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
<FN>
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%
- ------------
<FN>
(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
<FN>
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.