Contact: William E. Keslar
Don H. Herring
(412) 433-6870
FOR IMMEDIATE RELEASE
USX CORPORATION REPORTS IMPROVED MARATHON 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 $356 $178
- per diluted share $1.14 $0.57
Net income $121 $230
Net income per diluted share $0.38 $0.74
Revenues $9,287 $6,490
PITTSBURGH, October 19, 2000 -- USX-Marathon Group (NYSE:MRO) reported net
income adjusted for special items of $356 million, or $1.14 per diluted share,
in the third quarter of 2000, compared with net income adjusted for special
items of $178 million, or 57 cents per diluted share, in the third quarter of
1999.
The Marathon Group recorded third quarter 2000 net income of $121 million,
or 38 cents per diluted share, which included a $235 million one-time, non-cash
deferred tax charge. Third quarter 1999 net income was $230 million, or 74
cents per diluted share, which included a $52 million favorable after-tax
adjustment in the inventory market valuation reserve.
- 2 -
USX Corporation Board Chairman Thomas J. Usher said, "The improvement in
third quarter adjusted results primarily reflects the impact of sustained higher
liquid hydrocarbon and natural gas prices, as well as higher liquid hydrocarbon
volumes within the upstream segment and strong refined product margins for
Marathon Ashland Petroleum LLC (MAP)."
Marathon Group revenues were $9.3 billion in third quarter 2000 compared to
$6.5 billion in third quarter 1999.
Income for Marathon's reportable segments was $776 million in third quarter
2000 versus $450 million in third quarter 1999.
Worldwide exploration and production (upstream) segment income totaled $465
million in third quarter 2000 compared to $201 million in third quarter 1999.
Domestic upstream income was $305 million in third quarter 2000 compared to
$168 million in third quarter 1999. The increase was primarily attributable to
higher liquid hydrocarbon and natural gas prices.
First production was achieved in July 2000 from Marathon's 50% owned Viosca
Knoll Block 786 "Petronius" development in the Gulf of Mexico. Drilling and
well completion activities will continue through next year with gross peak
production of 50,000 barrels of oil per day and 70 million cubic feet of gas per
day expected by mid-2001. Petronius is being developed from a compliant tower
in 1,754 feet of water, making it the world's tallest freestanding structure.
International upstream income was $160 million in third quarter 2000
compared to $33 million in third quarter 1999. The increase was primarily
attributable to higher liquid hydrocarbon and natural gas prices. Increased
liquid hydrocarbon liftings, primarily in Russia and Gabon, also contributed
positively to the comparative results.
- 3 -
On October 19, 2000, Marathon signed a definitive agreement with Shell to
transfer its 37.5 percent interest in Sakhalin Energy Investment Company Ltd.
In exchange, Marathon 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 Marathon in 2000. The closing and
transfer of operations are expected to take place in early December.
The increased likelihood of closing this transaction triggers a one-time,
non-cash deferred tax charge of $235 million in the third quarter.
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 Marathon'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 such that the deferred tax
charge is now appropriate.
USX Corporation Board Chairman Thomas J. Usher said, "We have favorably
completed a lengthy and productive due diligence process. This transaction will
enhance our near- to mid-term production and cash flow and improve our financial
flexibility. It is an opportunity to acquire two significant producing
properties, each with growth potential, including the recently announced
Princess discovery in Mississippi Canyon Block 765, three miles north of the
giant Shell-operated Ursa field in the Gulf of Mexico. In addition, while the
income tax accounting effects of this transaction will result in a charge to
income, the net strategic impact of the transaction remains positive, the
deferred tax asset
- 4 -
impairment has no impact on cash flow, and the potential still exists to realize
the tax benefits in the future."
Marathon's fourth quarter 2000 liquid hydrocarbon production is expected to
be approximately 215,000 barrels per day (bpd) and natural gas production is
projected at approximately 1.3 billion cubic feet per day (bcfpd). Based on
these fourth quarter projections, average production for the full year 2000 is
expected to be approximately 208,000 bpd and 1.25 bcfpd.
