronouncements primarily related to the classification of items in the statement of operations. In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 101 (SAB 101) "Revenue Recognition in Financial Statements," which summarizes the SEC staff's interpretations of generally accepted accounting principles related to revenue recognition and classification. During the third quarter 2000, the Emerging Issues Task Force of the Financial Accounting Standards Board (EITF) issued EITF Consensus No. 99-19 "Reporting Revenue Gross as a Principal versus Net as an Agent," which addresses whether certain cost items should be reported as a reduction of revenue or as a component of cost of sales, and EITF Consensus No. 00-10 "Accounting for Shipping and Handling Fees and Costs," which addresses the classification of costs incurred for shipping goods to customers. The adoption of these new pronouncements had no net effect on the financial position or results of operations of USX, although they required reclassifications of certain amounts in the statement of operations.

6. In November 2000, USX acquired U. S. Steel Kosice s.r.o. (USSK), which is located in the Slovak Republic. USSK was formed to hold the steel operations and related assets of VSZ a.s (VSZ), a diversified Slovak corporation. The cash purchase price was $69 million. Additional payments to VSZ of not less than $25 million and up to $75 million are contingent upon the future performance of USSK. Additionally, $325 million of debt was included with the acquisition. The acquisition was accounted for under the purchase method of accounting. The 2000 results of operations include the operations of USSK commencing November 24, 2000.

Prior to this transaction, USX and VSZ were equal partners in VSZ U. S. Steel s.r.o. (VSZUSS), a tin mill products manufacturer. The assets of USSK included VSZ's interest in VSZUSS. The acquisition of the remaining interest in VSZUSS was accounted for under the purchase method of accounting. Previously, USX had accounted for its investment in VSZUSS under the equity method of accounting.

7. In December 2000, Marathon and Kinder Morgan Energy Partners, L.P. signed a definitive agreement to form a joint venture combining certain of their oil and gas producing activities in the U.S. Permian Basin, including Marathon's interest in the Yates Field. This transaction will allow Marathon to expand its interests in the Permian Basin and will improve access to materials for use in enhanced recovery techniques in the Yates Field. The joint venture named MKM Partners L.P., commenced operations in January 2001 and will be accounted for under the equity method of accounting. Marathon recognized a pretax charge of $931 million in the fourth quarter 2000, related to the joint venture formation.

PRNewswire -- Jan. 24
END FIRST AND FINAL ADD

SOURCE: USX Corporation

Website: http://www.ussteel.com/
http://www.usx.com/

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