Refining, marketing and transportation (downstream) segment income was $299
million in third quarter 2000 compared to $236 million in third quarter 1999.
The increase reflects higher refined product margins compared to last year's
depressed levels. In addition, refined product sales volumes were higher
primarily due to MAP's late 1999 acquisition of Ultramar Diamond Shamrock's
Michigan retail marketing and terminal assets. Commenting on the improvement in
downstream operations, Usher said, "While refined product margins deteriorated
from those experienced in the second quarter of 2000, business conditions were
significantly improved from the levels of a year earlier."
MAP is pursuing the disposition of approximately 270 non-strategic Speedway
SuperAmerica retail locations in the Midwest and Southeast. These locations
comprise less than 12 percent of MAP's owned and operated Speedway SuperAmerica
retail network. Through the end of the third quarter, 25 stations had been
sold. Most of the remaining stations are expected to be disposed of in the
fourth quarter of 2000.
In July 2000, Marathon announced a Voluntary Early Retirement Program
(VERP) for approximately 970 eligible employees. Upon completion of the VERP,
it is anticipated that some involuntary terminations may be necessary as the
company reorganizes to improve its overall
- 5 -
competitiveness. Administrative activities at region production offices in
Cody, Wyoming and Tyler, Texas along with a research facility in Littleton,
Colorado will be combined with functions currently being carried out in
Catlettsburg, Kentucky, Oklahoma City, Oklahoma, and Midland and Houston, Texas.
Through the third quarter, Marathon accrued $8 million in VERP charges. These
actions contribute significantly to Marathon's goal to reduce above field costs
by $75 million.
*****
This release contains forward-looking statements with respect to the timing
and completion of the Sakhalin transaction, timing and levels of Marathon's
worldwide liquid hydrocarbon and natural gas production, including production
rates from the Petronius field, and disposition of MAP retail stations. Some
factors that could potentially affect the timing and completion of the Sakhalin
transaction include third party consents. Some factors that could potentially
affect timing and levels of production include pricing, supply and demand for
petroleum products, regulatory constraints, and geological and operating
considerations. Some factors that could potentially affect the MAP dispositions
include receipt of government approvals, regulatory constraints, consent of
third parties, and satisfaction of customary closing conditions. 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 to differ materially from those set
forth in the forward-looking statements.
- 6 -
A Statement of Operations and Preliminary Supplemental Statistics for the
Marathon Group and a Consolidated Statement of Operations for USX Corporation
are attached.
-o0o-
MARATHON 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
- --------------------------------------------------------------------------------
REVENUES:
Sales $9,228 $6,464 $25,937 $16,751
Dividend and affiliate income 40 14 68 58
Net gains (losses) on disposal of assets 1 (6) 95 (17)
Gain on ownership change in Marathon Ashland
Petroleum LLC 1 11 9 11
Other income 17 7 32 19
------ ------ ------ ------
Total revenues 9,287 6,490 26,141 16,822
------ ------ ------ ------
COSTS AND EXPENSES:
Cost of sales (excludes items shown below) 6,923 4,621 19,275 11,695
Selling, general and administrative expenses 151 121 409 375
Depreciation, depletion and amortization 241 219 727 678
Taxes other than income taxes 1,192 1,064 3,474 3,100
Exploration expenses 51 40 142 162
Inventory market valuation credits - (136) - (551)
------ ------ ------ ------
Total costs and expenses 8,558 5,929 24,027 15,459
------ ------ ------ ------
INCOME FROM OPERATIONS 729 561 2,114 1,363
Net interest and other financial costs 53 72 192 218
Minority interest in income of Marathon Ashland
Petroleum LLC 115 148 373 405
------ ------ ------ ------
INCOME BEFORE INCOME TAXES 561 341 1,549 740
Provision for estimated income taxes 440 111 807 257
------ ------ ------ ------
NET INCOME $121 $230 $742 $483
====== ====== ====== ======
MARATHON STOCK DATA:
Net income 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
<FN>
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. 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.
3. On October 19, 2000, the Marathon Group 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 tax 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.
MARATHON 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
- -------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS
Exploration & Production ("E&P")
Domestic $305 $168 $783 $299
International 160 33 347 62
----- ----- ------ -----
Income For E&P Reportable Segment 465 201 1,130 361
Refining, Marketing & Transportation (a) 299 236 968 509
Other Energy Related Businesses (b) 12 13 25 47
----- ----- ------ -----
Income For Reportable Segments $776 $450 $2,123 $917
Items Not Allocated To Segments:
Administrative Expenses $(48) $(26) $(105) $(83)
Inventory Market Valuation Reserve Adjustment - 136 - 551
Estimated Loss on Sale of Assets - (10) - (33)
Gain on Disposition of Angus/Stellaria - - 87 -
Gain on Ownership Change In MAP 1 11 9 11
------ ------ ------ ------
Marathon Group Income From Operations $729 $561 $2,114 $1,363
CAPITAL EXPENDITURES
Exploration & Production $153 $184 $553 $594
Refining, Marketing & Transportation (a) 149 107 315 226
Other (c) 0 4 10 7
----- ----- ----- -----
Total $302 $295 $878 $827
EXPLORATION EXPENSE
Domestic $33 $26 $84 $92
International 18 14 58 70
----- ----- ----- -----
Total $51 $40 $142 $162
INVESTMENTS IN EQUITY AFFILIATES - NET $4 $49 $58 $105
OPERATING STATISTICS
Net Liquid Hydrocarbon Production (d):
United States 129.4 138.6 131.7 143.4
Europe 26.3 28.7 28.2 32.3
Other International 42.8 24.4 37.3 28.4
------ ------ ------ ------
Total Consolidated 198.5 191.7 197.2 204.1
Equity Affiliates (CLAM & Sakhalin Energy) 24.4 2.4 9.1 0.9
------ ------ ------ ------
Worldwide 222.9 194.1 206.3 205.0
Net Natural Gas Production (e):
United States 715.5 730.9 726.1 747.2
Europe (f) 306.2 291.1 333.1 345.5
Other International 144.8 149.1 144.8 169.7
------ ------ ------- -------
Total Consolidated 1166.5 1171.1 1204.0 1262.4
Equity Affiliate (CLAM) 21.4 25.1 28.0 32.0
------- ------- ------- -------
Worldwide 1187.9 1196.2 1232.0 1294.4
Average Equity Sales Prices (g) (h):
Liquid Hydrocarbons (per Bbl)
Domestic $26.58 $17.78 $24.85 $13.48
International 28.84 19.56 26.87 14.80
Natural Gas (per Mcf)
Domestic $3.61 $2.22 $2.90 $1.83
International 2.59 1.80 2.47 1.81
Crude Oil Refined (a) (d) 928.4 940.4 915.0 909.5
Refined Products Sold (a) (d) 1350.0 1301.4 1304.6 1227.9
Matching buy/sell volumes included in refined
products sold (a) (d) 43.5 55.8 55.3 50.0
MAP Merchandise Sales (a) $638 $561 $1,786 $1,545
- --------------
(a) Includes MAP at 100%. RM&T income for reportable segments includes
Ashland's 38% interest in MAP of $114 million, $93 million, $372 million
and $202 million in the third quarter and nine month year-to-date 2000
and 1999, respectively.
(b) Includes domestic natural gas and crude oil marketing and
transportation, and power generation.
(c) Includes other energy related businesses and corporate capital
expenditures.
(d) Thousands of barrels per day
(e) Millions of cubic feet per day
(f) Includes gas acquired for injection and subsequent resale of 9.3,
16.0, 11.7 and 20.8 mmcfd in the third quarter and nine month year-to-
date 2000 and 1999, respectively.
(g) Prices exclude gains and losses from hedging activities.
(h) Prices exclude equity affiliates and purchase/resale gas.
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*
- -------------------------------------------------------------------------------
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.
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
- --------------------------------------------------------------------------------
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.
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.